                IN THE COURT OF APPEALS OF TENNESSEE

                                EASTERN SECTION                  FILED
                                                                      July 25, 1997

NATIONAL BOOK W AREHOUSE,                 )                   Cecil Crowson, Jr.
                                              C/A NO. 03A01-9702-CH-00057
                                                                 Appellate C ourt Clerk
INC.,                                     )
                                          )   KNOX CHANCERY
       Plaintiff-Appellant,               )
                                          )   HON. FREDERICK D. McDONALD,
v.                                        )   CHANCELLOR
                                          )
BOOK-MART OF FLORIDA, INC.,               )   AFFIRMED
                                          )   AND
       Defendant-Appellee.                )   REMANDED




F. DULIN KELLY and CLINTON L. KELLY, Hendersonville, for Plaintiff-
Appellant.

JOHN B. WATERS, III, LONG, RAGSDALE & WATERS, P.C., Knoxville, for
Defendant-Appellee.




                                     OPINION




                                                         Franks. J.




              In this declaratory judgment action, the plaintiff sought a declaration of

the respective rights of the parties under an agreement entered between plaintiff and

defendant, both of whom are engaged in the retail sale of books and related products.

              This action focuses on a provision in their agreement as follows:

              Book Warehouse grants to Book-Mart a thirty day right of first refusal
              with respect to any new location in Florida chosen for a “Book
              Warehouse.” That is, should Book Warehouse elect to establish, as is
              contemplated, other “Book Warehouse” retail facilities throughout the
              State of Florida, Book-Mart will be, and is hereby, granted exclusive
              right to assume operation of such “Book Warehouse” retail facilities by
              notifying Book Warehouse of its election to do so within thirty days of
              receipt of written notice by Bookmart from Book Warehouse of the
              intent to establish such a facility. No such notice shall be provided
              without including in said notice a specific proposal with respect to
              location and other pertinent aspects of the proposed operation in
              question. Should Book-M art elect to operate any such facility offered to
              it by Book Warehouse, Book-Mart shall, in addition to all other rights,
              be entitled to use the name “Book Warehouse” in operating said facility.

              The Chancellor, in declaring the rights of the parties, said in pertinent

part:

              [i]n all but one case, National Book Warehouse had executed a lease on
              a book store location, which was given to or shown to Book-Mart of
              Florida so that notice could be given of exercise of right of first refusal,
              that will continue.

                      In order to establish within the meaning of the agreement that
              National Book Warehouse has elected to establish a retail facility in
              Florida under the agreement it must enter into an agreement with the
              landlord. And that agreement, that lease, must be sent to Book-Mart of
              Florida, an accurate and complete copy of it containing all terms,
              including signatures, together with any and all other documents and
              information available to National Book Warehouse with respect to that
              lease. It should be a covered letter of some form of communication that
              indicates that this complete information is being given to Book-Mart of
              Florida. When that is done, that will constitute notice and the
              transmission should indicate that that is intended to be notice under the
              agreement. And from that communication, with all of that information,
              Book-Mart of Florida shall have 30 days within which to exercise its’
              right of first refusal.

              Essentially, the Chancellor required the parties to operate under the

terms of the agreement as they had until disputes and litigation erupted between them.

              The evidence established that plaintiff would, in fact, negotiate and

execute a lease before it could require the defendant to exercise its right of first

refusal under the agreement, and would then furnish all of the information, including

“economic information necessary to make a decision” to defendant. The Chancellor

relied heavily upon this evidence in declaring the rights of the parties, but plaintiff

insists that the agreement is not ambiguous, and the Chancellor, in effect, applied rules

of construction when no construction of the agreement was necessary.

