### IN THE COURT OF APP EALS OF TENNESS EE AT NAS HVILLE Se pte m be r 2, 200 3 S es sio n
JAME S W. ST EPHENS ON v . THE T HI RD COMPANY, ET AL 

### .

Appeal f rom the Circ uit Court for Robertson County No. 9254 Ross H. Hicks, Ju dge

No. M2002- 02082-COA-R 3-CV - F iled Fe bruary 27, 2004

The plaintiff f

iled suit for repa

y ment of $25,000 which he purpor tedly loaned to the de fenda

nt. The de fe nd ant c on te nd e d th a t th e mon e y wa s n ot a

loa n, but w a s p laced wi th hi m for a sp e c if ic inves t m en t

. S i nce the investment ultim ately failed, the defe ndant claimed that he did not owe any thing to the plaintiff. The trial court noted that the documents e videncingthe transa ctions at issue
wer e “r eplete w ith ambiguities,” but found that they wer e nonethe less suffic i en t t o es tablish an enfor cea ble l oan contract. The court acc ording ly rende red a plaintiff’s judg ment for $25,000 plus interest. We re verse

.

Tenn. R. App . P . 3 Appeal as of Right; Judgme nt of th e Circ uit Court Reve rsed and Rem anded

P ATR I C I A J. C O T T RE LL , J ., delivere d the opinion of the court, in which W I L L I AM B. C A IN , J ., joined. W I L L I AM C. K O CH , P.J ., M.S., filed a dissentingopinion.

W i n s t o nS

. E v an s , N a s h v i l l e , T e n n e s s e e , f o r t h e a p p e l l an t , T h e T h i r d

C o mp an y

an d R i c h ar d C

. L. C a l dw e l l , i n d i v i d

u a l l y.

J ohn B. H olt, Springfield, Te nnessee , for the a ppellee, James W. St ephenson.

OP IN ION

I. A L OAN OR A N I NVE S T M E NT ?

Th e tr ans a c tio ns fr om whic h th is c a se aro se ha d th e ir ori gins in a bu sin e ss r e latio ns hip be tw e e n d e fe nd ant R ic ha rd Ca ldw e ll a

nd a no n- pa rt y name d Joh nny

Kn ight

. Mr. Ca ldw e ll f ir st b ec am e a cq u ai n t edwi t h M r. Kn i gh twh en t h e l at t er ’s co mp an y , Kn i gh t ’s M ac h i n ery , we n tt h ro u gh bankruptc y

and a ba nkruptcy attorney sug g ested that Mr. Caldwe ll take a look at hi s business. Mr. Knig ht’s business was buying used sawmill e quipment at a uctions, ref

urbishing it, a

nd selling it for a prof it. Mr. Caldwell met with Mr. Knig ht an d concluded that with proper ma nag ement, the business had the potential to g ener ate larg e profits. He de scribed Mr . Knig ht as a g ood salesman,2

“best I ever saw,” but a bad mana g er. Mr. Knight’s bus iness was reorg anized as Knight’s Enter prises, and Mr . Caldwell was hire d to o ve rs e e a ll i ts f

ina nc ia l a ff a ir s. Au c tio ns are c on du c te d o n a c a shba sis , s o it qu ic kly be c a me appar ent to Caldwell that Knig ht would need substantial infusions of ca sh in order to ope rate . After g o i n g t o s e v e r a l l o c a l b an k s , i tb e c am e e qu a l l y a p p ar e n t t o C a l dw e l l t h a tb e c a u s e o f t h e b an kr u p t c y, Kn ig ht w ou ld n ot b e a

ble to b or ro w m on e y

to o pe rate the bu sin e ss.

