Nationsbank v. JDRC ( 1997 )

IN THE COURT OF APPEALS OF TENNESSEE
NATIONSBANK OF TENNESSEE, )
FILED
C/A NO. 03A01-9607-CH-00226
)
Plaintiff-Appellee, ) MAY 29, 1997
)
) Cecil Crowson, Jr.
) Appellate C ourt Clerk
)
) APPEAL AS OF RIGHT FROM THE
) KNOX COUNTY CHANCERY COURT
v. )
)
)
JDRC CORPORATION, a/k/a JDRC )
DEVELOPMENT CORPORATION and )
BERNARD ARMSTRONG, )
) HONORABLE SHARON BELL,
Defendants-Appellants. ) CHANCELLOR
For Appellants: For Appellee:
DAVID L. BACON DEAN B. FARMER
Knoxville, Tennessee W. TYLER CHASTAIN
Hodges, Doughty & Carson, PLLC
Knoxville, Tennessee
OPINION
VACATED AND REMANDED Susano, J.
1
NationsBank of Tennessee (“the Bank”) 1 sued the
defendants2 JDRC Corporation (JDRC) and Bernard Armstrong
(Armstrong) to recover on two notes executed by JDRC and
personally guaranteed by Armstrong, JDRC’s president. JDRC and
Armstrong filed a counterclaim for damages alleging that the Bank
had “breach[ed]... the financing agreement between the parties
and... the implied obligation of good faith.” The trial court
granted the Bank summary judgment on its original complaint. The
issue of liability having been found adverse to the defendants,
the parties agreed that the amount due on the notes was
$1,000,000. The trial court also found that the Bank was entitled
to summary judgment on the counterclaim, and accordingly dismissed
that action. JDRC and Armstrong appealed3 the dismissal of their
counterclaim. The only issue before us is whether there are
disputed facts that render summary judgment on the counterclaim
inappropriate.
I. Facts
The facts, when construed in favor of the defendants,
are as follows. In order to finance the development and
construction of a 216-unit condominium project called Marble Hill
Condominiums, JDRC obtained two $500,000 loans from the Bank. The
proceeds of the first loan were to be used for the initial
1
This action was originally filed by Sovran Bank/Tennessee. That entity
subsequently merged with NationsBank of Tennessee. The latter was then
substituted as party plaintiff.
2
Numerous other entities and individuals were named as defendants in an
effort to clear the title to this condominium project. Their identity and the
suits against them are not material to this appeal.
3
The notice of appeal recites that the appellants appeal “as to the
dismissal of their [counterclaim] only.” (Emphasis added).
2
development of the project site, while the proceeds of the second
loan were to be utilized for construction of the condominium
units. As consideration for the loans, JDRC executed two $500,000
promissory notes. The first note was executed on January 29,
1988, and renewed for one year on January 29, 1989; the second was
executed on October 19, 1988, and renewed for an additional year
on October 27, 1989. Each obligation was secured by a separate
deed of trust on the condominium property. Interest was due
quarterly. Armstrong personally guaranteed both obligations.
In his deposition, Armstrong testified that he reached
an oral agreement with Richard Hayes and T.K. Wright of the Bank
regarding lot releases, whereby the Bank would receive $30,000
upon the closing of the sale of each condominium unit. From that
amount, $10,000 was to be applied toward the first loan, and
$20,000 toward the second loan. When a lot/unit was sold and
closed, the Bank agreed to release the deed of trust as to that
lot in return for the agreed-upon payment. JDRC was thus entitled
to any amount over $30,000 from each sale. Generally speaking,
the purchase price of the units was between $40,000 and $60,000.
JDRC depended on this income for working capital to finish out the
units being sold and to build more units.
According to Armstrong, the parties operated under this
arrangement until late 1989, when John Burke of the Bank informed
him that JDRC would henceforth be required to pay the Bank 100% of
the proceeds from future closings. Burke gave no reason for the
change but stated that the decision was final. Armstrong’s
subsequent efforts to discuss the matter with officials of the
Bank
3
were unsuccessful.
At the time the Bank demanded full payment of all net
sale proceeds, JDRC was preparing to close the sale of three of
the newly-constructed condominiums. According to Armstrong, this
change in repayment policy left JDRC with no working capital.
