Court Opinion

ID: 6323511
Source: CourtListenerOpinion
Date Created: 2022-03-15 19:11:30.499574+00
Date Added: 2024-06-11T09:21:38.085167
License: Public Domain

03/15/2022
                IN THE COURT OF APPEALS OF TENNESSEE
                              AT NASHVILLE
                     Assigned on Briefs December 1, 2021

        TENNESSEE BANK & TRUST V. SCOTT MICHAEL BORUFF

                 Appeal from the Circuit Court for Davidson County
                  No. 19C2796     Hamilton V. Gayden, Jr., Judge

                             No. M2021-00552-COA-R3-CV

A bank brought an action against a borrower for failure to repay a promissory note. The
borrower asserted that the bank failed to mitigate its damages by failing to sell the shares
of stock it held as collateral to pay off the loan at a time when the stock’s value was high.
After a bench trial, the trial court granted judgment in favor of the bank, holding that the
parol evidence rule prevented consideration of his purported oral modification of the
parties’ agreement. Borrower appeals. We affirm the judgment of the trial court.

  Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

ANDY D. BENNETT, J., delivered the opinion of the Court, in which J. STEVEN STAFFORD,
P.J., W.S., and THOMAS R. FRIERSON, II, J., joined.

Walter N. Winchester and Ryen Monique Lamb, Knoxville, Tennessee, for the appellant,
Scott Michael Boruff.

John R. Cheadle, Jr. and Mary Barnard Cheadle, Nashville, Tennessee, for the appellee,
Tennessee Bank & Trust.

                                        OPINION

       This appeal involves an action to collect on a promissory note. On December 3,
2013, Scott M. Boruff executed a $3,000,000 note to Tennessee Bank & Trust (“TBT”).
The note was a Variable Rate Commercial Revolving Draw Note, due on December 1,
2014, and all proceeds of the loan were to be used by Mr. Boruff for business or commercial
purposes. The note required Mr. Boruff to make monthly interest payments, “calculated at
a variable rate equal to the Wall Street Prime Rate . . . plus 1.50%” but never less than
4.75% per year.
       To secure the note, Mr. Boruff pledged as collateral publicly-traded stock he held
in Miller Energy, an oil and gas exploration company based in Knoxville of which Mr.
Boruff was president and CEO. At the time he pledged the stock as collateral, his 3,344,925
shares of stock were valued at $27,562,182 and were held in a brokerage account at TD
Ameritrade. Mr. Boruff executed a Pledged Asset Agreement for Collateral Loans that
gave TBT control over the brokerage account, including the right to sell the stock as
collateral at any time without Mr. Boruff’s consent or knowledge.

       Due to volatility in the oil and gas market in 2014, the value of the stock began to
decrease in value. In light of those changes, the parties executed the first of nine
modifications of the note in March 2014. The first modification increased the principal
amount of the note to $3,300,000 and extended the maturity date from December 1, 2014,
to October 1, 2015. This modification also set up a payment schedule that required Mr.
Boruff to begin making his monthly interest payments in May 2014 (instead of January
2014), to pay off any principal balance over $2,000,000 on October 1, 2014, and to pay off
any principal balance over $1,500,000 on March 31, 2015. It also imposed certain
conditions for advances, including that the price of the stock be not less than $4 per share
and that the principal balance of the note not exceed 20% loan-to-value between March 31
and October 1, 2014, 25% between October 1, 2014 and March 31, 2015, or 30% between
March 31 and October 1, 2015.

       In October 2014, the parties executed a second modification of the note, reducing
the principal amount of the note to $1,600,000 and changing the conditions for advances
so that the price per share of the stock had to be above $3.00 per share and the principal
balance of the note could not exceed a 35% loan-to-value between October 1, 2014 and
October 1, 2015. A year later, the parties executed a third modification, effective October
1, 2015, which provided that the amount of the note was reduced from $1,600,000 to
$1,591.654.18 and the maturity date was extended from October 1, 2015 to December 3,
2015. Around the time of this modification, Miller Energy filed for bankruptcy; Mr. Boruff
was no longer president and CEO but was serving as executive chairman of the company.

