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# FILED
MA Y 29, 1997 Cecil Crowson, Jr. App ellate C ou rt Clerk 

### IN THE COURT OF APPEALS OF TENNESSEE

NATIONSBANK OF TENNESSEE, ) C/A NO. 03A01-9607-CH-00226 ) Plaintiff-Appellee, ) ) ) ) ) ) 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



## O P I N I O N

VACATED AND REMANDED Susano, J.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.

2Numerous 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 NationsBankof Tenness ee (“the Ba nk”) 1 sued the defendants 2 JDRC Corpo ration (JDR C) and Bern ard Armstro ng (Armstrong) to recoveron two not es executedby JDRC and personally guaranteed by Armstron g, JDRC’s p resident. JDRC and Armstrong f iled a coun terclaim fo r damages a lleging tha t the Bank had “breach [ed]... the financing agreement b etween the parties and... the implied obl igation of good faith. ” The tria l court granted the Bank summa ry judgment on its ori ginal compl aint. The issue of li ability hav ing been fo und adverse to the def endants, the parties agreed tha t the amoun t due on th e notes was $1,000,000. The trial court also found that the Bank w as entitled to summary judgment onthe counte rclaim, andaccordingl y dismissed that action . JDRC andArmstrong appealed 3 the dismis sal of thei r counterclai m. The onl y issue bef ore us is whether ther e are disputed fa cts that re nder summar y judgment on the coun terclaim inappropria te.

I. Facts

The facts, when constr ued in favo r of the de fendants, are as foll ows. In or der to fina nce the dev elopment and constructio n of a 216- unit condom inium proje ct called M arble Hill Condominium s, JDRC obt ained two $ 500,000 loa ns from the Bank. The proceeds of the first loan were t o be used f or the init ial

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development of the pro ject site, while the p roceeds of the second loan were t o be utiliz ed for cons truction of the condom inium units. As considerati on for the loans, JDRCexecuted t wo $500,000 promissory notes. The first note was execut ed on Janua ry 29, 1988, and r enewed for one year onJanuary 29 , 1989; the second was executed onOctober 19 , 1988, andrenewed fo r an additi onal year on October 27, 1989. Each obliga tion was se cured by a separate deed of tru st on the c ondominium property. Interest wa s due quarterly. Armstrong p ersonally g uaranteed b oth obligat ions.

In his depo sition, Arm strong test ified that he reached an oral agr eement withRichard Hayes and T.K . Wright of the Bank regarding l ot releases , whereby t he Bank wou ld receive $30,000 upon the cl osing of th e sale of e ach condomi nium unit. From that amount, $10 ,000 was to be appliedtoward the first loan , and $20,000 tow ard the sec ond loan. When a lot/ unit was so ld and closed, the Bank agree d to releas e the deed of trust as to that lot in retu rn for the agreed-uponpayment. JDRC was thus entitled to any amount over $30 ,000 from e ach sale. Generally s peaking, the purchas e price of the units w as between $40,000 and$60,000. JDRC depend ed on this income for working cap ital to fin ish out the units beingsold and t o build mor e units.

According t o Armstrong , the parti es operatedunder this arrangement until late 1989, whenJohn Burke of the Ban k informed him that JD RC would he nceforth be required t o pay the B ank 100% of the proceed s from futu re closings . Burke ga ve no reaso n for the change but stated that the decisi on was fina l. Armstro ng’s subsequent efforts to discuss the matter wit h officials of the Bank

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were unsucc essful.

At the time the Bank d emanded ful l payment o f all net sale procee ds, JDRC wa s preparingto close t he sale of three of the newly-c onstructed condominium s. Accordi ng to Armst rong, this change in r epayment po licy left J DRC with no working capital. JDRC was thus unable t o close the three sale s--or any s ubsequent sales--and was forced to abandon the project and cease doing business. The Bank de clared JDRCin default in March, 1990, and filed its c omplaint onthe notes in June of the followi ng year.

In its coun terclaim, J DRC alleges that the B ank breached th e financingagreement between the parties and its implied obl igation of good faith. JDRC cont ends that s uch acts proximatelycaused the loss of co ndominium s ales, lost profits, and other d amages.

II. Summary Judgment

The trial c ourt’s gran t of summar y judgment causes us to focus onthe rules that are applicable wh en a defend ant, counter-def endant, or other defending party, seeks to a void a plenary pro ceeding by moving for summary jud gment.

