TWB ARCHITECTS, INC. v. THE BRAXTON, LLC ET AL.
No. M2017-00423-SC-R11-CV
IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE
February 6, 2019 Session; July 22, 2019
SHARON G. LEE, J.
Aрpeal by Permission from the Court of Appeals; Chancery Court for Cheatham County; No. 14181; David D. Wolfe, Judge
SHARON G. LEE, J., delivered the opinion of the Court, in which JEFFREY S. BIVINS, C.J., CORNELIA A. CLARK, HOLLY KIRBY, and ROGER A. PAGE, JJ., joined.
William R. O‘Bryan, Jr., and Kevin C. Baltz, Nashville, Tennessee, for the appellаnts, The Braxton, LLC, and Fidelity and Deposit Company of Maryland.
Donald N. Capparella, Nashville, Tennessee, for the appellee, TWB Architects, Inc.
OPINION
Background
In February 2005, TWB Architects, Inc., through its president and sole owner, Timothy W. Burrow, signed an agreement (“Architect Agreement“) with Progress Capital Partners, LLC, through its sole member and chief manager, John Rankin. Under the Architect Agreement, TWB Architects agreed to provide design services for the construction of a condominium complex, known as “The Braxton,” in Ashland City. Progress Capital Partners agreed to pay TWB Architects a fee for its design services based on two percent of the construction costs for the project, with progress payments based on an hourly rate billed monthly before construction.1
Progress Capital Partners failed to obtain sufficient financing for the project. In early May 2005, Mr. Rankin advised Mr. Burrow that the construction budget could not covеr TWB Architects’ fee. Mr. Rankin proposed that Mr. Burrow accept a condominium in the project as payment for the architect firm‘s fee. Mr. Burrow, with the consent of TWB Architects, agreed.
Later, Progress Capital Partners deeded the property on which the project was located to The Braxton, LLC (“Braxton“), a company formed by Mr. Rankin.2 On February 16, 2006, Braxton and Mr. Burrow agreed in writing (“Condominium Agreement“) for Mr. Burrow to buy Penthouse P6 for “$0 in consideration of design
After June 2005, TWB Architects stopped sending Braxton monthly invoices for progress payments. By May 2006, TWB Architects had substantially completed its design work. During construction of the project, Mr. Rankin routinely submitted Loan Advance Requisition forms and Sworn Owner‘s Statements to the bank financing the project. Mr. Rankin signed the Sworn Owner‘s Statements, verifying that there were no unpaid architect fees because he understood there were no fees owed to TWB Architects based on the Condominium Agreement.
During construction of the project, Mr. Burrow spent nearly $40,000 for upgrades to Penthouse P6, which he referred to as “my penthouse.” He corresponded with the general contractor and with Mr. Rankin about specific upgrades to customize Penthouse P6, which included cabinets, granite, tile, lighting, mantles, hearths, doors, wiring, and a unique floorрlan.
On November 3, 2008, the day before the extended closing deadline under the Condominium Agreement, Mr. Burrow wrote to Mr. Rankin demanding to close the next day. In addition, Mr. Burrow stated that if Braxton failed to meet the closing deadline, then Mr. Burrow would treat the Condominium Agreement “as continuing in full force and effect, and require specific performance of [Braxton] to deliver a deed.” He mentioned neither the Architect Agreement nor the design fee.
A week later, Mr. Burrow wrote to Mr. Rankin to clarify “instead of TWB Architects, Inc. receiving cash for the design fee of 2 percent of construction cost as set forth in the . . . [Architect Agreement], I will be given Penthouse P6 and the boat slip.” He asked Mr. Rankin to sign at the bottom of the letter to confirm the terms stated in the letter, but Mr. Rankin did not do so.
On November 11, 2008, Mr. Burrow emailed Mr. Rankin, asking whether he had told the bank that the proceeds from the condominium sale to Mr. Burrow would be zerо dollars. Mr. Rankin replied that he had told the bank that Mr. Burrow would need to be paid two percent or receive his condominium unit, and that Mr. Burrow had invested tens of thousands of dollars in the condominium. Mr. Rankin later admitted in a 2010 deposition that he told the bank something different—that Mr. Burrow was “our design architect, and he‘s getting this unit for his fees.”