JDRC was thus unable to close the three sales--or any subsequent
sales--and was forced to abandon the project and cease doing
business. The Bank declared JDRC in default in March, 1990, and
filed its complaint on the notes in June of the following year.
In its counterclaim, JDRC alleges that the Bank
breached the financing agreement between the parties and its
implied obligation of good faith. JDRC contends that such acts
proximately caused the loss of condominium sales, lost profits,
and other damages.
II. Summary Judgment
The trial court’s grant of summary judgment causes us
to focus on the rules that are applicable when a defendant,
counter-defendant, or other defending party, seeks to avoid a
plenary proceeding by moving for summary judgment.
When a party responds to a claim against it by filing a
summary judgment motion, it is incumbent upon that party to
support its motion with facts that establish an affirmative
defense, negate at least one of the essential elements of the
claim, or otherwise show that the claimant is not entitled to
relief. Byrd v. Hall, 847 S.W.2d 208, 213-14, 215 n.5 (Tenn.
4
1993). Typically, these facts are presented in the form of
affidavits, authenticated documents, depositions, and other
properly-verified factual matters developed through the discovery
process. See Rule 56.03, Tenn.R.Civ.P. The proffered sworn-to
testimony and/or properly-authenticated documents must be
admissible at trial before they can be considered by the trial
court on summary judgment. Byrd, 847 S.W.2d at 215. However,
they need not be in admissible form; hence, an affidavit, while
not admissible at trial in that form, can be considered by the
court if the testimony itself is otherwise admissible. Id. at
215-16.
If the material relied upon by the defending party
unwittingly or otherwise demonstrates disputed material facts; or
reflects undisputed material facts, but fails to show that the
movant is entitled to a judgment, then, in either event, the
nonmovant is not required to do anything to defeat summary
judgment. Id. at 211. The burden to satisfy the requirements of
Rule 56.03, Tenn.R.Civ.P., is clearly on the defending party. Id.
at 215. That party does not satisfy its burden by making
conclusory assertions that the claimant cannot prove its claim.
Id. If, on the other hand, the material relied upon by the
defending party demonstrates undisputed material facts supporting
a judgment for that party, the nonmoving party must respond by
putting admissible facts before the trial court to show a dispute
as to those material facts in order to defeat summary judgment.
Id. The nonmovant cannot, in that case, simply rely upon the
allegations of its claim. See Rule 56.05, Tenn.R.Civ.P.
5
The nonmovant is entitled to the benefit of any doubt.
Byrd, 847 S.W.2d at 211. The trial court must “take the strongest
legitimate view of the evidence in favor of the nonmoving party,
allow all reasonable inferences in favor of that party, and
discard all countervailing evidence.” Id. at 210-11. All facts
supporting the position of the nonmovant must be accepted as true
by the trial court. Id. at 212. It is only when the material
facts are not in dispute and conclusively show that the movant is
entitled to a judgment, that a trial court is justified in
depriving a claimant of its right to a plenary trial. In all
other instances, a trial on the merits is necessary. Summary
judgment “is clearly not designed to serve as a substitute for the
trial of genuine and material factual matters.” Id. at 210.
A request for summary judgment raises a question of
law. Gonzales v. Alman Const. Co., 857 S.W.2d 42, 44 (Tenn.App.
1993). Our perspective is the same as that of the trial court.
Id. at 44-45. Therefore, we must decide anew if the movant is
entitled to summary judgment. Id. Since this determination
involves a question of law, there is no presumption of correctness
as to the trial court’s judgment. Id. at 44.
III. Law and Analysis
On the day the trial court heard the Bank’s motion for
summary judgment, the Bank filed with the trial court two
documents from its records as late-filed exhibits to the
6
deposition of its loan officer, Richard Hayes. 4 The first of
these documents is entitled “Commercial Loan Memorandum,” (see
Apendix No. 1). It is dated January 4, 1988, a short time before
the execution of the first note. In his deposition, Hayes
described the document as a “write-up,” apparently of the Bank’s
loan to JDRC. It is approved and signed by the members of the
Bank’s loan committee. The second bank document is dated October
19, 1988, the date on which the second $500,000 note was executed
by the defendants. It is entitled “New Loan Summary,” (see
Appendix No. 2). It contains no signatures.
