Contract, Tort, or the Statute Behind Door #1? Making a Deal on Statutes of Limitation.

Posted on January 16th, 2014 by sutter-admin

The Tennessee Supreme Court is poised to dispense some more wisdom on statutes of limitation, as it recently granted cert in the matter of Benz-Elliott v. Barrett Enterprises, LP, 2013 Tenn. Lexis 1038 (Tenn December 11, 2013). In this case, a landowner, Elliott, sold a portion of her parcel to a neighboring firearms manufacturer (Barrett). Contained in the contract of sale was a provision providing that Elliott would retain a small strip of land along Interstate 24 to ensure access to a frontage road on that side of her property.

​Barrett conducted the necessary surveys and had the deed prepared, but the deed did not include the agreed provision regarding road access. Elliott did not notice and the sale closed on March 25, 2005. Barrett undertook an expensive expansion of its facility, making specific performance impossible. In November or December of 2007, Elliott contacted an attorney, concerned that she did not have the promised road access. In September of 2008, she filed suit against Barrett for breach of contract, negligent misrepresentation, and fraud.

​The trial court dismissed Elliott’s tort claims, but found that she had met her burden of proof on her breach of contract claim, since Elliott did not retain the strip of land shown in the contract. The trial court ruled that specific performance was impossible, and awarded Elliott $850,000.00 in damages. The award was later reduced to $650,000.00 based on post-judgment motions, this amount reflecting, in the court’s view, the dimunition in value of Elliott’s property.

​On appeal, Barrett argued the Plaintiff’s claim was barred by the three-year statute of limitations for injury to property, T.C.A. § 28-3-105(1). Plaintiff countered that the six-year statute of limitations for breach of contract at T.C.A. § 28-3-109(a)(3) applied, and that in any event the statute did not begin to run until Plaintiff first met with an attorney and discovered the deed did not contain the frontage road provisions. The Court of Appeals quickly kicked aside the Plaintiff’s argument regarding when the statute of limitations began to run, and ruled the statute of limitations for injury to property applied, holding that “[t]he gravamen of an action, not whether it is brought in the form of an action in tort or an action for breach of contract, will determine the appropriate statute of limitations”. Benz-Elliott v. Barrett Enterprises, LP, 2013 Tenn. App. LEXIS 482, 15 (Tenn. Ct. App. July 29, 2013). And “‘[t]o determine the gravamen, or ‘real purpose of an action, the court must look to the basis for which damages are sought.’” Id. Since the Plaintiff ultimately sought damages based on a decrease in the value of property, this was an action for injury to property and barred by the statute of limitations. Elliott, by electing to pursue damages for dimunition in value, had bargained her way out of a lawsuit. This is a peculiar decision, since the monetary award was the court’s second choice, based on necessity and the impossibility of specific performance. Can a savvy defendant really choose the applicable statute of limitations by taking actions to thwart certain potential remedies?

​The Tennessee Supreme Court has now granted cert. It will be interesting to see how it decides this case, especially in light of its previous decision in Alexander v. Third Nat’l Bank, 915 S.W.2d 797 (Tenn. 1996). In that case, a developer sued a bank for failure to lend an amount agreed upon in a contract, causing alleged damages including additional interest costs, loss of rent from the property during the delay of development, and additional costs for renovation of the property. The Supreme Court ruled the damages did not include any actual dimunition in the value of the property, just diminished in anticipated profits as the result of a breach of contract. So, the 6-year statute applied. Left unsaid is whether, had the developer failed to finish construction thereby leaving half-developed buildings on his property, an action for breach of contract resulting in dimunition of value would have been barred by the 3-year statute.

​The Court of Appeals’ decision is a good reminder for defense attorneys confronting cases that seem to present a mixture of contract and tort to look beyond the language used by plaintiffs to describe the cause of action when first evaluating whether a statute of limitations defense may apply. It’s also a good reminder to plaintiff’s attorneys to consider the choices they’re making when they write those prayers for relief. Just throwing everything at the wall could get you the Zonk behind Door #1. These lessons are worthwhile regardless of how the Supreme Court rules in Benz-Elliott.