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August 29, 2014

A Fool With a Pen Makes Good Law

It is a basic principle of Tennessee law – the fool with the pen is responsible for everything he signs.  The case of Shearer v. McArthur illustrates this maxim. 

In 2006, Mr. and Mrs. Shearer attended an event sponsored by the developers of the Rarity Club on Lake Nickajack subdivision.  The purpose of this event was to sell lots in the subdivision.  Mr. and Mrs. Shearer expressed interest in purchasing a waterfront lot in the subdivision, but informed the sales person that they had some concerns and were not ready to commit that day. 

What does a good salesperson do?  You have an interested prospect, but you know that if they leave chances are they will change their mind.  So, you bring in reinforcements – in this case, the developer’s sales manager.  The sales manager assures the Shearers that the value of the lot will increase.  In fact, he is so confident of the increase that he is willing to buy back the property at the original sales price.  The sales agent, presumably in order to close the sale and earn his commission, agrees to this buyback deal also. The Shearers, the sales agent and the sales manager sign a document that says:

At any time the 1st party of Fred McArthur and Robert Young will buy back the homesite #142 at the same price it was sold at the priority selection event at Rarity Club on Lake Nickajack on December 9, 2006.  Cost $441,000.

The document was signed by all parties, and the Shearers purchased the lot in January of 2007.

By 2010, the Shearers decided that they really did not want to keep the lot, and they sent a letter to Mr. McArthur and Mr. Young reminding them of their agreement.  Apparently, Mr. McArthur and Mr. Young did not wish to honor that agreement.  This lawsuit ensued.

The defendants asserted several defenses, but only one merits real discussion.  That defense was that Shearers failed to exercise the option contract within a reasonable time.  Initially, the Court of Appeals noted that the document stated that it could be exercised “at any time.”  Therefore, it implied that “any time” really means “any time.” 

But, the court relied upon another maxim of contract construction.  It noted that when the time for performance is not definite, courts in Tennessee impose a “reasonable time standard.”  The court noted that the option agreement was signed on December 9, 2006 and the option was exercised in January of 2010.  This period of “a little more than three years” was within a “reasonable time.” 

The court did not stop there.  The court also noted that the statute of limitations for contracts is six (6) years, and the option was exercised within that period.  Implied in this decision is that the limitations period will always be a “reasonable time” unless there is “unreasonable delay” and prejudice to the defendant.  That, of course, is the basis of the defense of “gross laches.”   In this case, gross laches did not apply as there was no “unreasonable delay.” 

THE MORAL OF THIS STORY:  It is always better to exercise your options sooner than later, always within a reasonable time, and never in a prejudicial time.

SHEARER V. MCARTHUR, M2012-00584-COA-R3-CV (Tenn. Ct. App. Nov. 5, 2012)

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