Mr . Cal dw e ll’ s solutio n wa s to cr e a te a so le pr op ri e tor sh ip ca lle d the Th ir d Comp any to r a ise money and mana g e ca sh flow for K night’ s Enterprise s. Acco rd i n g to Caldwell’s testimony , the
c re a tio n o f a

se pa rate c omp any a s a con du it fo r inv e ste d fun ds pr ote c te d him fr om co mmi ng lin g his own assets with the m oney he furnished to Knig ht, and enabled him to easily keep track of all the money disbursed to or re ceive d from Knig ht. Caldwell invested $35,000 of his own money in the Thi rd C ompany

. He also persuade d a
man n a me d D or

ri s H e a d to ma

ke a $1 00 ,0 00 inv e stm e nt. Ho we ve r, the on ly mon e y a t is su e in t

his
case is the $25,000 that was fur nished to the Third Company by a man named J ames Stephenson.

Richard Caldwe ll an d M r. S tephenson (who usually went by the name Steve Stephenson)
wer e socia l acqua intances. Caldwe ll ex plained Knig ht’s business to Stephe nson, and sug g ested that he might be able to pa

rticipate financ ially in it. Mr. Stephenson ag ree d, and on August 25, 1998, the parties e x ecute d two documents which ha d been pr epar ed by Mr. Caldwell without the assistance
o f ana t t o r n e y.
The fir st document, titled “L oan Ag ree ment,” rec ites a loan of $15,000 from Mr. Stephenson to the Thi rd C ompany , with 10% annua l interest. While the lang uag e and te rms of this ag ree ment
are probably

ty pical of most loan docume nts, the repe ated refe renc es i n it to the business of a third pa rt y are no t. F or

e xamp le , th e se c tio n c a lle d “ L oa n A mou nt” state s th at th e $1 5, 00 0 is “ fo r the us e of par ticipating in the K

night’ s Enterprise s inventory and equipment pr oject.”

Un de r “ Pur

po se ,” the do c ume nt r e c ite s that “ [t]he purp os e of the loa n is to p art ic ipate wi th the Third Company

in the inventory

and equipment f

inancingfor Knight’s Enterprises of Tennesse e, I nc. I understand that the funds I loan the Third Company

will be place d with Knight’ s Enterprise s for the purcha se of inventory and resale.” Under “Collatera l,” i t states, “L ender understands that the collater al for his funds is limited to the inventory and equipment that the B orrowe r has on its books collater aled ( sic) by

Knig ht’s Enterpr ises.” The section on intere st rate state s that “[i] ntere st will be calc ulated ag ainst funds deploy ed for the bene fit of Knig ht’s Enterpr ises.”

On Octobe r 21 , 1998, Mr. Stephenson sig ned a se cond “L oan Ag ree ment” conta ining ide nti c a l la

ngua g e . T his a g re e me nt w a s f or an a dd iti on a l $1 0, 00 0. He re ina fte r, wh e n w e re fe r t o

“ the L oa n A g re e me nt, ” we wi ll e ith e r b e re fe rr ingto t he fi rs t d ocu men t so tit le d, or to b oth do c ume nts , d e pe nd ingon the c on te xt.M r. C al d well t est i f i ed t hat t hi s p rovis i o n m i rr o red a p rop o sed agreem ent t hat K ni ght wo ul d pa y T hi rd 1 C o m p any 5 % pe r mo nt h f o r f und s ad vanced t o hi m f o r t he p urchase of

eq ui p m ent

. A cco rding t o M r. C al d well , M r. K ni gh t r ef

us ed t o s i gn t he propo s ed ag r eement , but ve r bal l y ag r eed t o abi de by i t , an d di d s o duri ng t he f i r s t f ew
m o n ths

.

M r. C al d well t est i f i ed t hat he and M r. H ead bro ught s ui t agai nst M r. K ni ght t o recove r f und s whi ch K ni ght 2 had al l eged l y em b ezzled, and i nvi t ed M r. Stephenso n t o joi n t hat s ui t as a p l ai nt i f f

