### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE Assigned on

Briefs M ay 31, 2002
BEHI HAMIDY v. W. DYRK HALSTEAD
Appeal from the Chancery Court for Williamson County

No. 27645 R. E. Lee Davies, Judge

No. M2001-02791-COA-R3-CV - Filed December 5, 2002

This is a suit for

breach of contr act whe rein the trial court held that a promissorynote, rendered nonnegotia ble by provisions relating to payment prior to maturity by means other tha

n money, was nonethel ess a binding contract between the parties ther eto. Holding that parol evidence was inadmissib le to vary

the unamb iguous te

rms of the contract, the trial court entered judgme nt for the plaintiff . We affir

m the acti on of the t

rial cou rt. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

W IL LI AM B. C AIN , J., delivered the opinion of the court, in which B EN H. C ANT RELL , P.J., M.S., and P ATRIC IA J. C OTT RELL , J., joined.
J. Britt Phillips and Robbie T. Beal, Franklin, Tennessee, for the appellant, W. Dy rk Halstead.

Lar ry D . C ra ig , N as hv il le , T en ne ss ee , f or th e a pp el le e, Be hi Ha mi dy.

OPINION Appell ee, Behi Hamidy, a nd Appellant, W. Dyrk Halstea d, were long time friends. T he y entered into a written agreement on Decemb er 15, 1997. At that time, Halstead was a phy sician practicing in Williamson

County , was also

a founde r and sha reholde r in Computer Sentry Software, Inc., a Tennessee corporation providing sec urity software

for computers. Hamidy

was interest

ed in investing in Computer Sentry Software, Inc. On December 15, 1997, Hamidy went to the office of Halstead and wrote him a check in the amount of $50,000, indicating thereon that it was a “loan.” Halsteadp roduced a document labeled “promisso

ry note.” T his docume

nt provide d in pertin

ent part :

For value received, the under signed p romises to

pay to the order of BehiHamidy, the original principal amount of Fifty Thousand Dollars ($$50,000.00). T he note is pay able on or before Decem

ber 31, 1999 and shall bear interest at the rate of 8 percent (8%) pe r annum. I

nterest s hall be pa

id when no te is due. Bearer has the-2-

option to demand payment on due date in cash plus interest or 1000 shares of Class A Computer Sentry

Software, Inc. stock. B orrower may prepay without pe

nalty in either cash or C lass A Compute r Sentry Sof tware, Inc. stock in which he has equitabl e intere st. The undersigned waives presentment, demand f or pay ment, notice of dishonor , notice of protest, and prote st, and all ot h er notices or demands in connection with the de li ve ry, acceptance, performanc e, or de fault on this instrument , except as hereinafter set out. If any

payment here

under is not made when due and such default is not cured within ten day s after w

ritt en notice thereon

shall, at t

he holder s option, become immediate

ly due and pay

able. Th is note sha

ll bear interest after default at the ra te of two percen

tage po ints over

the prime lending rate charg ed by First Te nnessee Bank, Franklin, TN, to their most creditworthy c u stomer s. This note

may be prepa id without penalty. This note shall be construed and interpreted pursuan t to the local laws of the State of Tennessee.

Both Hami dy a

nd Halste ad signed the docu ment. The

parties a gree t hat the do cument is probably not a neg otiable in strument b ecause of the al ternativ e medium o f pay

ment pri or to ma tu ri ty. See Tenn. Code Ann. § 47-3-104(a)(3). Since the non-negotiable nature of the instrument does not effect the original obligations of the parties to the agreement, that finding is immaterial to the issues drawn in the case betwee n the par ties.

It is undisputed that the bearer Hamidy did not demand payment on the due date (Dec. 31, 1999) , either in cash plus interest or by 1000 shares of Class A Computer Sentry Software, Inc

. stock. It is likewise undisputed that the b orrowe

r, Halste ad, did no t attempt to prepay pr

ior to the maturity date, either in c ashor by Class A Computer Sentry Software, Inc. stock in which he had an equitabl e intere st.