              We observed at the outset that plaintiff’s action was based on a letter

written to defendant on June 15, 1995, attaching several “notice of intent to establish a

Florida facility”. Essentially, these notices contained an address, a leasing agent, and

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the approximate size of the facility. Defendant, in response, asked for more

information which was not furnished. Plaintiff’s witness conceded in his testimony

that while they had an interest in opening stores in these locations, with the one

exception no-one had actually visited the premises nor had they “elected” to open the

facilities. The Chancellor held that these notices were not sufficient to trigger the

running of the time for exercising a right of first refusal under the terms of the

agreement. We agree. These notices and the failure to respond to defendant’s inquiry

were not made in good faith on the part of plaintiff, and the Chancellor could have

properly refused to entertain this action. However, under the broad discretion

accorded the trial judge, it was within his discretion to declare the rights of the parties.

See Southern Fire & Casualty Company v. Cooper, 200 Tenn. 283, 292 S.W.2d 177

(1956).

              We cannot agree with plaintiff that the Chancellor could not take into

account the surrounding circumstances of the parties and their previous interpretations

of the agreement in arriving at his judgment. The relationship with the parties at best

was complex and now acrimonious. We believe the rule of practical construction is

applicable here.

              The Supreme Court in Hamblen County v. City of Morristown, 656

S.W.2d 331 (Tenn. 1983), in discussing the rule said:

              That rule, long recognized and applied in this jurisdiction, is that the
              interpretation placed upon a contract by the parties thereto, as shown by
              their acts, will be adopted by the court and that to this end not only the
              acts but the declarations of the parties may be considered. (Citations
              omitted).

                      The rule is stated in Section 235 of the Restatement of Contracts
              as follows:

                      “If the conduct of the parties subsequent to a manifestation of
                      intention indicates that all of the parties placed a particular
                      interpretation upon it, that meaning is adopted if a reasonable
                      person could attach it to the manifestation.”


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              Id. at 335.

Also applicable here is a principle which the Supreme Court aptly stated, as follows:

              “The court in interpreting words or other acts of the parties puts itself in
              the position which they occupied at the time the contract was made. In
              applying the appropriate standard of interpretation even to an agreement
              that on its face is free from ambiguity, it is permissible to consider the
              situation of the parties and the accompanying circumstances at the time
              it was entered into - not for the purpose of modifying or enlarging or
              curtailing its terms, but to aid in determining the meaning to be given to
              the agreement.” Restatement of Contracts, §235(d) and Comment.”

              Particularly pertinent here is the following principle:

              “Intention or meaning in a contract may be manifested or conveyed
              either expressly or impliedly, and it is fundamental that that which is
              plainly or necessarily implied in the language of a contract is as much a
              part of it as that which is expressed. If it can be plainly seen from all the
              provisions of the instrument taken together that the obligation in
              question was within the contemplation of the parties when making their
              contract or is necessary to carry their intention into effect, the law will
              imply the obligation and enforce it.” 17 Am.Jur.2d Contracts §255
              (1964) at 649.

              Id. at 334.

The Chancellor properly implied the obligations necessary to carry out the agreement.

We affirm the Chancellor’s decision.

              Next, plaintiff insists that it was inappropriate for the Chancellor to

award attorney’s fees to defendant on the basis that the defendant did not find a breach

of the agreement by the plaintiff, and only declaratory relief was sought.

              The contractual agreement between the parties provides, in pertinent

part:

              in any litigation arising out of the breach of this agreement, or seeking to
              enforce it, the prevailing party shall, in addition to all other legal,
              equitable and injunctive remedies, be entitled to all reasonable litigation
              expenses, including reasonable attorney’s fees.

We note that defendant throughout objected to the maintenance of this action and was

required to defend its rights under the contract. The notices sent by plaintiff did not

comply with the requirements of the agreement, and the Trial Court held the notices


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were inadequate to trigger the right of first refusal. Under the terms of the agreement,

the Trial Court properly awarded attorney’s fees to defendant.

              We affirm the judgment of the Trial Court and remand at appellant’s

cost.




                                          ________________________
                                          Herschel P. Franks, J.


CONCUR:




___________________________
Houston M. Goddard, P.J.




___________________________
Charles D. Susano, Jr., J.




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