. M r. Stephenso n de cl i ned and

s u ed Cal dwe l l i n s t ea d.
3 On the same day

that they signe d the first loan a g ree ment, the p ar t i es executed a se cond do c ume nt, tit le d “ Con su lti ngAg re e me nt. ” I ts s tate d p ur po se wa s “ to h ir e the se rv ic e s and e xpe rt ise of Ste ve Ste ph e ns on in or de r t o e nh anc e the e ff ic ie nc y of the Th ir d Co mpa

ny .” Un de r t

his Ag ree ment, consultant fee s are due and pa y able e ach month, in an amount “base d on 5% of the funds which Mr. Stephenson ha s employ ed with the Third Company .” 1
The proof showed that Mr. Stephe nson had no expertise in the business of either the Third Com pa ny or Kn ig ht’ s En te rp ri se s and that, e ve n th ou g h h e ne ve r p e rf or me d a ny c on su lti ngse rv ic e s, he re ceive d monthly pay

ments totaling over $5,000 under the “Consulting Ag ree ment” bef ore the parties a g ree d to suspend the ag ree ment five months afte r its execution.

After some initial success, Knig ht’s Enterpr ises falter ed, and pay ments to Mr. Stephenson
came to a halt. On May

3, 2000, he filed a

Complaint in the Robertson County Circuit Court naming the Third Company and R ichar d Caldwell as defendants. The plaintiff aske d for r epay ment of the $2 5, 00 0 plu s in te re st, a s w e ll a s p un iti ve dama g e s. He a lle g e d f ra ud on the pa rt of Mr . Ca ldw e ll,
a claim which he did not pursue at trial. The Complaint did not me ntion t h e “ C o n s u l t ing Ag re e me nt, ” or

any of the pa y me nts re c e ive d und e r i t.

The de fenda

nt’s Answer denied any wrong doing, and s tated that since the stated purpose of the Ag ree ment betwee n the par ties was to par

ticipate with the Third Company in financinginventory and equipment f

or Knig ht’s Enterpr ises of Tennessee, the obligation of repa y ment was c onditioned up on the Th ir d Co mpa

ny fi rs t r e c e ivi ngpa

y me nt f ro m K night’ s E nte rp ri se s. 2

II. C OU R T P ROCE E DI NGS

The c ase c ame to trial on Apr il 23, 2002. The only witnesses t o testify wer e Mr. Stephenson and Mr. Caldwe ll. Mr. Stephenson seemed to have a f air unde rstandingof the nature of K ni g ht’s Enterpr ises and the role of the Third Company in its financing , but his understanding of the nature of his ow n invo lve me nt a

pp e are d mu

rk y a t be st.

He state d sever al times that he had inve sted in the Thi rd C ompany , and that he w as one of the inv e sto rs in t

hat com pa ny , but he did

n’ t know if the inv e stm e nt w a s an e qu ity int e re st b e c a

us e he didn’t know the meaning of that term. He testified that he knew that the Third Company was g oing to pa

y him and the other investors a commission whe n equipment was sold, a nd that whateve r money the Third Company

rec eived would be distributed to the investors, including him. He state d4

that he under stood there wa s a risk assoc iated w i t h the investment, but that the possible rewa rd “looked ve ry

g ood.”
Mr. Caldwell’s testimony as to the disposition of the money was consistent with that of Mr. Stephenson. He testified that all the money that was invested w ent to Knig ht’s Enterpr ises, and that all the money

rec eived a s profit from the ope ration of that c ompany was distributed to the inve stors in the Third Company

(including Mr. Stephenson) on a pro rata basis as it was r ece ived.

He a lso ga

ve a le ng thy

acc ount of his dealing s with Mr. Knig ht and of the declining fortunes of Knig ht’s Enterpr ises. Acc ording to Mr

. Caldwell, afte r an initial period of suc cess, Mr. K night ins tr uc te d e qu ipm e nt b uy e rs to w ir e the ir pa y me nts dir e c tly to his pr ivate a c c ount, and he us e d th os e funds (amounting to over $150,000) to beg in a 5,000 square foot additio n to his house, instead of turning them over to the Third C ompany as he had agr eed to. When Caldwe ll could not deter Knig ht from using the company ’s money for persona l pur poses, he resig ned as financ ial office r of Knig ht’s En te rp ri se s.
At the conc lusion of closing a rguments, the trial j u d g e announc ed his dec ision from the be nc h. He state d th a t th e loa n d oc ume nts of Au g us t 28 and Oc tob e r 2 1 w e re “ re ple te wi th
a mbi g uit ie s, ” bu t th at he had to c on str