Prior to the filing of these two documents, the Bank
had argued to the trial court that the defendants’ counterclaim,
at best, was based on an oral promise or commitment and was
therefore unenforceable under the Statute of Frauds, T.C.A. § 29-
2-101(b)(1), which provides that
[n]o action shall be brought against a lender
or creditor upon any promise or commitment to
lend money or to extend credit, or upon any
promise or commitment to alter, amend, renew,
extend or otherwise modify or supplement any
written promise, agreement or commitment to
lend money or extend credit, unless the
promise or agreement, upon which such action
shall be brought, or some memorandum or note
thereof, shall be in writing and signed by
the lender or creditor, or some other person
by him thereunto lawfully authorized.
Once the aforesaid documents were produced, the Bank’s argument
4
The deponent Hayes identified the document as a “one-page cover sheet.”
However, when filed with the trial court on November 2, 1995, the “one-page”
document had two pages that were stapled together--the Commercial Loan
Memorandum and the New Loan Summary. In view of the fact that the two pages
have different dates reflecting a significant lapse of time, i.e., January 4,
1988, and October 19, 1988, they appear to be independent documents.
7
changed somewhat. Thereafter, and on this appeal, it argues that
neither of these documents satisfies the requirements of T.C.A. §
29-2-101(b)(1). It also argues that even if the Commercial Loan
Memorandum is sufficient to satisfy the “in writing” requirement
of T.C.A. § 29-2-101(b)(1), it is inadmissible since, so the
argument goes, it is an attempt to modify the notes by parol
evidence. The trial court concluded that the Commercial Loan
Memorandum was not a “public” document and therefore could not be
used to satisfy the Statute of Frauds.
At the outset, we would point out that the New Loan
Summary is not signed; hence, it is clear that it cannot satisfy
the Statute of Frauds, which expressly requires a document “signed
by the lender or creditor or some other person by him thereunto
authorized.” Id. However, unlike the New Loan Summary, the
Commercial Loan Memorandum is signed by officials of the Bank. It
raises two issues: first, does the latter document satisfy all of
the requirements of T.C.A. § 29-2-101(b)(1)?; and second, is this
document otherwise admissible?
In this case, the Bank attacks only one element of the
defendants’ counterclaim, i.e., whether there was a legally
enforceable promise or commitment. Therefore, the Bank’s motion
must rise or fall on this one issue. Since the Bank did not file
a properly-supported motion as to any of the other elements of the
counterclaim, the defendants, as counter-plaintiffs, were not
required to present facts with respect to these other elements.
8
We will now examine the two questions posed above.
A. Statute of Frauds
The defendants’ counterclaim is clearly subject to the
terms of the Statute of Frauds, T.C.A. § 29-2-101(b)(1). That
statute expressly applies to an action “against a lendor or
creditor... upon any promise or commitment to... supplement any
written promise, agreement or commitment to lend money or extend
credit....” Id. In order to satisfy this provision, there must
first be a promise, commitment, or agreement, “or some memorandum
or note thereof.” Id. We believe that, at a minimum, the
Commercial Loan Memorandum constitutes a “memorandum” of the
Bank’s commitment to release the deed of trust upon the sale of a
lot, provided it receives $30,000 of the net proceeds from the
sale.
The Memorandum contains the following notation: “Lot
release $30,000.00.” This is consistent with Armstrong’s
testimony that the Bank had agreed to release each lot from the
deed of trust upon payment of $30,000 of the purchase price of a
lot. Furthermore, the Memorandum states that “$250,000 of [the]
first loan would be paid from sales of [the] 1st 25 units.” This
figure corresponds to Hayes’ testimony that the Bank applied
$10,000 from each sale to the initial loan. Therefore, when
construed in a light most favorable to the defendants, as we are
required to do in this summary judgment determination, the
Commercial Loan Memorandum is evidence of a commitment by the Bank
to release each lot upon the payment of $30,000.
9
T.C.A. § 29-2-101(b)(1) additionally requires that such
promise or commitment, or “memorandum or note thereof,” be in
writing. It is clear that the Commercial Loan Memorandum, a
written document, meets this requirement.