On November 25, 2008, Mr. Burrow wrote to Robert Holland, an attorney for Braxton, stating that Mr. Burrow had entered into a Condominium Agreement for
On December 27, 2008, Mr. Burrow moved into Penthouse P6 although there had been no closing. He later advertised it for rent “by owner” and leased it for a short time before moving back in and using the condominium as his personal residence. On January 2, 2009, Mr. Burrow wrote to Mr. Holland stating that he had moved into his penthouse and that “it [was] beautiful.” He also expressed concern that sales of other units had not closed, the condominium complex looked like a “ghost town,” and potential buyers might back out. Mr. Burrow offered his services as an attorney to assist with the situation, stating he would “invest my time to protect my investment in my penthouse.”4
On January 6, 2009, Mr. Burrow emailed Mr. Rankin asking if there was any reason why he should not send a letter to Mr. Holland again requesting to close on the condominium and stating that “[t]he condo is my payment for architectural work done on The Braxton, and until clоsing occurs, I have insufficient security for being paid.” Mr. Burrow did not send the proposed letter; instead, the next day he wrote Mr. Holland asking when Braxton intended to complete his condominium, emphasizing that he wanted to close on it as soon as possible. Mr. Burrow gave Mr. Holland until Friday, January 9, 2009, to provide a date for closing or to provide a reason why closing could not occur by the end of the following week, January 16, 2009.
On January 13, 2009, Mr. Burrow, suspecting that Braxton would not deed the condominium to him, notified Mr. Holland in writing that TWB Architects had retained Mr. Burrow‘s firm to represent it concerning services provided by TWB Architects under the Architect Agreement. Mr. Burrow stated that TWB Architects had a claim against the owner of the project for $882,526.14, which was two percent of the construction cost.5
Mr. Burrow also stated that if the claim was satisfied by January 19, 2009, or if Braxton provided proper assurances it would be satisfied, then TWB Architects would not file a mechanic‘s lien. Mr. Burrow further noted that Braxton could satisfy the claim by transferring ownership of Penthouse P6 to him. This letter, written on Mr. Burrow‘s law firm letterhead, was the first time that Mr. Burrow mentioned the Architect Agreement or the fee in his communications with Mr. Holland.
On January 22, 2009, Mr. Burrow wrote Mr. Rankin purporting to state their understanding when they entered into the Condominium Agreement. This letter differs significantly from the letter Mr. Burrow had written on November 10, 2008, for the same stated purpose. In the January 2009 letter, Mr. Burrow said that the Condominium Agreement was intended to provide an additional means to pay for the services of TWB Architects. He further
On January 23, 2009, Mr. Burrow wrote Mr. Holland about a telephone conversation on January 15, 2009, in which Mr. Holland had explained that the closing on the condominium was delayed because the bank had an assignment on the sales contracts, and there was no challenge to TWB Architects or Mr. Burrow‘s position about having the condominium deeded to him.6 Mr. Burrow stated that he would be filing a mechanic‘s lien against the property on February 3, 2009, unless he received written assurance that Braxton would deed the condominium to him.
On February 23, 2009, Mr. Burrow emailed Mr. Holland to advise him that Mr. Burrow was ready to close that week on the condominium even though certain items, such as appliances, carpet, and shelving were unfinished. He also stated that in two days TWB Architects would be filing a lien, which it could release at closing and that TWB Architects reserved its right to take cash for the $882,526.14 fee rather than have the condominium deeded to Mr. Burrow. Finally, he stated that “taking cash becomes a more attractive option, if not the only viable option, as time passes on.”
On February 25, 2009, Mr. Burrow learned from an attorney for the bank that Braxton had pledged his condominium as part of the collateral for the construction loan. The next day, TWB Architects filed a mechanic‘s lien for its two percent design fee in the amount of $882,526.14 (later revised to $888,258.18) as provided for in the Architect Agreement. Mr. Burrow lived in Penthouse P6 until moving out in late 2009 after the Chancery Court for Davidson County in May 2009 gave a receivеr the right of possession to every condominium in the project, including Penthouse P6.
Litigation – TWB I
In March 2009, while Mr. Burrow was still living in Penthouse P6, TWB Architects sued Braxton to enforce its lien.7 Fidelity and Deposit Company of Maryland, the obligor on the surety bond Braxton filed to discharge the lien, was added as a defendant in April 2009. We refer to the defendants collectively as “Braxton.”