ue the m a g a ins t Mr . Ca ldw e ll a s th e pr e pa re r o f t ho se documents. He noted their fr equent use of the wor d “loan” an d t h e re fer ence to the parties a s borrowe r and le nder. The judge conclude d that the ag ree ment was ind ee d a loan, and that the defe ndants owed the plaintiff $25,000 plus interest. He further decla red that the consulting ag ree ment was a

separ ate doc ument, and that Mr. Caldwe ll was not enti t l ed t o any cre dit for pay ments made unde r the ter ms of that ag ree ment. This appea l followed.

III. A N A L Y SIS The question of i nterpre tation of a contra ct i s a question of law. Guiliano v. CLEO, Inc. , 995 S.W

. 2 d 8 8 , 9 5 ( T e n n

. 1 9 9 9 )

. T h e r e f o r e , th e tr ia l c o u rt’ s in te r

p r e tati o no f

a c o n tr a c tu a l doc ument is not entitled to a presumption of correc tness on appea l. Id .; Angus v. W estern He ritage Ins. Co. , 48 S.W .3d 728, 730 (Tenn. Ct. App. 2000). This court must revie w t he docume nts ourselves and make our own deter

mination reg ardingtheir mea ning a nd leg al import. Hillsboro Plaza Ent ers. v. Moon , 8 60 S.W. 2d

45 , 47 (T e nn . Ct. App . 199 3)

. Our re vie w is g ov e rn e d by we ll- se ttl e d p ri nc ipl e s.

A. A N A M BIG U O U S C ONT RACT
“The centr al tenet of

contra ct construc tion is t hat the intent of the contra cting parties at the time of executing the agr eeme nt should gove rn.” Plan te rs G in C o. v . F e d. Com pr ess & W ar e ho us e Co., Inc. , 7 8 S. W.3 d 8 85 , 8 90 (T e nn . 2 00 2) . T he purp os e of inte rp re tin g a wr itt e n c on tr a c t is to
asce rtain and give eff

ect to the c ontrac ting pa rties’ intentions. Id. ; Frizzell Const r. Co. v. Ga tli nb ur g, L.L. C. , 9 S.W .3d 79, 85 (Tenn. 1999)

. Thus, it is well-e stablished that “[t] he ca rdinal rule for interpre tation of contracts i s to asce rtain t he int ention of t he parties and to g ive ef fec t to that intention, c onsistent with leg al principles.” Pearsall Motors Inc. v. Regal Chrysler-Ply mouth, Inc. ,5

521 S.W .2d 578, 580 (Tenn. 1975)

. See also Galleria Associates, L.P. v. M ogk , 34 S.W .3d 874, 876-7 (Te nn. Ct. App. 2000), Realty Shop, Inc . v. RR W estminster Holding, Inc. , 7 S.W .3d 581, 597 (Tenn. Ct. App. 1999), Ha mb le n Co un ty v . Ci ty of M orris tow n 656 S.W .2d 331,333 (Tenn. 1983)

. As a g ener al rule, the intent of the par ties is presumed to be that spe cifica lly expressed in the written contra ct. Planters Gin Co. , 78 S.W .3d at 890. Ther ef o re, the court’s r ole in resolving disputes reg ardingthe interpre tation of a c ontrac t is to ascertai n the intention of the par ties based upon the usual, natura l, and ordinar y meaningof the languag e used. Guiliano , 995 S.W .2d at 95; Bo b P e ar sa ll M oto rs , 521 S.W .2d at 580.

