             IN THE COURT OF APPEALS OF TENNESSEE

                               AT KNOXVILLE                 FILED
                                                              April 30, 1998

                                                            Cecil Crowson, Jr.
                                                            Appellate C ourt Clerk


CITY OF BLAINE,                        )     GRAINGER CHANCERY
                                       )
      Plaintiff/Appellant                    )      NO. 03A01-9711-CH-00520
                                       )
v.                                     )     HON. CHESTER S. RAINWATER
                                       )     CHANCELLOR
JOHN COLEMAN HAYES                     )
ASSOCIATES, INC.,                      )
JOHN L. GILMORE, JR.,                  )
RICHARD DEADMAN,                       )
RICKY OAKLEY, and                      )
ROBERT RAMSEY,                         )
                                       )     AFFIRMED and
      Defendants/Appellees             )     REMANDED


Robert C. Edwards, Knoxville, for Appellant.

W. Lee Corbett & Associates, Nashville, for Appellees.


                                 OPINION

                                             INMAN, Senior Judge

      On July 10, 1985, the City of Blaine [Blaine] and John Coleman Hayes

and Associates [Hayes] entered into a contract whereby Hayes agreed to

perform professional engineering services for Blaine in connection with the

construction of a waste water treatment and collection system. The contract

provided for arbitration if disagreements arose; Blaine filed this complaint

seeking rescission of the contract alleging fraudulent inducement, while Hayes

sought arbitration and a stay of litigation. On appeal, we stayed the arbitration

proceedings until the rescission issue was resolved. See, City of Blaine v. John

Coleman Hayes, 818 S.W.2d 33 (Tenn. App. 1991).
         Following remand, Hayes filed a motion for summary judgment pleading

the bar of the Statute of Limitations of three years, T.C.A. § 28-3-105.1 After

considering a host of affidavits and depositions, the Chancellor found that the

cause of action accrued more than three years before the complaint was filed

and the action for rescission was dismissed. Blaine appeals, and presents for

review the issue of whether its complaint accrued more than three years before

the filing of it. Review is de novo with no presumption of correctness, RULE

13(e),

T. R. A. P.; Carvell v. Bottoms, 900 S.W.2d 23 (Tenn. 1995).

         The thrust of Blaine’s complaint is that Hayes misled its officials in the

matter of the amount of the monthly charges which would be assessed to the

users of the system, and thus fraudulently induced the contract. Blaine argues

that Hayes represented in March, 1985, that a monthly user rate of $6.00 to

$8.00 would adequately finance Blaine’s portion of the construction costs. Four

years later, this estimate2 increased to $19.00 monthly, and still later, to about

$30.00 per month. Blaine argues that it would not have entered into the

engineering contract, in the first place, had Hayes not misrepresented the

numbers, and therefore it was defrauded into the execution of the contract on

July 10, 1985, and seeks rescission of it to avoid payment of Hayes’ services.

Hayes argues that Blaine utilized its professional services for more than three

years after Blaine became aware that the monthly user fees would be excessive,

as evidenced by events which occurred after the contract was executed.

         The first phase in designing and constructing a sewer system is to

develop what is known as a “201 Facilities Plan.” After the 201 Facilities is

         1
             Which is not disputed.
         2
           User fees depended upon (1) the costs of construction, (2) depreciation of the systems, (3) the number
of users, (4) collection of the fees, (5) the availability and amount of grant mon ey, since Blaine would require
substantial financial assistance. It is not seriously d isputed that Blaine w as aware of these fa ctors at all times.
completed, it is presented both to the Mayor and Board of Alderpersons as well

as to the Tennessee Department of Health and Environment for review. On

June 30, 1986, almost a year after the contract was signed, Hayes forwarded to

the Tennessee Department of Health and Environment, the final 201 Facilities

Plan for the City of Blaine. In the letter accompanying the 201 Facilities Plan,

Hayes states that

      the total project cost is recommended at $1,861,072 . . . if the City
      finances the local share at seven percent (7%) for thirty-five (35)
      years, the annual debt service would be $28,700 equivalent to $7
      monthly per user. Operations, maintenance, billing, administration
      and depreciation amount to an additional cost of $34,600 annually
      requiring a total budget of $63,300 and is equivalent to $15.47
      monthly per user the first year of operation, a rate which may be
      excessive . . . it is obvious, therefore, that Blaine should seek
      additional financial assistance to reduce the user cost.

      On July 7, 1986, a year after the contract was signed, a copy of the final

201 Facilities Plan was forwarded to Blaine, with a cover letter stating

      there is a significant difference between this final 201 Plan and that
      presented to the public hearing this past December. TDHE, by
      technical review, at Number 7, February 20, required that the final
      201 Plan “not assume that an innovative bonus will be granted for the
      central treatment plan” . . . consequently the anticipated local share
      shown in the summary and on pages 14 and 19 are greater than shown
      in the January 2 plan. In both plans, the conclusion is drawn that
      additional, significant, financial assistance will be needed to have
      affordable user rates.

      It is thus beyond peradventure that as of July 7, 1986, more than three

years before the complaint was filed, Blaine was aware that the amount of the

user rates could be significantly higher than expected unless appropriate

financial assistance was obtained.

      On July 10, 1986, a year after the contract was signed, about four years

before the filing of this complaint, and three years before Blaine advised Hayes

that its services would no longer be required, the Tennessee Department of

Health and Environment informed Blaine that “if Blaine does not secure
funding other than the EPA and state grants, your consultant’s figures show a

possible user charge of over $25 monthly, rather than $10.00 a month.”

      This letter is unequivocal notice to Blaine that the monthly user charge

would be substantially more than $6.00 to $8.00, as initially discussed. But

Blaine insisted that Hayes continue with its design and engineering work for

another three years, when a new administration took over, terminated the

contract, and refused to pay accrued charges.

      The host of affidavits and depositions do not controvert the

uncontrovertible fact that at least by July 10, 1986 Blaine was aware that the

user rate would be greater than its sewer customers could or would pay. This

was more than three years before the complaint was filed. When faced with a

supported motion for summary judgment based upon this assertion, Blaine was

required to produce evidence of its entitlement to maintain the action. Merritt v.

Wilson County Board of Zoning Appeals, 656 S.W.2d 846 (Tenn. App. 1983),

and it failed to do so.

      Finally, we think it permissible to note that the Mayor of Blaine rather

vehemently denied that Hayes misrepresented any fact or engaged in fraudulent

inducement, insisting that all who participated were fully aware that the

projected monthly user rate was an estimate fraught with obvious risks.

      The judgment is affirmed at the costs of the appellant, and the case is

remanded for further proceedings.


                                       ________________________________
                                       William H. Inman, Senior Judge
CONCUR:



_______________________________
Houston M. Goddard, Presiding Judge



_______________________________
Charles D. Susano, Jr., Judge