        By a fourth modification with an effective date of December 3, 2015, the principal
amount of the note was increased to $1,801,654.18; Mr. Boruff pledged real property as
additional collateral; and the maturity date was extended to April 5, 2017. More written
modifications were made on August 18, 2016 (increasing the principal to $1,807,554.18);
September 2, 2016 (increasing the principal to $1,892,554.18); September 12, 2016
(increasing the principal to $2,207,554.18, providing that the note “shall become a draw
down line of credit,” and setting the conditions for certain amounts to be made available
for Mr. Boruff); April 5, 2017 (extending the maturity date to June 5, 2017); and June 5,
2017 (reciting that “in exchange for Lender agreeing to extend the Note, Borrower has
agreed to pledge his interest in 507 South Gay, LLC[,] as additional collateral for the Note”;
fixing the interest rate at 4% per annum; modifying the maturity date to July 25, 2018; and
providing a payment schedule).

                                            -2-
       Ultimately, Mr. Boruff did not pay off the note when it was due on July 25, 2018,
and TBT filed a complaint on the note on November 26, 2019, seeking a judgment of
$2,219,178.87 for the outstanding principal of $1,907,573.75 plus interest; TBT also
sought its attorney’s fees and costs. Mr. Boruff answered, and, with leave of the court, later
amended his answer. He admitted most allegations but denied the following: that he had
defaulted on the note; that he owed $1,907,573.75 in unpaid principal and $311,605.12 in
interest; that he agreed in the note to pay TBT’s attorney’s fees and expenses; and that TBT
was incurring attorney’s fees at $275 per hour plus “the associated legal expenses of
collection and this lawsuit.” Mr. Boruff also asserted several affirmative defenses,
stemming from his position that the Bank failed to mitigate its damages and also breached
the contract by “unreasonably refusing to sell the stock securing the note upon reasonable
and timely request by the Defendant,” which he contended would have resulted in the
balance on the note being paid in full.1

       A bench trial was held in April 2021, at which four witnesses testified: three TBT
representatives and Mr. Boruff.

       Walker Choppin, Jr., who was senior vice president at TBT when the loan was made
to Mr. Boruff but has since retired, testified that the loan was “a line of credit that Mr.
Boruff could access for really whatever investment needs he might have” and that the loan
was secured by shares of stock held in Miller Energy. Pertinent to Mr. Boruff’s failure to
mitigate damages defense, Mr. Choppin testified that at the December 2014 meeting
between Mr. Boruff and bank leaders, Mr. Boruff did not ask the bank to sell the shares of
stock to repay the loan. To the contrary, Mr. Choppin testified that Mr. Boruff “asked us
not to sell.” Moreover, Mr. Choppin testified that the loan was not in default at that time,
that the bank never declared the loan to be in default, and that at no time did Mr. Boruff
ever ask the bank to sell his shares of stock prior to them becoming “worthless” in October
2015.

        Roddy Story, Jr., who was executive vice president and manager for commercial
banking at TBT when the loan was made, testified that Mr. Boruff made a substantial
payment in early October 2014 that reduced the balance owed on the loan to $22,780, but
that over the next month, he made withdrawals amounting to a balance owed of
$1,587,656.36. Mr. Story testified that he and Mr. Choppin and another bank official had
a meeting with Mr. Boruff, Mr. Boruff’s father-in-law, and their attorney, in December
2014 over “concern . . . because of what was happening in the oil industry.” Mr. Story
testified that Mr. Boruff was “somebody we had a lot of confidence in” and that “we came
away feeling much better about the prognosis for the company . . . [and] relieved that he
   1
      Mr. Boruff raised as his fourth affirmative defense that TBT “failed to sell the foreclosed property for
its fair market value pursuant to T.C.A. 35-5-118” such that he was entitled to a reduction of the deficiency
balance “because the Plaintiff’s bid of $1,300,000.00 was materially less than the fair market value of such
property at the time of the sale.” This particular defense was not developed at trial by Mr. Boruff, ruled
upon by the trial court, or briefed on appeal. Accordingly, we will not address it either.
                                                    -3-
thought the company would forbear the industry.” Mr. Story testified that Mr. Boruff told
the bank officials that he was asked by the board of Miller Energy to not have his shares
pledged on any personal loans and asked to be given until May 2015 to get the bank “taken
care of.” Mr. Story testified that at no point in his working relationship with Mr. Boruff did
Mr. Boruff ask the bank to sell the shares of stock in Miller Energy. He also agreed on
cross examination that while the bank had the right to declare the loan to be in default, the
bank did not declare a default, and that there was a distinction in the banking industry
between there being an event of default versus the bank declaring a loan to be in default.
He explained that TBT did not declare a default because there “seemed to be what we felt
to be good faith and cooperation between us, and there also seemed to be possible solutions
that would benefit [Mr. Boruff] and us.”