In January 2013, Braxton moved for summary judgment based, in part, on the affirmative defense of novation, arguing
In his affidavit signed on June 11, 2009, Mr. Rankin stated that the parties intended for the obligations under the Condominium Agreement to substitute for the obligations under the Architect Agreement. He also stated that all parties understood that the Cоndominium Agreement would discharge all obligations owed under the Architect Agreement and would extinguish all rights of the parties under the Architect Agreement.
Mr. Rankin‘s March 23, 2010 deposition tracked his June 2009 affidavit. He testified that the purpose of his affidavit had been to state that the parties intended for the Condominium Agreement to create a novation and to clear up any confusion caused by his correspondence with Mr. Burrow. Mr. Rankin wanted to make clear that Mr. Rankin intended to pay TWB Architects’ fee by conveying the condominium to Mr. Burrow instead of paying the architect fee because of insufficient funding. Mr. Rankin testified that the Architect Agreement was no longer the agreement between the parties, and that the Condominium Agreement replaced the obligations under the Architect Agreement, causing a novation.
Mr. Rankin claimed that even though he had signed the bottom of Mr. Burrow‘s letter dated January 22, 2009, as requested, the contract documents did not say anything about Mr. Burrow unilaterally choosing which payment method to accept. Mr. Rankin also testified that he thought Mr. Burrow decided he needed to set forth a different intent than the one he had expressed in his letter dated November 10, 2008, because by January 2009, it looked like he would have trouble getting his condominium. Mr. Rankin explained that Braxton had pledged Penthouse P6 along with other condominium units to the bank as collateral, but he and Mr. Burrow thought the condominium would be available to Mr. Burrow after Braxton paid the bank. Mr. Rankin characterized it as “just a bad credit decision, a bad economic reality” that Mr. Burrow did not get his condominium, and Mr. Rankin said he was sorry for that.
TWB Architects filed a cross-motion for summary judgment, supported by Mr. Burrow‘s affidavit attesting that he never intended for TWB Architects to relinquish its right to payment if Braxton did not deed the condominium to Mr. Burrow; he and Mr. Rankin nеver discussed whether the conveyance of the condominium would extinguish TWB Architects’ rights under the Architect Agreement; TWB Architects never agreed to surrender its rights under the Architect Agreement and was never asked to do so; and Mr. Burrow never even considered that anyone would contend that if he received nothing, TWB Architects would also receive nothing.8
The trial court granted Braxton‘s motion for summary judgment and denied TWB Architects’ cross-motion, holding that the Condominium Agreement created a novation. The Court of Appeals reversed the trial court‘s ruling and remanded the case, finding that the record contained facts
Litigation – TWB II
After the Court of Appeals remanded the case, Mr. Rankin changed his testimony, siding with TWB Architects and claiming there was no novation. Testimony from the November 2015 supplemental depositions of Mr. Rankin and Mr. Burrow reveals that in October 2011, Mr. Rankin was arrested in Cheatham County on bad check charges. Mr. Burrow visited Mr. Rankin in jail, provided “emotional support,” and contributed money to a fund that had been set up to help Mr. Rankin hire a lawyer and get out of jail. In September 2013, Mr. Burrow paid $5,000 to help with Mr. Rankin‘s legal expenses. Next, Mr. Burrow loaned Mr. Rankin $48,000.9 Later, when Mr. Rankin needed more funds to pay restitution, have his record expunged, avoid spending more time in jail and risking a criminal trial, Mr. Burrow advanced $36,500 through Mr. Rankin‘s attorney to the Cheatham County Circuit Court Clerk. A loan agreement, dated December 23, 2013, provided that an “anonymous entity” had advanced $84,500 to Mr. Rankin. The anonymous entity was Mr. Burrow, and the amount of the loan represented payments of $48,000 to Mr. Burrow and $36,500 for costs relating to Mr. Rankin‘s criminal charges.
After receiving Mr. Burrow‘s payments of over $84,000, Mr. Rankin nо longer believed that the parties intended a novation with the Condominium Agreement. On February 8, 2013, Mr. Rankin signed an affidavit, at Mr. Burrow‘s request, to “clarify” his prior testimony. In this affidavit, Mr. Rankin denied that he and Mr. Burrow had ever discussed that the obligations under the Condominium Agreement would extinguish the Architect Agreement. Mr. Rankin then signed additional affidavits, again at Mr. Burrow‘s request, contradicting sworn statements in Mr. Rankin‘s 2009 affidavit and 2010 deposition. In his 2015 deposition, Mr. Rankin insisted that the parties intended for the Condominium Agreement to discharge all obligations owed under the Architect Agreement only if the obligations under the Condominium Agreement were satisfied with the condominium being deeded to Mr. Burrow. Mr. Rankin also stated that he had misunderstood the meaning of novation when he gave his 2010 deposition. Mr. Rankin signed affidavits to the same effect on May 5, 2014, and August 26, 2014.