Halsteadinsists that the written agreement is not the agree ment of the parties and that the actual agreement was oral and oc curred prior to December 15, 1997. He insists tha

t Hamidy , in fact , purchased

stock from him in Computer Sentry Software, I nc. at $ 50 per share, believing that the stock would dramatically incr

ease in value and

expecting a substantial profit from the inves tment. The stock, however, decreased in value and on the maturity date in the c ontract, was worth only $20 per share.

The trial court held that the December 15, 1997 contract wa s unambiguous and that paro l evidence was inad

missible to

alter, c ontradic t, or var

y th e terms of the writte n instrume

nt. Said the trial cou rt:

1. Plaintiff

introduced the written agreement signed by both partiesand
a check for $50,000 made pay able to the defend ant. It was undisputed the written agreement and the chec

k were executed on December 15, 1997. 2. Plaintiff

testified that he gave the

defendant $50,000 and that he had the opti on of recouping this money in cash plus interest or in the form of s tock i n-3-

Computer Century Software , Inc. H e t estified the defendant promised him in no event would he r

eceive less than his $50,00 0 investme

n t. The written agreement signed by t he parti es does pr

ovide the plaintiff with the op tion of de

manding cash plus interest

o r 1,000 shares of Computer Century Software, Inc. on the due date

. The cont[r]act also provided that the defendant could prepay this obligation without penalty in either c ash or stock. 3. Alth ough the written agreement is captioned Promissory Note it does notme et th e r eq ui re me nt s o f a pr om is so ry no te in that it fails to provide for the repayme nt of a sum certain. This is due to the option contained in the agreement for payment to be made

by 1,000 shares of

stock. 4. Defendant

contends the agreement betwee n the part ies was not a

loan butin realit

y a n agre ement to se

ll shares of the defendant’s stock which was restricted as of December 15, 1997. 5. The defendant failed to prepa y hi s obliga

tion prior to the due date of December

31, 1999. After the due date, plaintiff exercised his option and demanded the defe ndant pay $50,000 pl

us intere st. 6. Rather

than rep ay

in cash, defendant contends he is entitled to transfer 1,000 shares of Computer Century Software, Inc. pursua

ntto the oral agreement of the parties. Defendant admits this or al agr eement was not a modification of the written agreement or entered into subseque nt to the written agreement. I nstead defendant claims the written agreement simply does not contain the true intention of th e parties whi ch was that instead of a loan as evidenced by the check and “Promissory Note”, this was a ctually an ag

reement to sell stock. 7. The Parol Evidence Rule prevents the rec eipt of evidence for the purpose of varying , adding to, detracting from, or contra dicting the terms of a document when the contract is unambig

uous. How ever, pa

rol e videnc e has been admissible

where (1) the evidence tends to establish an inde pende nt collateral agreement

that does not conflict with the original writing; (2) to show an agreement made subseque

nt to the orig inal docu

ment; (3) to show the inducement for entering into the written contract; (4) where fra udulent representations have occurred or (5) where th e pl ain ti ff r eli es u pon th e do ctr in e of est opp el. In addition, parol evidence is admissib le to uncover and reveal the true intentions of the parties in the event of
an ambiguity

in the con

tract. Gulf Insurance Company vs. Contrux, Inc. , 20 01 W .L. 840240 (Tenn. Ct. App.). 8. Alth ough the written agree ment of the

parties d oes not qua

lify as a negotia ble i ns trument, n

everthe less, it doe s contain

the requ irementsof a cont

ract: (1) an offer (2) acceptanc e (3) consid eration (4) competent parties and (5) a leg al purpose. Fur th erm ore , t hi s co nt rac t i s un amb igu ous . It providesthe borr ower wit h an option o f pay

ing either cash

or stock p

rior to the due date , but once the due da

te arrive s, then the option passes to the b ea rer who has the right to demand cash or stock.-4- 9. The parol evidence relied upon by the defendant

is in direct conflict withthe original writing in that the defendant claims there never was a loan to be repaid by e

ither cash or stock. Ba sed upon the foregoing, the Court concludes the pa rol evidence rule i s applica ble and will

exclude the evidence of the alleged par ol agreement between the partie s which co ntradic ts the ter ms of the w

ritten ag reemen t. It i s THEREF ORE ORDERED and DECREED that plaintiff is entitled to a judgment against defendant in the amount of $50,000 plus interest in the amount of $17,336.49 for a total o f $67,336.49. Costs are taxed to defendant for which execution may issue.