        Dan Andrews, Jr., president of TBT, testified that he was present for the meeting in
December 2014 with Mr. Boruff, during which Mr. Boruff gave assurances that the matter
would be resolved by May 2015. Mr. Andrews stated that he and the other bank officials
“felt much better after the meeting” and that “[his] impression from the meeting itself was
that they came out here to bring us up to speed on Miller, the industry, and the stock so that
we wouldn’t sell. And he never in that meeting asked me or us or anybody to sell the stock.”
Mr. Andrews testified about the relationship between Mr. Boruff and the bank: “at the end
of the day . . . Scott seemed to have the wherewithal, the ties, the connections, the history,
the professionalism to kind of continue, and whether the stock was there or not there, to
make it work.”

       Mr. Boruff then presented his case and testified that he obtained the loan at issue in
December 2013 at the same time as receiving a personal loan in roughly the same amount
from CapStar Bank. The CapStar loan was secured by a first mortgage on his home and
the Miller Energy stock.2 He testified that an oil crisis began in the spring of 2014 and
accelerated that fall, resulting in a change in value of the stock from $27,562,182 in
December 2013 to $7,025.88 on December 31, 2015, and prompting “constant talk” with
TBT about the value of the collateral that secured its note. Contrary to the testimony offered
by the bank officials, Mr. Boruff testified that he asked the bank officials to sell the stock
in December 2014 and did not understand why they did not do so. He explained, through
a graph entered into evidence as Exhibit 15, that the stock was worth approximately $4 per
share in October 2014 and $3 per share in November 2014.

   2
     Mr. Boruff testified that CapStar Bank later sold the stock to satisfy its loan when the stock was valued
at $3 per share (down from roughly $7 per share when the loan was first obtained) such that they “paid of[f]
the $2,000,000 or $3,000,000 loan literally that day.” The exhibits and the testimony do not make clear
exactly when that sale occurred; however, Exhibit 15 shows that stock was valued at $3 per share in either
October or November 2014, and we thus deduce that the sale occurred around that time.

                                                    -4-
       At the conclusion of the trial, the trial court issued a ruling from the bench and
entered an order memorializing that ruling on April 23, 2021, in which it made the
following findings of fact and conclusions of law:

                Defendant did not contest that he borrowed the money from the Bank,
        that he signed the note and the nine modification agreements, or that the
        [B]ank calculated the balance due in principal and interest correctly.
        Defendant contended that he orally instructed the Bank to sell his collateral
        shares of stock in Miller Energy Resources, Inc. prior to the stock decreasing
        in value. Since the parol evidence rule precludes the oral modification of an
        unambiguous contract, the Court finds that defendant is justly indebted to
        plaintiff for an unpaid loan, with a principal balance due in the amount of
        $1,907,573.75, plus pre-judgment interest of $411,285.00, and plaintiff’s
        reasonable attorney’s fees.

The court ordered Mr. Boruff to pay TBT $2,318,285.75, accruing post-judgment interest
at the default rate of 15% per annum, pursuant to Tenn. Code Ann. § 47-14-121.3 It further
ordered Mr. Boruff to pay $150,000 for TBT’s attorney’s fees and assessed the court costs
against Mr. Boruff.

        Mr. Boruff appeals, raising the following issue: “Whether the trial court erred when
it failed to consider the defense . . . that [TBT] failed to mitigate its damages by failing
and/or refusing to sell the stock collateral.”