In March 2016, TWB Architects filed a motion for summary judgment supported by exhibits, including a copy of the Architect Agreement; Mr. Burrow‘s April 2013 and July 2013 affidavits; and Mr. Rankin‘s June 2009 affidavit.
The trial court10 granted TWB Architects’ motion for summary judgment. Braxton appealed, arguing, in part, that a reasonable jury could find that the Condominium Agreement was a novation.11 The Court of Appeals affirmed summary judgment
Analysis
The primary issue we address in this appeal is whether the trial court properly granted summary judgment to TWB Architects. Before we begin our review of this issue, we need to clarify our scope of review, state the applicable summary judgment standard, and resolve TWB Architects’ argument that Braxton did not comply with
Scope of Review
Our scope of review on appeal is limited to the issues raised in Braxton‘s
Summary Judgment Standard
A trial court should grant summary judgment when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
In Rye, we stated our holding as follows:
When the moving party does not bear the burden of proof at trial, the moving party may satisfy its burden of production either (1) by affirmatively negating an essential element of the nonmoving party‘s claim or (2) by demonstrating that the nonmoving party‘s evidence at the summary judgment stage is insufficient to establish the nonmoving party‘s claim or defense.
In Rye, we intended to “correct course, overrule Hannan [v. Alltel Publ‘g Co., 270 S.W.3d 1 (Tenn. 2008)], and fully embrace the standards articulated in the Celotex trilogy.” Id. Hannan‘s summary judgment standard that “a moving party who [does
We intended for the summary judgment standard adopted in Rye to apply to all parties, no matter which party filed the motion for summary judgment. Here, the Court of Appeals incorrectly stated that the Hannan summary judgment standard, not the Rye standard, applies when the plaintiff files a motion for summary judgment. TWB Architects, Inc., 2018 WL 638251, at *4 n.6 (citing Cardinal Health 108, Inc. v. E. Tenn. Hematology-Oncology Assocs., P.C., No. E2015-00002-COA-R3-CV, 2016 WL 158090, at *2 n.1 (Tenn. Ct. App. Jan. 14, 2016)).
Confusion about the applicability of the Rye standard may have arisen from language in Rye based on its procedural posture. In Rye, the defendants moved for summary judgment, and we framed our holding as the standard to be applied when the moving party who does not bear the burden of proof at trial (the defendant) moves for summary judgment. Rye, 477 S.W.3d at 264. But we did not intend to limit the Rye summary judgment standard only to cases in which a defendant files for summary judgment. We can only effectuate our Rye summary judgment course correction if our holding applies equally to plaintiffs and defendants.