Where the la

ng uag e of the contract i s clea r and unambig uous, its li tera l meaningcontrols the outcome of c ontrac t disputes. Planters Gin Co. , 78 S. W.3 d at 89 0. I f t he c on tr a c t is un a mbi g uo us , then t he court may not look bey ond its four corner s to asce rtain the pa rties’ intention. Roge rs v . F irs t TennesseeBank National Ass’n, 738 S.W .2d 635,637 (Tenn. Ct. App. 1987). Bo k or v . H old e r, 722 S.W. 2d 67 6, 67 9 ( Te nn . Ct . App . 1986) . B ut, wh e re a c on tr a c tua l pr ov isi on

is a mbi g uo us , i.e ., susceptible to more tha

n one re asonable interpre tation, the parties’ intent cannot be de termined by a litera l interpretation of the languag e. Planters Gin Co. , 78 S.W.3 d at 890 . I n th a t si tuatio n, c ourt s must resort to other rule s of construc tion, and only if ambig uity

re m ai ns after

application of the pertinent rules does the leg al meaning of the contra ct become a question of f act. Id. Then, the c ourt must ex amine other

evidenc e to asc erta in that intention. S uch evid en ce mig ht include the neg otiations leading up to the contra ct, the cour se of c onduct the parties followed a s they perf ormed the contra ct, and any utteranc es of the pa rties that might she d light upon their intentions. Pinson & As so c iates Ins . v. Kre al, 800 S.W .2d 486, 487 (Tenn. Ct. App. 1990), Jack son v. Miller , 776 S.W .2d 115, 118 (Tenn. Ct. App. 1989), Patterson v. Anderson M otor Co. , 3 19 S.W. 2d

49 2, 49 7 ( Te nn . Ct

. App. 1958).

I n Turner v. Zager , 363 S.W .2d 512, 519 (Tenn. Ct. App. 1962), we stated that, “[i] t is the du ty of the c ourt in the c on str uc tio n of c on tr a c ts to a sc e rt a in the int e nti on of the c on tr a c tin g pa

rt ie s, un de rs tand

wh a t th e y me ant b y the c on tr a c t, and g ive e ff

e c t to su c h u

nd e rs tand ingand

me anin g . A ll other rule s of construc tion are only aids or helps in establishing the intention of the par ties and for mutual understandingof the mea ning of their contra ct.” See also Comme rce Stree t Company Inc. v. Goody ear Tire and Rubber Company, I nc. , 215 S.W .2d 4, 10 (Tenn. Ct. App. 1948).

Fur ther, in construingcontra cts, courts must look at the lang uag e and the pa rties’ intent and impose a construc tion that is fair and re asonable

. ACG, Inc. v . Southeast Elevator, Inc . 912 S.W .2d 163, 168 (Tenn. Ct. App. 1995). Re asonable ness must be viewe d in light of the pa rties’ sit uation at the time of the making of the ag ree ment as we ll as at t h e t i me per formanc e bec omes due. Hathaway v. Hathaway , 98 S.W .3d 675, 680-81 (Te nn. Ct. App. 2002). The languag e of a contra ct should be construed w ith refe renc e to the situation of the par ties, the business to which the contr act relates, the subject matter of t he agr eeme nt, the circ umstances surr ounding the transac tion, and the construction placed on the contract by the parties in car rying out its terms. PenskeTruck Leasing Co., L.P. v. Huddleston , 79 5 S.W. 2d 66 9, 67 1 ( Te nn . 1 99 0) ; International Flight Center v. City of Mu rfr e esb or o , 4 5 S. W.3 d 5 65 , 5 70 (T e nn . Ct . App . 2 00 1) . T he c ours e of c on du c t of the pa rt ie s is6

strong evidenc e of the parties’ orig inal intent. Pinson & Associates , 800 S.W .2d, at 487.

The trial court expli citly found that the loan contra ct was ambig uous, a findingwith which
we co n cu r. W h i l e p ar t s o f i tre adl i k e as t an d ar d co n t ra ct t o l en d m o n ey , t h e i n cl u s i o no f l an gu age indicating that the l o an ’s purpose is “to pa rticipate w ith the Third Company in the inventory

and
e qu ipm e nt f

ina nc ingfo r K

nig ht’ s E nte rp ri ses

.. ,” and oth e r l angua g e re fe re nc ingthat th ir d p art y bu sin e ss i s mo re ty

pic a l of so me kin d o f j oint ve ntu re or an inve stm e nt c on tr a c t.