The trial court made n o find ings i nvol ving t he cred ibility of witnesses but determined the
case on questions of law as to the admissibility of pa rol evi dence and as to the meaning of an unambiguous contract. Such que stions of la w are re viewable de novo on appeal with no presumption of correctness as to the conclusions of the chance llor. Union Carbi

de Co rp. v . Huddleston , 854 S.W.2d 87 (Tenn . 1993); Tennessee Farmers Mutual Ins. Co. v. Moo re , 958 S.W.2d 7 59 (Tenn . Ct. App. 1997).

The determinative question on appeal in this case is whether or not pa rol evidenc e is admissible. This Court has held:

Afte r preliminary neg otiations and oral conversations are concluded and a contract is reduced to writing that is clear and unambig uous, there is a conclusive presumption that the parties have reduced their entire agr eement to writing, and that any parol ag reemen t is merg ed in the w

ritten co ntract. Testimony of prio r or contemporaneous conversations for the purpose of alter ing, co ntrad icti ng, or varying the term s of the written instrument are incompetent and inadmissible. Starnes v. First American Nat. Bank of Jackson , 723 S.W.2d 1 13 (Tenn . App. 198 6); Brown v. Brown , 45 Tenn. App. 78, 320 S.W.2 721 (1958).
Faithful v. Gardner , 799 S.W.2d 232, 235 (Tenn. Ct. App. 1990).
Further expositive as to the admissibility of parol evidenc e this Court has held:

Parol e vidence

has been held admi ssible whe

re: (1) t he evide nce tend s to establish an independent collateral agreement that does not conflic t with

the original writi ng; (2) to show an agreement made subs equent to

the original docu

ment; (3) to sh ow the inducement for entering into the written contract; (4) where fraudulent representations have oc curred ; or (5) w here pla in tiff relies upon the doctrine of estoppel

. Freeze , 623 S.W.2d at 109, 112. In addition, parolevidenc e is admiss ible to uncover

and reveal

the true intentionsof the pa

rties in the event o f an ambi guity in the contr

act. Howeve

r, when n o ambigu

ity e xists, there

is no occa sion to ent

ertain parol evidence, or to vary from the plain meaning of the contract. Moore v. Moore , 603 S.W.2d 736 (Tenn. App. 1980).-5-

Krantz v. Overfelt’s Discount Real ty , 01A01-9 311-CH-0 0501 1994 WL 164091 at

*4 (Tenn . Ct. App. 1994).

One may sear

ch in vain the language of the D ecember 15, 1997 agreement for

an y am bi gu it y. The original amount of the note is $50,000. It mature s on Dece mber 31, 1 999. I

t bears in terest prior to maturity at 8% per

annum. Hamidy has the option to demand pa yment on the due date

in either cash or 1000 shares of Computer Sentry Software , Inc. stock. Halstead has the unconditional option, without penalty , to prepa

y pr ior to maturity, either in ca sh or with Computer Sentry Software, Inc.’s stock. Interest after de

fault is at two percentage points over the prime lending rate charg ed by F irst Tennessee Bank of Franklin, Tennessee to their most credit worthy customers. H amidy could have demanded, on December 31, 1999, that Halstead pay by transfer

of 1000 shares of Computer Sentry Software, Inc. stock. Halstead, at a ny time before Decemb er 31, 1999, could have tendered Computer Sentry Software, Inc. stock in sat isfaction of his obligations. Neither of them chose the stock payment route and such medium of pay ment was not a vailable to either of them after the due date.

The chancellor correctly

held that parol evidence

was inadmissible and the judgment of the chancellor is in all respects affirmed.

Costs of the

cause a re asse ssed to the

appella nt.

___________________________________ WILL IAM B. CAI

N, JUDGE