As a result, the Rye summary judgment standard applies whether the moving party is a plaintiff or a defendant and without regard to which party has the burden of proof at trial.12
Tennessee Rule of Civil Procedure 56.03
TWB Architects argues that Braxton did not comply with
TWB Architects also contends that the Court should disregard facts in Braxton‘s brief that Braxton failed to include in its response to TWB Architects’
Novation
The primary issue here is whether the trial court properly granted summary judgment to TWB Architects. Braxtоn argues that TWB Architects was not entitled to summary judgment because the parties created a novation by executing the Condominium Agreement with the intent that it would substitute for and replace the
Novation is the substitution of a new obligation for an existing one or the substitution of a third party for the existing obligor. 30 Williston on Contracts § 76:1 (4th ed.) (May 2019 Update); see also 58 Am. Jur. 2d Novation § 1 (May 2019 Update) (defining “novation” as “a mutual agreement between the parties concerned for the discharge of a valid existing obligation by the substitution of a new valid obligation or by the substitution of one debtor or of one creditor for another“). The Restatement (Second) of Contracts and some other sоurces distinguish between “novation” and “substituted contract,”14 but courts in Tennessee have historically used them synonymously. See, e.g., Pacific Eastern Corp. v. Gulf Life Co., 902 S.W.2d 946, 958 (Tenn. 1995) (citing Sharp v. Fly, 68 Tenn. 4, 10 (1876); Blaylock v. Stephens, 258 S.W.2d 779, 781 (Tenn. Ct. App. 1953); Restatement (Second) of Contracts § 280 (1979); 15 Samuel Williston, A Treatise on the Law of Contracts § 1865 at 585, 587 (3d ed. 1972)); Rhea v. Marko Constr. Co., 652 S.W.2d 332, 334 (Tenn. 1983); Crabb v. Cole, 84 S.W.2d 597, 600 (Tenn. Ct. App. 1935); Henry v. Nubert, 35 S.W. 444, 447–48 (Tenn. Ch. App. 1895).15
The effect of a novation is that the original contract becomes a nullity, and the new agreement determines the rights and duties of the parties. The parties cannot revert back to the extinguished contract even if one party later breaches the new agreement. 66 C.J.S. Novation § 29 (June 2019 Update); see also Pacific Eastern, 902 S.W.2d at 959 (citing Blaylock, 258 S.W.2d at 781) (“A novation extinguishes the original contract.“); In re Cohen, 422 B.R. 350, 372–73 (E.D.N.Y. 2010) (citing Nat‘l Am. Corp. v. Fed. Republic of Nigeria, 448 F. Supp. 622, 643 (S.D.N.Y. 1978), aff‘d, 597 F.2d 314 (2d Cir. 1979)) (“A party injured by breach of a novation may only seek relief under the substitute agreement.“); In re Miller, 54 B.R. 710, 712 (Bankr. D.N.D. 1985) (stating that after a novation, “the parties’ obligations . . . are defined by the new agreement irrespective of whether the agreement is later breached“).
The party seeking to establish a novation must show “(1) a previously valid obligation, (2) the agreement of all parties to a new contract, (3) the extinguishment of the old contract, and (4) a valid new contract.” 21 Steven W. Feldman, Tennessee Practice Series Contract Law and Practice § 3:42 (May 2019 Update); see also Crabb, 84 S.W.2d at 600; 20 Tenn. Juris. Novation § 1 (2018). The most important factor in determining whether a novation has occurred is the intent of the parties, which must be clear and definite. 30 Williston on Contracts § 76:12; see also In re O‘Brien, 154 B.R. 480, 485 (Bankr. W.D. Tenn. 1993) (citing Bank of Crockett v. Cullipher, 752 S.W.2d 84, 89 (Tenn. Ct. App. 1988)); Commerce Union Bank v. Burger-In-A-Pouch, Inc., 657 S.W.2d 88, 90 (Tenn. 1983) (quoting First Nat‘l Bank of Sparta v. Hunter, 125 S.W.2d 183, 187 (Tenn. Ct. App. 1938)).
A novation is never presumed. Cent. State Bank v. Edwards, 111 S.W.2d 873, 880 (Tenn. Ct. App. 1937) (citing Sharp, 68 Tenn. at 9; Henry, 35 S.W. at 448; Braly v. Ragsdale, 3 Tenn. App. 205, 210 (1926)). The party asserting a novation bears the burden of proof. Rhea, 652 S.W.2d at 334; Dies v. Wilson Cnty. Bank, 165 S.W. 248, 249 (Tenn. 1914); Bank of Crockett, 752 S.W.2d at 89; Blaylock, 258 S.W.2d at 781.
The parties need not express in written form their intent to create a novation, and the parties need not state orally or in writing the rescission of the original contract. In re Edward M. Johnson & Assocs., Inc., 61 B.R. 801, 806 (Bankr. E.D. Tenn. 1986) (citing 58 Am. Jur. 2d Novation § 16 (1971); Cent. State Bank, 111 S.W.2d at 880), aff‘d in part, rev‘d in part on other grounds, 845 F.2d 1395 (6th Cir. 1988). Novation does not require express words such as “novation,” “discharge,” “extinguish,” “settlement,” or “release.” 58 Am. Jur. 2d Novation § 11.