Th e tr ia l c ourt

c ho se to f oc us so le ly on the loa

n- sp e c if ic langua g e in the c on tr a c t to r e a c h h is decision. I t thus failed to take into acc ount both the ambiguous la ng uag e and Mr . Stephenson’s own testimony as to his understandingof the re lationship he had ente red into wi t h the Third Company and its connec tion to Knight’s Enter prises. We note that a contr act must be c onstrued as a whole, and ef fec t give n to ever

y part. “ I t is the universal rule that a contra ct must be viewed from beg inning to end and all its ter

ms must pass in r eview, for one clause may modify , limit or illuminate another” CockeCounty Bd of Highway Commissioners v. N ew port Utili ties Board, 690 S.W .2d 231, 237 (T e nn . 1 98 5) . “ Th e pr op e r c on str uc tio n o f a

c on tr a c tua l d ocu men t is n ot d e pe nd e nt o n a ny name g iven to the instrument by the par ties, or on any single provision of i t, but upon the entire body of the contra ct and the le g al ef fec t of it as a whole.” Ae tna Cas ua lty & Su ret y Co . v. W

oo ds
, 565 S.W .2d 861, 864 (Tenn. 1978). I n addition, the loan ag ree ments were only part of the transac tion be tw e e n th e pa

rt ie s.

B. T HE S I GN I FI C A N C E OF THE C ONS UL T I NG A GRE E M E NT

I t ha s lo ngbe e n re c og nize d that wh e n dif fe re nt do c ume nts are e xec ute d a s p art of the same transac tion, they

must be construed tog ether

. Realty Shop, Inc

. , 7 S.W. 3d a t 59 9; Fer

g u s on v. Pe op le s Nat . B an k

of L aF olle tte , 800 S.W. 2d

18 1, 18 3 ( Te nn . 1 99 0) ; Oman Construction Company v. Tenn. Central Railroad, 370 S.W .2d 563, 574 (Tenn. 1963)

. The loan ag ree ment and the consulting ag ree ment wer e between the same par ties and we re executed at the sa

me time. Mr. Stephenson argues that the c onsulting ag ree ment was sepa rate from the loan agr eeme nt beca

use it was supported by

separ ate c onsideration. B ut the proof shows that Mr. Stephenson had no e x pertise a s a consultant and pr ovided no expertise, so the rec ited consideration in t he c on su lti nga g re e me nt w a s il lus or y on his pa rt

.
Ho we ve r, the c on sid e ratio n on Mr . Ca ldw e ll’ s p art wa s d ir e c tly

tie d to the loa

n a g re e me nt, by being “base d on 5% of the f unds in which Mr. Stephenson has e mploy ed with the Third Company .” Contrar

y to Mr. Stephenson’s argument, it thus appears to us that the true purpose of the Consulting Ag ree ment was to fur nish a dditional c onsideration for the use of Mr. Stephenson’ s funds. We believe the two documents we re e x ecute d as par t of the same tr ansac t i o n , an d that we must construe them tog ether in order to unde rstand what amounts to a single tr ansac tion.7 C. C O N TRA P

R OF E R E NT UM
When we construe the two documents toge ther, we cannot c onclude that the intention of the parties c an be c orre ctly

char acte rized as a simple loa n ag ree ment. Mr. Stephenson argues that we sh ou ld a dh e re to t

he re a so nin g of

the tr ia l c ourt , a

nd c on str ue bo th a g re e me nts a g a ins t Mr . Ca ldw e ll. He ins ist s th a t th e c a se sh ou ld b e c on tr oll e d b y the pr inc ipl e wh ic h he c a lls Contra Proferentum: that is, when a contra ct is ambig uous, it is gene rally construed a g ainst the party who dra fted it. Parks v. Richardson, 567 S.W .2d 465, 468 (Tenn. Ct. App. 1977), Hanove r Insurance Company v. H aney , 425 S.W .2d 590, 592-93 (Te nn. 1968).

