# FILED
December 22, 1997 Cecil Crowso n, Jr. Ap pellate Co urt C lerk IN THE COURT OF APPEALS OF TENNESSEE, W ESTERN SECTION AT JACKSON

_______________________________________________________ ) DENNIS CLA YTON and , ) Tipton County Circuit Court GARDEN HOMES, INC. ) No. 4282 ) Plaintiff

s/Appella nts. )

) VS. ) C.A. No. 02A01-9701-CV-00019 ) UNION SAVINGS BANK , ) ) Defendant/Appellee. ) )

______________________________________________________________________________ From the Circuit Court of Tipton County at Covington. Honorable Joseph H. Walker, Judge

Michael L. Weinman , TATUM & TATUM, Henderson, Tennessee Attorney for Plain tiffs/App ellants.
G. Michael Acree , Covington, Tennessee Attorney for Defendant/Appellee.

OPINION FILED: AFFIRMED

AND REMA NDED FARMER, J. CRAWFOR

D, P.J.,W .S. : (Concur s) LILLARD, J. : (Concur s)

Dennis Clayton and Garden Homes, Inc. (GHI) appeal from the trial cour t’s grant ofsummary judgment in favor of Union Savings Bank (Bank).

The complain

t filed by C layton an d GHI all eges tha t GHI, through its president Danny Anderson, entered into a Construction Loan Agreement on August 10, 1989 to borr ow $200,000 from Bank

for the purpose of

constructing five homes. Tha t su m w as suffic ient to complete construction of the

homes exc ept that, unknown to Cla yton, An derson had diverted approximately$35,000 of the original $200,000 for his own personal use. It is further alleged that on January 16, 1990, GHI entered into a new promissory note with Bank

to borrow $50,000. The parties executed a

Construction Loan Agreement for the construction of homes on lots 1 through 6 of Tract I of the Ga

rden Hill s Subdivisio n and lots 1 7 and 18 of Tr act II o f the Gar den Hills Subdivision. Bank

failed to disperse the proceeds of the second note according to the terms of the loan agreement but instead dispersed those proceeds to pay f or construction of

the initial five homes which were to

be financed by the $200,000 loan. Clay ton alleg es that a

document

entitled C rossPledge Agreement which purports to contain his signature is a forgery.

It is further alleged that at least one of the directors of the Bank and/or members of t heir families provided

materia ls and ser vices to G

HI for th e constr uction of the first f ive homes
. Some of the fu

nds which were div erted f

rom the $5 0,000 loa

n were u sed to pay

debts owing tothese businesses and that

“this self-dealing by the Bank through its board of directors caused Plaintiff to lose in excess of several thousand dollars.” It is further a verred that

the Bank conspired with Danny Anderson to defraud Clayton of funds borrowed from the Bank a

nd that the

Bank bre ached a

duty owed to the pla

intiffs by negligen tly, rec klessly a

nd/or knowingly allowing Danny Anderso n to divert funds for his own personal use and gain.

Bank responded by a motion for summary judgment supported by the affidavit of Barnet G. Hall, III, president of Bank, wherein he identifies and attaches to his affidavit copies of the Construct

ion Loan A greeme

nt of Augu st

10, 1989, the Construction Loan Agreement of January 16, 1990, a Cross-Pledge Agreement dated January 16, 1990, a corporate resolution dated August 8, 1989 and a Guaranty Agreement dated August 10, 1989 exec uted by Danny Anderson and Dennis Clayton. Clayton filed his affidavit in response to Bank’s motion for summary ju dgment wherein he reiterates many of the allegations of the complaint. He ave rs that the actual cost of

building thefirst

five home s was $199 ,965.02, s lightly below the $200,000 loan proceeds; that he was not aware that Anderson was diverting these funds to the point there would not be enough left from the loan proceeds to complete thefirst homes unti l he was in

formed b y Bank off

icer Jimm y Trotter in mid June of 1990. Shortly after the second loan agreement wa s entere d into on January 16, 1990, Clayton was infor

med by Ban

k chairm an Cole tha

t the proc edure to

be use d in disb ursing the proceedings of the second loan were going to be changed in that the Bank would take over writing all the checks drawn on the Garden Homes line of credit. No explanation was given to Clayton at that time as to w

hy this change was bein g institute d. Bank, w ithout Clayton’s know ledge or consent, disbursed approximately $32,000 from the procee ds of the s econd loa n to pay fo

r costs inc

urred in constructing the fi

rst five h omes.
Plaintiffs present the following issues for our consideration:

I. Whether

the trial court er red in granting appellee’s motion for summary ju dg ment on the breach of contract claim beca use an issue of disputed fact exists as to whether the Bank was acting outside of its authority in the manner it disbursed the proceeds of th e construction loan a

greeme nts. II. Whether the trial court erred in granting App ellee’s motion for summary judgment on the breach of fiducia ry duty, c onspirac y to defraud and self-dealing claims because Appe llee fai led to mee t its initial burden of demonstrating that no disputed issue of material fact exists on th

ese cla ims.
Summary judgment is proper when there are no genuine issues of mate rial fact and t he m oving party is entitled to judgment as a matter of law. Rule 56 T.R.C.P., Byrd v. Ha ll , 847 S.W.2 d 2 08, 210 (Tenn. 1993). In considering whether a motion for summary judgment was properl y granted, we must view the evidenc e in the lig ht most fav orable t

o the nonmoving party and draw all reasonable inferences in the nonmoving par ty ’s favor. Byrd , at 210-1 1. If a c ontract is plain and unambiguous, the meaning thereof is a question of law and it is the court’s function to interpret the contract as written according to its plain terms. Petty v. Sloan , 277 S.W.2d 355 (Tenn. 1955); Malone & Hyde Food Servs. v. Parson , 642 S.W.2d 157, 159 (Tenn. App. 1982).

Bank contends that, when the documents are read together, it is author

ized to a pply the proceeds of one loan to another. Bank relies on the following language from the 1990 loanconstruction agre ement:

No advance shall bedue unless, in the reasonable judgment of Bank, all work which is usually done at the stageof construction when the advance is requested is done in a good and workmanlike manner, and all m ateria

ls usually furnished and installed at such times are furnishedand installed, but Bank may advance parts or the whole of any advance before it becomes due if Bank be lieves it is advisabl e to do so, and all such advances or payments shall be deemed to hav e been made in pursuance to this Agreement and n ot in m odification thereof.

We are inclined

to agree with Plaintiff’s interpretation of this clause as allowingBank to advance request s before the stage of completion set out in the agr eement b ut does not

give the Ba

nk author ity to disperse any portion of the proceeds except for the p rojects d escribe d in the ag

reemen t, to wit, lot numbers 1, 2, 3, 4, 5 and 6 of G arden H ills Subdivis ion, Secti on A and lo ts 17 and 18 of Gard en Hill Subdivision , Section B
.

Bank further relies upon thefollowing language from the Cross Pledg e Agree ment:
Now, in order to secure the prompt and full payment of each note of Borrower now or here inafter held by Lender (hereinafter for conveniencereferred to as “The Not es”) at its maturit

y or respective maturitie s, as well as each and every portion of each of

the same that may be renewed to a more distant maturity, Borrower does he reb y and by these presents pledge, pawn and deliver unt o Lend er, its transfe rees, succ essors and assig ns, all of the Notes . The Note s so pledged herein to Lender shall be held by Lender as pled ges and is hereby and shall remain pledged to secure the payment to Lender

of each and every o f the The Notes in f

ull. It is the intent and purpose of this Agreement to fully secure Len derof all obligations, due by Borrower to Lender, and in the event that the security of any one or more of The Notes is not adequa te or sufficient (in the sole discretion and judgment of

