The Court of Appeals of Tennessee upheld a judgment from the Chancery Court for Davidson County in favor of Castleton Capital Company, LLC, awarding a total of $207,545.02 to the Plaintiff, which included $134,127.65 for the loan deficiency and $73,417.37 in attorneys' fees. The suit arose after the Defendant, Lucius E. Burch, III, sought to contest his liability for a loan deficiency following the foreclosure of real estate he had purchased while serving as a director of Automotive Franchise Corporation (AFC). Burch claimed mutual mistake and negligent misrepresentation regarding cross-collateralization clauses in the loan documents connected to properties in Virginia and Georgia. These documents were executed in 1986, with both loans maturing by June 30, 1987, and secured by the respective properties. After AFC sold the Georgia property in 1988, the loan secured by it was paid off, but surplus funds were not allocated to the Virginia property loan. Burch later assumed the debt on the Virginia property in December 1988, but no payments were made when the note matured in 1995. The loan was subsequently transferred to Castleton Capital Company after Metropolitan Federal Savings and Loan Association entered receivership. The court affirmed the lower court's ruling without modification.
Demand for payment was made, but foreclosure on the real estate did not occur until June 1997, due to a stay from the Federal Bankruptcy Court related to Mr. Dockery. Prior to foreclosure, the Plaintiff notified the Defendant of claims exceeding $736,000, with $650,000 attributed to the foreclosure sale and an interest rate of 8.95%. The Defendant raised defenses against the enforceability of his Assumption Agreement, citing mutual mistake and negligent misrepresentation, arguing that the agreement incorrectly referenced a cross-collateralization involving Georgia real estate that had been sold before he assumed the debt for the Virginia property.
The Trial Court ruled there was no mutual mistake, noting that all witnesses, except Defendant Burch, were aware of the Georgia property sale, including the lender and Mr. Dockery himself. The Court highlighted that mutual mistake must involve a material fact that both parties were incorrectly informed about. The ruling referenced legal precedents establishing that mutual mistakes must be material and that unilateral mistakes do not justify rescission unless accompanied by fraud or misrepresentation. The Defendant's reliance on an unreported case was deemed insufficient to invalidate the Assumption Agreement, as the specifics of that case differed significantly from the current situation.
In Wilkey, the court identified the quantity of land as a critical issue, noting that both the buyer and seller were mistaken about the acreage involved in the transaction. In contrast, the current case centers on a loan assumption agreement where the Defendant, Burch, and another borrower took on an existing debt and secured additional funds. Unlike Wilkey, there was no ambiguity regarding the loan amount or repayment terms. It was established that the lender and co-borrower were aware that the Georgia property had been sold prior to the loan closing, and the failure to update the loan documents regarding this sale was deemed a clerical error.
The Trial Court determined that these issues were not material and that Burch had the ability to discover the true facts but relied on his co-borrower. Burch claimed ignorance of the property's sale, but the Trial Court found his testimony unconvincing, particularly given his position as a director of the company involved in the sale. The court applied a presumption of correctness to the Trial Court's findings, concluding that the legal principles from Wilkey were not applicable here.
Moreover, the Trial Court ruled that any potential claims of negligent misrepresentation by Burch were known or should have been known to him well before the suit was filed. Burch, being a director during the sale discussions, should have recognized the mention of the Georgia property in the Assumption Agreement he signed. The court held that Burch's knowledge of the property's sale precluded his claims, and the Trial Court's findings regarding the immateriality of the Georgia property and Burch's partnership with Dockery in the real estate matters were affirmed. Burch's argument of unilateral mistake and negligent misrepresentation was ultimately undermined by his knowledge of the sale, which nullified his defense.
The statute of limitations for negligent misrepresentation claims in Tennessee is governed by Tennessee Code Annotated §28-3-105, which imposes a three-year limit. In the case of Medical Education Assistance Corp. v. East Tennessee State University Quillen College v. Mehta, the court held that a physician's defense of negligent misrepresentation was barred because he did not raise the issue until after the three-year period, despite the claim arising from his signing of a contract. The current case involves a similar situation where the Defendant claims misrepresentation led him to sign a promissory note and loan documents. The court concluded that the facts are legally analogous to the Medical Education case and affirmed the Trial Court's finding that the Defendant's negligent misrepresentation defense is time barred. The judgment of the Trial Court is upheld, and the case is remanded for a determination of any additional attorneys' fees incurred since the previous award, with costs of the appeal taxed against the Appellant.