When a part y responds to a claim against it by filing a summary jud gment motio n, it is in cumbent upo n that part y to support its motion wit h facts tha t establishan affirma tive defense, ne gate at lea st one of t he essentia l elements of the claim, or o therwise sh ow that the claimant i s not entit led to relief. Byrd v. Hal l , 847 S.W.2 d 208, 213- 14, 215 n.5 (Tenn.

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1993). Typ ically, the se facts ar e presentedin the form of affidavits, authentica ted documen ts, deposit ions, and o ther properly-ve rified fact ual matters developed through the discovery process. See Rule 56.03 , Tenn.R.Ci v.P. The p roffered sw orn-to testimony a nd/or prope rly-authent icated documents must be admissible at trial be fore they c an be consi dered by th e trial court on summary judgm ent. Byrd , 847 S.W.2 d at 215. However, they need n ot be in admissible fo rm; hence, an affidavi t, while not admissi ble at tria l in that f orm, can be consideredby the court if th e testimonyitself is otherwise a dmissible. Id . at 215-16.

If the mate rial reliedupon by th e defendingparty unwittinglyor otherwi se demonstr ates disputedmaterial f acts; or reflects undisputed ma terial fact s, but fail s to show t hat the movant is e ntitled to a judgment, then, in e ither event , the nonmovant i s not requi red to do a nything to defeat summary judgment. Id . at 211. The burden to satisfy the require ments of Rule 56.03, Tenn.R.Civ .P., is cle arly on the defending party. Id . at 215. Th at party do es not sati sfy its bur den by maki ng conclusory

assertions that the c laimant cannot prove i ts claim. Id . If, on t he other ha nd, the mat erial relie d upon by t he defending p arty demons trates undi sputed mate rial facts supporting a judgment for that pa rty, the no nmoving par ty must res pond by putting adm issible fac ts before t he trial co urt to showa dispute as to those material f acts in ord er to defea t summary j udgment. Id . The nonm ovant canno t, in that case, simpl y rely uponthe allegations of its cla im. See Rule 56.05 , Tenn.R.Ci v.P.

### 6 The nonmova nt is entit led to the benefit of any doubt. Byrd, 847 S.W.2dat 211. The trial co urt must “t ake the str ongest legitimate view of the evidence i n favor of the nonmovi ng party, allow all r easonable i nferences i n favor of that party, and discard all countervai ling eviden ce.” Id . at 210-11 . All fact s supporting the positio n of the no nmovant mus t be accept ed as true by the tria l court. Id . at 212. It is only when the ma terial facts are n ot in dispu te and conc lusively sh ow that the movant is entitled to a judgment , that a tr ial court i s justifiedin depriving aclaimant o f its right to a plena ry trial. In all other insta nces, a tri al on the m erits is ne cessary. S ummary judgment “i s clearly n ot designedto serve a s a substit ute for the trial of ge nuine and material fac tual matter s.” Id . at 210.

A request f or summary judgment ra ises a ques tion of law. Gonzales v. Alman Cons t. Co ., 857 S.W. 2d 42, 44 ( Tenn.App. 1993). Ourperspectiv e is the same as that of the tria l court. Id . at 44-45. Therefore , we must d ecide anew if the mova nt is entitled to summary ju dgment. Id . Since th is determin ation involves a question of law, there is no pres umption of correctness as to the t rial court’ s judgment. Id . at 44.

III. Law and Ana lysis On the day the trial c ourt heard the Bank’s motion for summary jud gment, the Bank filed with the tr ial court t wo documents f rom its rec ords as lat e-filed exh ibits to th e4 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 deposition of its loanofficer, R ichard Haye s. 4 The first of these docum ents is ent itled “Comm ercial LoanMemorandum ,” (see Apendix No. 1). It is dated Janu ary 4, 1988 , a short t ime before the executi on of the f irst note. In his dep osition, Hayes described t he document as a “writ e-up,” appa rently of t he Bank’s loan to JDR C. It is approved andsigned by the members of the Bank’s loancommittee. The second bank document is dat ed October 19, 1988, t he date on which the s econd $500, 000 note wa s executed by the defe ndants. It is entitle d “New LoanSummary,” (see Appendix No . 2). It c ontains no signatures.