Lender) at any point in time, and in such event the other Notes a nd their respective sec urities shall be held and us ed by Len der as c ross collater al and se curity fo

r such oth er Notes
. Lender shall notbe obliga

ted to release or surrender any of the Notes or any of the securities repres ented the reby unti l fully satisfied that the rema ining sec urities a

re adeq uate (in Lender’s sole discretion and judgment and sufficient to fully re

pay all su ch rema

ining Note s. Lender is hereb y authori zed to co llect (by suit, foreclosure or otherwise), from Borr

ower the full face principal amount of any Note t hough t he full face amount of same may not be due there on and apply the funds so received to thebalance due on any other Note or Notes held by Lender.This document was apparently executed in behalf of GHI by Danny Ander son , preside nt, and Danny Anderson and Dennis Clayton ind ividually. Howeve

r, we ha ve previ ously noted tha t Clayton a

lleges tha t his signat

ure on thi s document is a forgery. While that assertion is notreitera

ted in his a

ffidavit filed in r esponse t o Bank’s mo tion for su

mm ar y judgment, it is not refuted by Bank. T

he party moving for summary judgment bears the burden of demonstrating that
n o genuine issues of material fact exist. Byrd v. Ha ll , 847 S.W.2 d at 210. A s we interpret thi s language, the borrower pledges all of the notes it has with Lender to sec ure the repayment of all the notes. It allows the Bank to apply payments made by a lender to any of lender’s notes he ld by the Bank. We do not find this langu age to au thorize the Bank to

use the pr

oceeds f rom one lo an to satisfy another.

Bank further relies upo n a corporate resolution of the board of directors of GHI executed by Danny Anderson as president and Dennis Clayton as secretary. This authorizes the president of GHI to:
(a) Negotiate and procure loans fr om Union Savings Bank, Covington, TN Name of Bank Address up to an amo unt not exceeding (if there is no limit, so indicate) no limit $_________ in the aggregate at any one time outstanding; (b) Discount with said Ba nk, comme

rcia l or other business paper belonging to this Corporation, made or drawn by or upon third parties, without limit as to amou nt; (c) Give security for any liabilities of this Corporation to said Bank by pledge

or assign

ment or a li en upon any real or personal property, tangible or intangible, of this Corporation, and (d) Exec ute in such form as may be required by the Ban

k all notes an d ot her evidences of such loans, all instruments of pledge, assignment

or lien, and that none of the same shall be valid unless so signed or endorsed, pro vided, however, that the endorsement of promissor

y notes dis counted may be ef fected by any one

of them. “RESOLVED FURTHER, th at said Ba nk be and it is hereby authorized

a nd di rected to pay the proceeds of any such loa ns or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in the ir indivi dual capacities or not, and whether such proceeds are depos ited to the individua l credit o f any sai d personsor not;” “RESOLVED FURTHER, th at this re solution sh all continue in force, and

said Bank

may consi der the h olders of said offices and their signatur es, resp ectively , to be and conti nu e as set forth in the certifi cate of the Secretary of

this Corporation accompanying a copy of this resol

ution whe

n deliver ed to said Bank or in any similar subsequent

certificate, until notice to the contrary in writing i s duly served on said Bank.”1 We do note that the Guaranty agreement fur ther provides that “[t]he right of recovery, however, against the undersigned is limited to Two Hundred Thousand and no/100--------

---- Dollars ($ 200,000.00 ) plus interest on all loans and/or advances hereunder and all expenses hereinbefore mentioned; . . .” We find n o language in this document to authorize the Bank to apply the proceeds of a par ticula r construction loan a

greeme nt to anyth

ing other than the c onstruct

ion of tha t particular project.

The final document upon which Bank relies is entitled “GUARANTY.” Pursuant to this agreement, Danny Anderson a nd Dennis Clayton agree to jointly and severally guarantee the full and promp t payment

to Bank at maturity

any and a

ll indebte dness inc

urred by GHI. It iswhat is kn own as a continuing guaranty in that it remains in full force and effe ct until all of debtor s indebtednesses are fully paid. 1 This docu ment furt her prov ides:

The l ia bility hereunder shall in no wise be affected or i mpairedby (and said bank is hereby expressly authorized to m ak e from time to time , without notice to an yone), a ny sale, p le dge , surrender, compromise, settlement, release, renewal, exte nsion, indulgence, alter ation, substitution, exchange, change in, modification or other d is position of any of said indebtedness, obligations and liabilitie s, either express or implied , or of any contr act or c ontract s evidencing any thereof, or of any security or collateral therefor. The liability he reu nder shall in no wise be affected or impaired by a ny acceptance

by said Bank of

any security for or

other guarantors upon any of said

indebtedness, obligations or liabilities, or by any failure, neglect or omission on the part of said Bank to realize upon or protect any of said in debtedne ss, obli gati ons or liabilities, or any collateral or security therefor, or to exercise a ny lien upon o r right o f appropriation of any moneys, credits or property of sai d Debtor, possessed by said Bank, toward the liquidatio n of said i ndebtedn ess, obligations or liabilities, or by any application of payments or

credits thereon. Said Bank

shall hav e the exc lusive rig ht to determine how, when and what application of payments and c re dits, if any, shall be made on said indebtedness, obligations and liabilities, or any part of them. In order

to hold the under signed lia

ble hereund

er, ther e shall be no obligation on the part of the said Bank at any time to first resort to, m ake demand on, file claim against, or exhaust its remedies against the De btor , any one or more of the undersigned, or other persons or

corpora tions, the ir properties or estates, or to resort to and exhaust its remedies against any collateral, security, property, liens or other rights whatsoever. It is expressly agreed that said Bank may at any time make demand for payment or payme nts on, or b

ring suit against, the undersigned guarantors, jointly or severally, o r any one or more of the und

ersigne d, less than all, without imp airing the rights of the Bank against the others of the undersigned; and that the Bank ma y compound with any one or more of the undersigned f or suc h sums as it may see fit and releas e such of

the under signed fr

om all further liability to the Bank for

such inde btednesswithout impairing the right of the Bank t o demand and collect the balance of suchindebtedness from others of the undersigned not so released.

This document expressly authorizes Bank, without notice to anyone, to make modification or other disposition of any of

said indebtedness, or of any contract or contracts evidencing any thereof. The January 1990 Constr

uction Loa

n Agree ment provides that “

the loan c ontempla

ted here by shall be evidenced

and secured by the foll owing instruments and documents, along with such other in struments and documents as the Bank may reasonably require.” As we interpret this language containedin the Guaranty agreement, the Bank was authorize d to apply the proceeds from the se cond note to complete the homes financed by the first note.

The plaintiffs further allege that a least one member of the Bank’s board of directors and/o r members of their family were paid for materia ls that went into the first projec t from loa n funds that were loaned for the second project. It is not alleged that these we re not bona fide debts and we there

fore co nclude th at the Ban k did not ope

rate improperly or violate any duty to the plaintiffs by satisfying those indebtednesses. Furthermore, both Clayt on a nd Anderson are individua lly liable on all of th

e notes pu

rsuant to the Guar anty agr eement.

The complaint further alleges that Ban k “did con spire wit h Danny A

nderson t o defraud him (Clayton) of funds borrowed from the d

efenda nt. This conspiracy to defraud Plaintiffs resulted in sever

e econo mic hard ship to the plaintiff s.” All ple adings sha

ll be so construed as to do substantial justice. R ule 8.06 T.R.C.P. However, when averring fraud, the c ircumstances constituting fraud shall be stated with part icula rity. Rule

9.02 T.R.C. P. It is not n ecessa ry to actually employ the word “fraud” as fraud is a lega l conclusion drawn from the facts. Sullivant v. Americana Homes, Inc. , 605 S.W.2d 246, 249 (Ten n. App. 19 80). The

complain t in this ca use fails to allege fraud with particularity.

Finally Plaintiff avers that Bank breached a duty owed to Plaintiff as customers by allowing Anderso n to diver t funds fo r his own p ersonal

use. As pr

eviously n oted, the

corpora te resolution authorized the Bank to pay the loan proceeds “a s directed by the persons so a uthorized to sign, whether

so payable to the order of any of said persons in their individual capa cities or not . . .” Clayton does not dispute that he executed the corporate re solution as corporate secretary.We do not find the docum

ents to be ambiguous . While Mr . Clayton a lleges tha t his signature was forged on the Cross Pledge Agreement, we do not find any language in that agreement to be perti nent to the

issues before us. The judgment of the trial court granting summary judgment in favor of the defendant

is affir med. Costs o f this cau se are t axed to th e Appella nts.

____________________________________ FARMER, J.

______________________________ CRAWFORD, P.J., W.S. ( Concurs)

______________________________ LILLARD , J. (Conc urs)