Th is r ule is a va lid and us e fu l tool fo r co ns tr uin g a mbi g uo us c on tr a c ts, and it ha s f re qu e ntl y been use d by

the cour ts as the key

to r esolving the question of which of two possible constructions of a c on tr a c t to fa

vo r. B ut i t do e s n ot t

rump oth e r ru le s of c on str uc tio n in a ll s itu a tio ns . Abo ve a ll, it does not neg ate the actua l intention of the parties, where that can be deduce d from other evidenc e.
Mr. Caldwell cites a

number of c ases f

ro m t h e fe d er al courts which state that the rule of resolving contra ct ambig uities ag ainst the drafting party only applies i f t he interpr etation urg ed by the no n- dr a ft ingpa

rt y is r e a so na

ble and pr a c tic a l. T he same pr inc ipl e ha s b e e n a rt ic ulate d b y

thi s court seve ral ti m es , q u o ting the sa me words f

rom 12 Am.J ur. 792 Contrac ts, § 250: “Where the lang uag e of a

n ag ree ment is contradictor y , obscure or ambiguous, or wher e its mea ning is doubtful so that it is s usceptible of two c onstructions, one of whic h makes it fair , customary , and such a s prudent men would naturally execute, while the othe r make s it inequitable, unusual, or such a s rea sonable men w ould not be likely to enter into, the interpr etation which make s a rational and probable ag ree ment must be pre fer red.” W ilkerson v. W

illiams 667 S.W .2d 72, 79 (Tenn. Ct. App. 19 83 ); Pettyjohn v. Brown Bov eri Corp. , 476 S.W .2d 268, 272 (Tenn. Ct. App. 1971); Zage r, 363 S.W. 2d a t 51 9; CommerceStreet Company I nc. v. G oodyear Tire and Rubbe r Company, Inc

. , 215 S.W .2d 4, 11 (Tenn. Ct. App. 1948).

Mr. Caldwell points out that treating his transac tion with Mr. St ephenson a s a simple loan would lead to results that are inconsistent with a rea sonable business dec ision on his part. He d e m o n s t r a t e s t h i s b y

d e s c r i b i n g t h e o u t c o m e f o rb o t hp art i e s u n d e r

t w o p o s s i b l e s c e n ar i o s

. If Kn ig ht’ s E nte rp ri se s su c c e e de d, Ste ph e ns on wo uld e njo y a 70 % re tur n on his mon e y , an d Ca ldw e ll would brea

k even on the tran s ac tion. I f Knig ht failed, Caldwe ll would sti ll be obligated to repa y Stephenson’s money plus 70%, on t op of his own losses. Under both scena

rios, Caldwell would take all the risk and Stephenson w ould rea p a substantial re war d. S u rely , he ar g ues, no rational businessman would enter into such an ag ree ment. When the meaningof an a g ree ment is ambiguous, a nd the cour

t attempts t o deter

mine the true int entions of t he par

ties, it should favor the construc tion that furnishes re asonable terms for the parties’ ag ree ment over the construction that re sults in unreasonable te rms. Howeve r, we need not rel y on th at prin c ipl e to r e a c h a de c isi on he re in. Th e do c ume nts and , p art ic ula rl y , th e pa

rt ie s’ test im o n y p r o v id e a c le ar b a s is f o r d e te r mi n in g th e ir inte n t. A f

te r th o r o u g h ly r e v ie w ing the documents in d i spute, the testimony of the pa rties, and the e ntire re cord of this case, we conclude8

that th e pa

rt ie s in te nd e d th e ir tr ans a c tio n to be an inv e stm e nt c on tr a c t. M r. Ste ph e ns on joi ne d w ith other investors in a pote ntially lucrativ e v enture , which wa s by no means risk-f

ree , and he is not
e nti tle d to re pa

y me nt.

IV. The judg ment of the trial c ourt is reve rsed. The case is remande d to the Circuit Court of Robertson County

for f urther pr ocee dings c onsistent with this opinion. Costs on appeal ar e taxed to the appellee , J ames Stephenson.

____________________________________ PATRI CI A J . COTTREL L , J UDGE