Prior to th e filing of these two documents, the Bank had argued to the tria l court tha t the defendants’ coun terclaim, at best, wa s based on an oral pro mise or commitment andwas therefore unenforceabl e under the Statute of Frauds, T. C.A. § 29- 2-101(b)(1) , which pro vides that

[n]o actionshall be b rought agai nst a lende r or creditorupon any p romise or c ommitment t o lend money or to extend credit, o r upon any promise or commitment to alter, amend, renew , extend or o therwise mo dify or supplement any written pro mise, agree ment or commitment to lend money or extend c redit, unle ss the promise or agreement, upon which such action shall be br ought, or s ome memorandum or note thereof, sh all be in w riting and signed by the lender or creditor , or some o ther person by him ther eunto lawfu lly authori zed.

Once the af oresaid doc uments were produced, the Bank’s argument

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changed som ewhat. The reafter, and on this appeal, it a rgues that neither of these docum ents satisf ies the requirements o f T.C.A. § 29-2-101(b) (1). It al so argues t hat even if the Commer cial Loan Memorandum is sufficie nt to satis fy the “in writing” re quirement of T.C.A. § 29-2-101(b )(1), it is inadmissib le since, s o the argument go es, it is a n attempt t o modify th e notes by parol evidence. The trial c ourt conclu ded that th e Commercia l Loan Memorandum was not a “ public” doc ument and t herefore co uld not be used to sat isfy the St atute of Fr auds.

At the outs et, we woul d point out that the N ew Loan Summary is not signed; hence, it is clear th at it canno t satisfy the Statute of Frauds, which expr essly requi res a docum ent “signed by the lend er or credi tor or some other pers on by him t hereunto authorized. ” Id . However, unlike the New Loan S ummary, the Commercial Loan Memora ndum is sig ned by offi cials of th e Bank. It raises two issues: fir st, does th e latter do cument sati sfy all of the require ments of T. C.A. § 29-2 -101(b)(1)? ; and second, is this document ot herwise adm issible?

In this cas e, the Bankattacks on ly one elem ent of the defendants’ countercla im, i.e., whether ther e was a leg ally enforceable promise orcommitment . Therefor e, the Bank ’s motion must rise o r fall on t his one iss ue. Since the Bank di d not file a properly- supported m otion as to any of the other elem ents of the counterclai m, the defe ndants, as counter-pla intiffs, we re not required to present fa cts with re spect to th ese other e lements.

### 9 We will nowexamine th e two quest ions posed above.

A. Statute of Frauds
The defenda nts’ counte rclaim is c learly subj ect to the terms of th e Statute o f Frauds, T .C.A. § 29- 2-101(b)(1) . That statute exp ressly appl ies to an a ction “agai nst a lendo r or creditor... upon any p romise or c ommitment t o... supple ment any written pro mise, agree ment or commitment to lend money or extend credit....” Id. In order to satisfy this provis ion, there must first be a promise, co mmitment, o r agreement , “or some memorandum or note the reof.” Id. We believ e that, at a minimum, the Commercial Loan Memora ndum consti tutes a “me morandum” o f the Bank’s comm itment to r elease the deed of tru st upon the sale of a lot, provid ed it recei ves $30,000 of the net proceeds f rom the sale.

The Memorandum contain s the follo wing notati on: “Lot release $30 ,000.00.” This is con sistent wit h Armstrong ’s testimony t hat the Ban k had agree d to releas e each lot from the deed of tru st upon payment of $30 ,000 of the purchase p rice of a lot. Furth ermore, the Memorandumstates tha t “$250,000 of [the] first loan would be pa id from sal es of [the] 1st 25 uni ts.” This figure corr esponds to Hayes’ test imony that the Bank applied $10,000 fro m each sale to the ini tial loan. Therefore, when construed i n a light m ost favorab le to the d efendants, as we are required to do in this summary ju dgment dete rmination, the Commercial Loan Memora ndum is evi dence of a commitment by the Bank to release each lot up on the paym ent of $30, 000.5 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 T.C.A. § 29 -2-101(b)(1 ) additiona lly require s that such promise or commitment, or “memora ndum or not e thereof,” be in writing. I t is clear that the Co mmercial Lo an Memorandum, a written doc ument, meet s this requ irement.