Finally, T.C.A. § 29-2-101(b)(1) provides that the
promise, agreement or memorandum must be “signed by the lendor or
creditor, or some other person by him thereunto lawfully
authorized.” Id. The Commercial Loan Memorandum is signed by
“R.M. Hayes”, “T.K. Wright”,5 and several others on behalf of the
Bank. Accordingly, we find that the document meets the signature
requirement of T.C.A. § 29-2-101(b)(1).
The trial court concluded that the Commercial Loan
Memorandum could not be used to satisfy the Statute of Frauds
because it was an internal bank document, whose existence was
apparently not known outside the Bank. We disagree. There is
nothing in the statute requiring that “the memorandum or note” of
the promise or commitment be furnished to the borrower or
otherwise be a public document.
We therefore conclude that the Commercial Loan
Memorandum satisfies the Statute of Frauds. The notation, “Lot
release $30,000.00", is not, as the Bank argues, too indefinite to
form the basis of a promise or commitment. The Memorandum
evidences a promise or commitment to release each lot from the
5
Interestingly enough, Armstrong identified both of these bank officials
as the ones who made the subject commitment. Apparently, he identified them
before he was aware of the existence of the Commercial Loan Memorandum.
10
deed of trust upon payment of $30,000.
With regard to the New Loan Summary, on the other hand,
we have previously indicated that that document--being unsigned--
does not satisfy the Statute of Frauds. While the New Loan
Summary, in and of itself, cannot constitute a binding commitment,
we believe it is nevertheless relevant, and hence admissible, on
the issue of the lot release agreement; specifically, it contains
evidence bearing upon the Commercial Loan Memorandum, a document
that does satisfy the Statute of Frauds. The New Loan Summary is
dated October 19, 1988 -- the same date as the second loan. It
contains, on a line designated “Repayment Agreement”, the
handwritten notation: “lot release 20,000 per sale this loan,
10,000 per lot 1st loan.” Again, these numbers correspond to
Armstrong’s testimony regarding the terms of the repayment
arrangement: the Bank would release each lot upon receipt of
$30,000 of its purchase price; it would then apply $20,000 toward
repayment of the second loan, and $10,000 toward the repayment of
the first loan. Thus, the New Loan Summary on the second loan
provides further evidence that the Bank made a promise or
commitment to release the lots from the deed of trust upon the
payment of $30,000.
B. Admissibility of Bank Documents
The Bank argues that even if the Commercial Loan
Memorandum satisfies the Statute of Frauds, it is inadmissible as
an attempt to modify the promissory notes by parol evidence. We
disagree. The parol evidence rule provides that
11
parol evidence is inadmissible to contradict,
vary, or alter a written contract where the
written instrument is valid, complete, and
unambiguous, absent fraud or mistake or any
claim or allegation thereof.
Airline Constr., Inc. v. Barr, 807 S.W.2d 247, 259 (Tenn.App.
1990). Our courts have held, however, that parol evidence is
admissible “to prove the existence of an independent collateral
agreement.” Starnes v. First American Nat’l Bank, 723 S.W.2d 113,
117 (Tenn.App. 1986). See also Early v. Street, 241 S.W.2d 531,
535 (Tenn. 1951) (“There are exceptions to the effect that an
independent collateral agreement may be proven...”). Furthermore,
as stated in Starnes,
[t]he terms of a written agreement may be
supplemented by evidence of additional terms
unless it is found that the writing was
intended as an exclusive statement of the
terms of the agreement.
Starnes, 723 S.W.2d at 118 (citing Strickland v. City of
Lawrenceburg, 611 S.W.2d 832 (Tenn.App. 1980); Kilday v. Baskette,
259 S.W.2d 162 (Tenn. 1953)).
The application of the parol evidence rule6 and its
exceptions depends upon the facts of each particular case. Early,
241 S.W.2d at 535; Starnes, 723 S.W.2d at 117.
6
While the parol evidence rule typically involves an attempt to introduce
evidence of an oral promise or commitment, the Bank argues that it applies to
the written Commercial Loan Memorandum. In view of our disposition of this
case, we do not find it necessary to decide whether the parol evidence rule
applies to these written documents.
12
In the Airline Construction case, this court addressed
the admissibility of evidence of an oral agreement to complete
part of a construction project within six months. After finding
that the written contract specified that substantial completion
was to be achieved within approximately eight months, the court
held that the parol evidence at issue contradicted and varied the
terms of the parties’ contract and was therefore inadmissible.