The intent to create a novation may be inferred from the facts and circumstances surrounding the transaction and from the conduct of the parties. In re Edward M. Johnson, 61 B.R. at 806 (citing 58 Am. Jur. 2d Novation § 16; Cent. State Bank, 111 S.W.2d at 880); Bank of Crockett, 752 S.W.2d at 89 (quoting 20 Tenn. Juris. Novation § 3 (1985)); see also 30 Williston on Contracts § 76:12. Although the parol evidence rule prohibits the use of extrinsic evidence to vary, contradict, or supplement the terms of an integrated contract,16 it is appropriate to consider evidence of surrounding facts and circumstances to determine the intent of the parties. Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn., Inc., 566 S.W.3d 671, 697–98 (Tenn. 2019) (citing URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755, 765 (Tex. 2018)).
Thus, whether the parties intended a novation is ordinarily a question of fact that the trier of fact will determine. 30 Williston on Contracts § 76:43. The parties’ intent about novation is only established, as a matter of law, when the evidence is such that reasonable minds cannot differ about the effect of the new agreement. See Commerce Union Bank, 657 S.W.2d at 90 (quoting Hunter, 125 S.W.2d at 187) (“. . . whether a renewal note operates as a discharge of a note of which it is a renewal is dependent on the intention of the parties. It is a question of fact, not of law.“).
Tennessee courts have cautioned that when the dispositive issuе requires a determination of state of mind, “the jury should be given an opportunity to observe the demeanor, during direct and cross-examination, of the witnesses whose states of mind are at issue.” McDowell v. Moore, 863 S.W.2d 418, 421 (Tenn. Ct. App. 1992) (quoting Croley v. Matson Navigation Co., 434 F.2d 73, 77 (5th Cir. 1970)); see also HCA, Inc. v. Am. Prot. Ins. Co., 174 S.W.3d 184, 193 (Tenn. Ct. App. 2005) (quoting Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979)) (stating that summary judgment “is seldom appropriate in cases wherein particular states of mind are decisive as elements of [a] claim or defense” because determining a state of mind “depends entirely upon the conflicting inferences to be drawn from evidence so likely to be circumstantial or, if direct, self-serving“); Anderson v. Mason, 141 S.W.3d 634, 637 (Tenn. Ct. App. 2003) (citing Poole v. First Nat‘l Bank of Smyrna, 196 S.W.2d 563, 568–69 (Tenn. Ct. App. 1946); Price v. Allstate Ins. Co., 614 S.W.2d 377, 379 (Tenn. Ct. App. 1981); Jennings v. Case, 10 S.W.3d 625, 633 n.4 (Tenn. Ct. App. 1999); Morris v. Columbia Constr. Co., 109 S.W.3d 314, 317 (Tenn. Ct. App. 2003)) (“Even if [the defendant‘s] testimony was uncontradicted and unimpeached, her interest in the outcome of the case alone is sufficient to create an issue of fact for the jury.“); Knapp v. Holiday Inns, Inc., 682 S.W.2d 936, 941–42 (Tenn. Ct. App. 1984) (summary judgment is not appropriate if the outcome of the case “hinges squarely upon the state of mind, intent, or credibility of the witnesses“). If the nonmoving party raises genuine doubt about a witness‘s credibility by showing bias, prejudice, or interest, then summary judgment is not appropriate and the trier of fact should decide the case. Knapp, 682 S.W.2d at 942 (citing Sartor v. Ark. Natural Gas Corp., 321 U.S. 620, 628 (1944); 6 J. Moore, Moore‘s Federal Practice ¶ 56.15[4], at 56–524 (2d Ed. 1982)).
Here, the parties agree that the Architect Agreement was a prior valid agreement and the Condominium Agreement was a new valid agreement. The parties disagree about whether there is sufficient evidence of their intent, based on undisputed facts, to extinguish the Architect Agreement with the execution of the Condominium Agreement.
When the parties signed the Condominium Agreement, they did not express orally or in writing their intent to create a novation. The issue of the continued validity of the Architect Agreement only arose after TWB Architects realized that Braxton could not convey the penthouse condominium to Mr. Burrow. Thus, we look to the facts and circumstances surrounding the transaction and the conduct of the pаrties for inferences about their intent.
TWB Architects and Mr. Burrow‘s conduct and stated intention about the validity of the Condominium Agreement changed
Mr. Burrow acted as though he owned Penthouse P6. He invested nearly $40,000 in upgrades and repeatedly referred to Penthouse P6 as his penthouse. In December 2008, Mr. Burrow moved into the condominium and represented himself as its owner. Then for a short period of time, he leased the condominium and accepted payment of rent from a tenant. When Mr. Burrow moved back in, he continued to live in Penthouse P6 until late 2009, even after he sued Braxton to enforce his mechanic‘s lien.