Finally, T. C.A. § 29-2 -101(b)(1) provides th at the promise, ag reement or memorandum must be “si gned by the lendor or creditor, o r some othe r person byhim thereunto lawfull y authorized. ” Id. The Comme rcial Loan Memorandum is signed by “R.M. Hayes ”, “T.K. Wr ight”, 5 and severa l others onbehalf of the Bank. Acco rdingly, we find that the documen t meets the signature requirement of T.C.A. § 29-2-101( b)(1).

The trial c ourt conclu ded that th e Commercia l Loan Memorandum could not b e used to s atisfy the Statute of Frauds because it was an inte rnal bank d ocument, wh ose existen ce was apparently not known o utside the Bank. We d isagree. There is nothing in the statute requiring that “the m emorandum o r note” of the promise or commitm ent be furn ished to th e borrower or otherwise b e a public document.

We therefor e conclude that the Co mmercial Lo an Memorandum satisfies t he Statute of Frauds. The notati on, “Lot release $30 ,000.00", i s not, as t he Bank arg ues, too indefinite to form the ba sis of a pr omise or co mmitment. The Memorandum evidences apromise orcommitment to release each lot f rom the

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deed of tru st upon payment of $30 ,000.

With regardto the NewLoan Summa ry, on the other hand, we have pre viously ind icated that that docum ent--being unsigned-- does not sa tisfy the S tatute of F rauds. Whi le the New Loan Summary, inand of its elf, cannot constitute a binding commitment, we believe it is never theless rel evant, and hence admis sible, on the issue o f the lot r elease agre ement; spec ifically, i t contains evidence be aring upon the Commerc ial Loan Me morandum, adocument that does s atisfy the Statute of Frauds. Th e New Loan Summary is dated Octob er 19, 1988 -- the sam e date as t he second l oan. It contains, o n a line de signated “R epayment Ag reement”, t he handwrittennotation: “lot releas e 20,000 pe r sale this loan, 10,000 per lot 1st loa n.” Again, these numb ers corresp ond to Armstrong’s testimony regarding t he terms of the repaym ent arrangement : the Bankwould rele ase each lo t upon rece ipt of $30,000 of its purchas e price; it would thenapply $20, 000 toward repayment o f the second loan, and$10,000 to ward the re payment of the first l oan. Thus, the New Lo an Summary on the seco nd loan provides fu rther evide nce that th e Bank made a promise or commitment to release the lots fr om the deedof trust upon the payment of $30,000.

B. Admissi bility of B ank Documen ts
The Bank ar gues that e ven if the Commercial Loan Memorandum satisfies t he Statute of Frauds, it is inadm issible as an attempt to modify t he promisso ry notes byparol evid ence. We disagree. The parol e vidence rul e provides that6While 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. 

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parol evide nce is inadmissible to contradict , vary, or al ter a writt en contract where the written ins trument is valid, comp lete, and unambiguous , absent fr aud or mist ake or any claim or al legation th ereof.

Airline Constr., Inc. v. Barr , 807 S.W.2 d 247, 259 (Tenn.App. 1990). Ourcourts hav e held, how ever, that parol evide nce is admissible “to prove the existen ce of an independent c ollateral agreement.” Starnes v. First Ameri can Nat’l B ank , 723 S.W.2 d 113, 117 (Tenn.App. 1986). See also Early v. St reet , 241 S.W.2 d 531, 535 (Tenn. 1951) (“The re are exce ptions to t he effect t hat an independent collateral agreement may be prov en...”). F urthermore, as stated i n Starnes ,

[t]he terms of a writt en agreemen t may be supplemente d by eviden ce of addit ional terms unless it i s found tha t the writi ng was intended as an exclusi ve statemen t of the terms of th e agreement .

Starnes , 723 S.W.2 d at 118 (c iting Strickland v. City of Lawrencebur

g , 611 S.W.2 d 832 (Tenn .App. 1980) ; Kilday v. B askette , 259 S.W.2d 162 (Tenn. 1953)).

The applica tion of the parol evid ence rule 6 and its exceptions depends upo n the facts of each pa rticular ca se. Early , 241 S.W.2d at 535; Starnes , 723 S.W.2 d at 117.