Airline Constr., 807 S.W.2d at 259. The court stated that
[p]arol proof of “inducing representations”
or “collateral agreements” to the written
contract must be limited to subject matter
which does not contradict or vary terms which
are plainly expressed in the writing.
Id. (emphasis in original)(citing Searcy v. Brandon, 68 S.W.2d 112
(Tenn. 1934); Litterer v. Wright, 151 Tenn. 210, 268 S.W. 624
(Tenn. 1925); Dupont Rayon Co. v. Roberson, 12 Tenn.App. 261
(1930); Seaton v. Dye, 263 S.W.2d 544 (Tenn.App. 1954)).
In Early v.Street, the Supreme Court found that various
oral agreements, which a buyer sought to establish by parol
evidence, were independent of and collateral to a deed of sale
between the parties. The court held that such evidence was
admissible and noted that
it certainly was not the intention of the
parties, nor did they deem it necessary to
incorporate all of these collateral
agreements in the deed.
Early, 241 S.W.2d at 535.
13
Under the facts of the instant case, we conclude that
the arrangement between the parties as to the release of an
individual lot from the deed of trust upon payment of $30,000 was
an independent agreement, collateral to the promissory notes. See
Early, 241 S.W.2d at 535; Airline Constr., 807 S.W.2d at 259; and
Starnes, 723 S.W.2d at 117-18. Therefore, such agreement may be
established by evidence in the form of the Commercial Loan
Memorandum and the New Loan Summary, provided such evidence does
not contradict or vary terms that are clearly expressed in the
notes. Airline Constr., 807 S.W.2d at 259.
Upon review of the relevant documents, it is clear that
the lot release agreement in no way varies or contradicts the
terms of the promissory notes. Unlike the contract in the Airline
Construction case, which included a specific provision that
directly contradicted the alleged oral agreement, the notes in the
instant case contain no specific provision regarding the release
of the lots from the deed of trust. As previously indicated, the
collateral agreement in this case did not vary or change the notes
in any way--they continued to be due and payable precisely
according to their terms as found within the four corners of the
notes.
Furthermore, it appears that, as in the Early case, the
parties did not deem it necessary to include every aspect of their
agreement in the notes. On the contrary, it appears that the
notes were not intended to be an “exclusive statement of the terms
of the agreement.” Starnes, 723 S.W.2d at 118. As a practical
matter, to facilitate the sale of individual condominiums free of
the underlying mortgage, there had to be some additional
14
arrangement regarding the release of the lots from the deed of
trust. The collateral agreement had the effect of addressing an
obvious and
15
essential element otherwise missing from the parties’ “deal”--the
amount of the sales price of each lot that was to be paid to the
bank in order to obtain a release of the deed of trust as to the
individual lots. In a multi-unit condominium project, there has
to be some understanding between the borrower and lender regarding
the release of the individual lots if sales are to be effected and
financed.
We therefore conclude that the Commercial Loan
Memorandum and the New Loan Summary are admissible evidence of an
independent, collateral agreement between the parties. Under the
facts of this case, the parol evidence rule does not operate to
bar their admission. See Early, 241 S.W.2d at 535; Airline
Constr., 807 S.W.2d at 259; and Starnes, 723 S.W.2d at 117-18.
IV. Conclusion
We conclude that the Commercial Loan Memorandum is
sufficient to satisfy the Statute of Frauds. Therefore, the
Bank’s motion fails in its attempt to negate the defendants’ claim
of a commitment by the Bank to release lots from the deed of trust
upon the payment of $30,000 out of the net proceeds of a closing.
There is admissible evidence of this commitment. Since this was
the only element of the counterclaim attacked by the motion for
summary judgment, we find and hold that the Bank is not entitled
to summary judgment.
16
We express no opinion as to the merits of the
counterclaim. We simply hold that the Bank is not entitled to
judgment in a summary fashion.
The judgment of the trial court awarding the appellee
summary judgment on the counterclaim is vacated. This case is
remanded to the trial court for further proceedings not
inconsistent with this opinion. Costs on appeal are taxed to the
appellee.
__________________________
Charles D. Susano, Jr., J.
17