But after Mr. Burrow realized that Braxton could not convey title to the condominium to him, Mr. Burrow changed course and began to rely on the Architect Agreement. In January 2009, Mr. Burrow proposed to Mr. Rankin in an email draft language for a letter to Mr. Holland stating that the condominium was his payment for the design fee and that until closing occurred, he had insufficient security for being paid. Two weeks later, Mr. Burrow wrote Mr. Holland and mentioned for the first time that he planned to file a mechanic‘s lien unless Braxton deeded the condominium to him. In February 2009, as it continued to become more apparent that Braxton would not deed the condominium to him, Mr. Burrow told Mr. Holland that taking cash seemed to be the more attractive option, if not the only viable option. In his 2015 deposition, Mr. Burrow said that when he signed the Condominium Agreement, he was sure that the condominium would be sold to him for “zero dollars.” Mr. Burrow added that had he known Braxton would pledge the condominium to the bank as part of the collateral for the construction loan, “that [would have] change[d] everything.”
Mr. Burrow filed affidavits stating that he never intended for the Condominium Agreement to act as a novation and extinguish the Architect Agreement and TWB Architects’ right tо the design fee provided for in the Architect Agreement. TWB Architects contends that this evidence is dispositive because Braxton can never prove a clear and definite intention of all the parties to extinguish the Architect Agreement. That said, Mr. Burrow‘s self-serving testimony after the fact suggests, but is not conclusive evidence of, his intent when he entered into the Condominium Agreement. If it were, no party could ever successfully assert the affirmative defense of novation.
From the evidence, it could be inferred that Mr. Burrow successfully recruited Mr. Rankin to change his testimony in favor of Mr. Burrow‘s position that there was no novation. Mr. Rankin first stated under oath that TWB Architects had no right to its fee because the parties intended a novation with the Condominium Agreement. In
But Mr. Rankin reversed course after receiving money from Mr. Burrow. When Mr. Rankin was in jail in October 2011, Mr. Burrow visited him, provided “emotional support,” and contributed money to help Mr. Rankin get out of jail and hire a lawyer. Mr. Rankin wrote to Mr. Burrow that Mr. Burrow‘s visits to the jail were “unforgettable” and that Mr. Burrow was “on the forefront of my thoughts as I find a way to sow what I have reaped.”
Mr. Burrow later paid $5,000 toward Mr. Rankin‘s legal expenses and loaned Mr. Rankin $48,000. Mr. Burrow then paid $36,500 in the form of a loan from an “anonymous entity,” which was Mr. Burrow, so that Mr. Rankin could pay restitution, have his record expunged, and avoid the risk of a conviction at trial and time in jail. Under the December 2013 loan, interest accrued at the rate of eighteen percent per year, and Mr. Rankin was to make monthly payments of $100 per month. Mr. Rankin admitted that he could not repay the $84,500 loan from the “anonymous entity.” He also admitted that the debt would increase monthly because the $100 monthly payment did not pay all of the interest that accrued each month.
While TWB I was pending in the Court of Appeals, Mr. Rankin and Mr. Burrow began discussing additional affidavits for Mr. Rankin to sign. In an email exchange, Mr. Rankin said that he would like to read the appellate brief filed by Braxton before settling on the content of the affidavits. Mr. Rankin also stated he had read TWB Architects’ brief and thought it was “very good and should do the trick.” He later said that the outcome of the case would be “really clоse . . . . But I know you‘ll win because you have so many of us praying for the just outcome.”
After the Court of Appeals remanded the case in TWB I, Mr. Rankin signed additional affidavits, at Mr. Burrow‘s request, contradicting his 2009 affidavit and 2010 deposition testimony. In 2015, Mr. Rankin testified by deposition that in his previous testimony, he had not understood what novation meant. Mr. Rankin also stated that the parties had intended for the Condominium Agreement to replace the Architect Agreement only if Braxton complied with the Condominium Agreement by conveying Penthouse P6 to Mr. Burrow. Now, according to Mr. Rankin, there was no novation and TWB Architects was entitled to its fee under the Architect Agreement.