### 13 In the Airline Constructioncase, this court addr essed the admissi bility of e vidence of an oral agr eement to c omplete part of a c onstructionproject wi thin six mo nths. Afte r finding that the wr itten contr act specifi ed that sub stantial co mpletion was to be a chieved wit hin approxi mately eight months, th e court held that t he parol ev idence at i ssue contra dicted and varied the terms of th e parties’ contract and was there fore inadmi ssible. Airline Constr. , 807 S.W.2 d at 259. The court s tated that

[p]arol pro of of “indu cing repres entations” or “collat eral agreem ents” to th e written contract mu st be limit ed to subje ct matter which does not contradict or vary termswhich are plainlyexpressed in the writ ing.

Id. (emphasis in original )(citing Searcy v. Brandon , 68 S.W.2d112 (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. D ye , 263 S.W.2 d 544 (Tenn .App. 1954) ).

In Early v.Street , the Supre me Court fo und that va rious oral agreem ents, whicha buyer so ught to est ablish by p arol evidence, w ere independent of andcollateral to a deed of sale between the parties. The court h eld that su ch evidence was admissible and noted t hat

it certainl y was not t he intentio n of the parties, no r did they deem it nec essary to incorporate all of the se collater al agreements in the deed .
Early , 241 S.W.2 d at 535.

### 14 Under the f acts of the instant ca se, we conc lude that the arrange ment betwee n the parti es as to th e release o f an individual lot from th e deed of t rust upon p ayment of $ 30,000 was an independ ent agreeme nt, collate ral to the promissory notes. See Early , 241 S.W.2 d at 535; Airline Constr. , 807 S.W.2 d at 259; a nd Starnes , 723 S.W.2 d at 117-18 . Therefor e, such agr eement may be establishedby evidenc e in the fo rm of the C ommercial L oan Memorandum and the NewLoan Summa ry, provide d such evid ence does not contrad ict or varyterms that are clearl y expressedin the notes. Airline Constr. , 807 S.W.2 d at 259.

Upon reviewof the rel evant docum ents, it is clear that the lot rel ease agreem ent in no w ay varies o r contradic ts the terms of th e promissor y notes. Unlike the c ontract in the Airline Constructioncase, whic h included a specific provision t hat directly co ntradicted the allegedoral agree ment, the n otes in the instant cas e contain n o specific provision r egarding th e release of the lots from the d eed of trus t. As prev iously indi cated, the collateral agreement i n this case did not va ry or chang e the notes in any way- -they conti nued to be due and payable precis ely according t o their terms as foundwithin the four corne rs of the notes.

Furthermore , it appear s that, as in the Early case, the parties didnot deem i t necessaryto include every aspe ct of their agreement i n the notes . On the c ontrary, it appears th at the notes were not intende d to be an “exclusive statement o f the terms of the agre ement.” Starnes, 723 S.W.2d at 118. As a practica l matter, to facilitate the sale of individual condominiums free of the underly ing mortgag e, there ha d to be som e additiona l

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arrangement regarding the release of the lot s from the deed of trust. The collateral agreement had the eff ect of addr essing an obvious and

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essential e lement othe rwise missi ng from the parties’ “ deal”--the amount of t he sales pr ice of eachlot that w as to be pa id to the bank in ord er to obtai n a release of the dee d of trust as to the individual lots. In amulti-unit condominium project, there has to be some understandi ng between the borrowe r and lende r regarding the release of the ind ividual lot s if sales are to be e ffected and financed.

We therefor e conclude that the Co mmercial Lo an Memorandum and the NewLoan Summa ry are admi ssible evid ence of an independent , collatera l agreement between th e parties. Under the facts of th is case, th e parol evi dence rule does not op erate to bar their a dmission. See Early , 241 S.W.2 d at 535; Airline Constr. , 807 S.W.2 d at 259; a nd Starnes , 723 S.W.2 d at 117-18 .

IV. Conclusion

We conclude that the C ommercial L oan Memorandum is sufficient to satisfy the Statute of Frauds. Therefore , the Bank’s moti on fails inits attemp t to negate the defend ants’ claim of a commit ment by the Bank to re lease lots from the de ed of trust upon the payment of $3 0,000 out o f the net p roceeds of a closing. There is admissible ev idence of t his commitm ent. Since this was the only el ement of th e countercl aim attacke d by the mo tion for summary jud gment, we f ind and hol d that the Bank is not entitled to summary judgment.

### 17 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.