## Facts

- Rodney and Margaret Heaton (the Heatons) agreed to sell, and Loeb Properties, Inc. (Loeb) agreed to buy, approximately 4.18 acres of commercial property in Princeton, Kentucky for $700,000 under a written Real Estate Purchase Agreement executed in October 2008.
- Loeb deposited $50,000 in earnest money into an escrow account maintained by the law firm Bourland, Heflin, Alvarez, Minor & Matthew, PLC (Bourland Heflin), which served as escrow agent/stakeholder.
- The agreement provided a 90-day inspection period during which Loeb could terminate and recover its deposit based on inspection and due-diligence matters tied to the property and its suitability (e.g., soil, zoning, utilities, and similar items).
- The agreement also included an “adverse conditions” provision addressing adverse changes occurring after the inspection period ended but before closing, which Loeb contended permitted termination if conditions materially worsened.
- In March 2009, after the inspection period had expired, Loeb sent the Heatons a letter terminating the agreement based on “the current state of the economy” and Loeb’s expected difficulty securing retail tenants for its planned development.
- The Heatons refused to release the earnest money, asserting Loeb had no contractual right to terminate for general economic conditions and tenant-leasing risk.
- Because Loeb and the Heatons made competing demands for the escrowed funds, Bourland Heflin filed an interpleader action and deposited the remaining escrow balance with the court.
- Loeb and the Heatons filed cross-motions for summary judgment. The trial court granted summary judgment to Loeb, ruled that the adverse-conditions clause justified Loeb’s termination, and awarded Loeb attorney’s fees and expenses under the contract.
- The Heatons appealed.

## Issues

1. Did the contract’s 90-day inspection/feasibility termination right permit Loeb to terminate after that period based on a poor economy and anticipated difficulty obtaining retail tenants?
2. Did the contract’s adverse-conditions clause permit Loeb to terminate after the inspection period based on general economic conditions and tenant-leasing concerns where the economic crisis predated the contract?
3. If Loeb’s termination was not authorized, which party was entitled to the $50,000 earnest-money deposit?
4. Which party was entitled to recover attorney’s fees and expenses under the contract’s fee provision?

## Decision

- The Court of Appeals reversed the trial court’s grant of summary judgment to Loeb and entered summary judgment for the Heatons.
- The court held that neither the inspection clause nor the adverse-conditions clause gave Loeb a right to terminate the contract for general economic conditions or the buyer’s anticipated tenant-leasing difficulty.
- The court ruled that the Heatons were entitled to the full $50,000 earnest-money deposit, including the funds on deposit with the court (the remaining escrow balance) plus an additional payment from Loeb to bring the total to $50,000.
- The court held the Heatons were the prevailing party and awarded them attorney’s fees and expenses for the trial court proceedings and the appeal, remanding for determination of the amount.

## Legal Principles

- Summary judgment is reviewed de novo, with no presumption of correctness, and is proper only when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law.
- Contract interpretation focuses on the parties’ intent as expressed in the written agreement; when the language is unambiguous, courts apply the plain meaning and do not rewrite the contract to shift risks not allocated by the parties.
- A limited inspection/feasibility termination right aimed at property-related due diligence does not, without clear language, provide a post-inspection right to cancel based on market conditions or the buyer’s business plan.
- An adverse-conditions clause is read in context and typically addresses adverse changes occurring during the defined post-inspection, pre-closing window; conditions that existed before contracting are not treated as new adverse changes absent express language.
- General economic risk and the buyer’s difficulty securing tenants are commercial risks that remain with the buyer unless the contract expressly assigns them to the seller.
- When a party lacks a contractual basis to terminate and the contract specifies earnest money as the seller’s remedy, the seller is entitled to the deposit.
- A prevailing-party attorney-fee clause is enforceable according to its terms; once the prevailing party is identified, fees may be awarded for both trial and appellate proceedings if covered by the contract.

## Conclusion

The Tennessee Court of Appeals held that Loeb could not terminate the purchase agreement after the inspection period based on a weak economy and expected tenant-leasing problems, because those reasons were outside the contract’s inspection and adverse-conditions provisions and the economic downturn predated the agreement; the sellers were awarded the full $50,000 earnest-money deposit and contractual attorney’s fees and expenses, with the case remanded only to set the fee amount.


Bourland, Heflin, Alvarez, Minor & Matthew, PLC v. Heaton, 393 S.W.3d 671 (2012)