Mr. Rankin‘s 2009 sworn statements supported Braxton‘s position that there had been a novation, and his 2015 sworn statements supported TWB Architects’ position that there had not been a novation. Mr. Rankin had nothing to lose by changing his story (other than his credibility). By 2015, Mr. Rankin had no ownership interеst in Braxton, had no stake in the outcome of this case, had filed for personal bankruptcy, and had received $84,500 from an “anonymous entity,” thinly disguised as Mr. Burrow. On the other hand, TWB Architects had a lot to gain (an architect fee of over $888,000) by Mr. Burrow‘s and Mr. Rankin‘s statements that the parties did not intend a novation.
Although Mr. Rankin‘s credibility is questionable, the “cancellation rule” does not, as TWB Architects asserts, completely nullify his testimony. When a witness makes contradictory statements about a single fact, those statements cancel each other out and are considered to be “no evidence” of that fact. Church v. Perales, 39 S.W.3d 149, 169–70 (Tenn. 2000) (citing Johnston v. Cincinnati New Orleans & Tex. Pac. Ry., 240 S.W. 429, 436 (Tenn. 1922); State v. Matthews, 888 S.W.2d 446, 449 (Tenn. Crim. App. 1993); Gambill v. Middle Tenn. Med. Ctr., 751 S.W.2d 145, 149–50 (Tenn. Ct. App. 1988)). The statements only cancel each other out, however, if the contradiction is unexplained and “neither statement can be corroborated by other competent evidence.” Church, 39 S.W.3d at 170 (citing Matthews, 888 S.W.2d at 450; Gambill, 751 S.W.2d at 151); see also 1 Neil P. Cohen et al., Tennessee Law of Evidence § 6.07[5] (6th Ed.) (Supp. 2017) (“No sensible decision holds that a witness‘s testimony on a fact is automatically discounted simply because the witness contradicted himself on that fact. Rather, the court assesses whether there is an explanation for the inconsistency and whether either version is corroborated by other evidence.“).
“When the cancellation rule is invoked at the summary judgment stage to challenge evidence opposing the motion, the courts must view the challenged evidence in the light most favorable to the opрonent of the motion.” Church, 39 S.W.3d at 170. The course of dealings and the communications between Mr. Rankin and Mr. Burrow provide evidence of Mr. Rankin‘s intent about the Condominium Agreement that raises a disputed issue of material fact.
Here, the evidence about the issue of novation is unclear and inconsistent. “Where there is conflicting evidence, the parties’ intent on a possible novation is a question of fact.” Lowe v. Smith, No. M2015-02472-COA-R3-CV, 2016 WL 5210874, at *7 (Tenn. Ct. App. Sept. 19, 2016) (citing 21 Steven W. Feldman, Contract Law and Practice § 3:43). This case is rife with conflicting evidence about whether Mr. Burrow and Mr. Rankin intended to replace the Architect Agreement with the Condominium Agreement. Their conduct after signing the Condominium Agreement suggests they may have intended
In sum, the parties’ conduct creates disputed issues of material fact concerning their intentions about the validity of the Architect and Condominium Agreements. Here, the material facts in dispute do not support a conclusion that reasonable minds could not find that the parties intended for the Condominium Agreement to extinguish TWB Architects’ right to a fee under the Architect Agreement. When viewed in the light most favorable to Braxton, as the summary judgment standard of review requires, the record is replete with issues of material fact from which a rational trier of fact could conclude that the Condominium Agreement created a novation. The self-serving testimony of Mr. Burrow, combined with thе contradictory testimony of Mr. Rankin, does not satisfy TWB Architects’ burden under Rye. See Rye, 477 S.W.3d at 264.
Conclusion
We hold that TWB Architects has no right to summary judgment because there are disputed questions of material fact about whether the parties intended a novation when they executed the agreement for the purchase of the penthouse condominium by Mr. Burrow. We reverse the Court of Appeals and the Chancery Court for Cheatham County and remand to the trial court for further proceedings consistent with this Opinion. We tax the costs to TWB Architects, Inc., for which execution may issue, if necessary.
SHARON G. LEE, JUSTICE
Notes
Progress payments will be made based on $150 per hour, plus expenses, but with a maximum of two (2) percent of construction costs. At the end of the Architect‘s Basic Services, if the amount paid is less than two (2) percent of the construction costs, payment will be made for the difference at the time the Owner begins construction. If the project is not constructed, there will be no obligation to pay more than $150 per hour, plus expenses.