                                         STANDARD OF REVIEW

        “In an appeal from a bench trial, we review the trial court’s findings of fact de novo
with a presumption of correctness, unless the evidence preponderates otherwise.” Foster–
Henderson v. Memphis Health Ctr., Inc., 479 S.W.3d 214, 223 (Tenn. Ct. App. 2015)
(citing TENN. R. APP. P. 13(d)). If the trial court has not made a specific finding of fact on
a particular matter, we review the record to determine where the preponderance of the
evidence lies without employing a presumption of correctness. Ganzevoort v. Russell, 949
S.W.2d 293, 296 (Tenn. 1997). “[F]or the evidence to preponderate against a trial court’s
finding of fact, it must support another finding of fact with greater convincing
effect.” Realty Shop, Inc. v. RR Westminster Holding, Inc., 7 S.W.3d 581, 596 (Tenn. Ct.
App. 1999). We also review the trial court’s resolution on a question of law de novo, and
no presumption of correctness attaches to the trial court’s legal conclusions. Bowden v.

   3
     Tennessee Code Annotated section 47-14-121(c) provides that “where a judgment is based on a statute,
note, contract, or other writing that fixes a rate of interest within the limits provided in § 47-14-103 for
particular categories of creditors, lenders or transactions, the judgment shall bear interest at the rate so
fixed.” The note provides that “In the event of any default under this Note, the Lender may, in its discretion,
determine that all amounts owed to Lender shall bear interest at the lesser of Fifteen and No/100 percent
(15.00%) per annum, or the maximum interest rate the Lender is permitted to charge by law.”
                                                    -5-
Ward, 27 S.W.3d 913, 916 (Tenn. 2000). “The interpretation of a contract is a matter of
law that requires a de novo review on appeal.” Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95
(Tenn. 1999) (citing Hamblen Cty. v. City of Morristown, 656 S.W.2d 331, 335-336 (Tenn.
1983)). Similarly, whether a party has satisfied its duty to mitigate damages is a matter of
law and must be reviewed de novo. B.W. Byrd Metal Fabricators, Inc. v. Alcoa, Inc., No.
E2018-01750-COA-R3-CV, 2019 WL 3889798, at *6 (Tenn. Ct. App. Aug. 19, 2019).

                                         ANALYSIS

        “A court’s initial task in construing a contract is to determine whether the language
of the contract is ambiguous. . . . If clear and unambiguous, the literal meaning of the
language controls the outcome of contract disputes.” Planters Gin Co. v. Fed. Compress
& Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn. 2002). The parties do not dispute that
a valid, enforceable, and unambiguous written contract existed between them. We also
conclude that the note is unambiguous. Thus, we must look no further than the four corners
of that document in determining whether the bank was entitled to judgment or not.

       The note defines ten circumstances constituting default; pertinent to this case,
“default” is defined as occurring when the Borrower “fails to make any payment on this
Note or any other indebtedness to Lender when due” or “fails to perform any obligation or
breaches any warranty or covenant to Lender contained in this Note or any present or future
written agreement regarding this or any indebtedness of Borrower to Lender.” The note
also provides that a default occurs when the Borrower, any guarantor, or any other third
party “causes Lender to deem itself insecure for any reason, or if Lender, for any reason in
good faith deems itself insecure.”

       If an event of default occurred, the note provides that TBT was entitled to numerous
remedies, including to cease making additional advances and to take possession of any
collateral and sell, lease, or otherwise dispose of it to collect any deficiency balance with
or without resorting to legal process. The note also provides that TBT could utilize one or
more of its remedies “together, separately, and in any order.”

       The note also provides in section 5 that, among other things, “The modification or
waiver of any of Borrower’s obligations or Lender’s rights under this Note must be
contained in a writing signed by Lender.”

       There is no dispute that Mr. Boruff failed to pay amounts he owed when they were
due. Mr. Boruff asserts that “TBT could have sold the stock in December of 2014 at the
Defendant’s request and the Note would have been satisfied” in support of his affirmative
defense that TBT failed to mitigate its damages. The trial court summarily dismissed that
defense by concluding that, based on section 5 of the note concerning modifications,
consideration of Mr. Boruff’s oral instructions to sell the stock were precluded by operation
of the parol evidence rule.

                                            -6-
       The parol evidence rule does not prohibit consideration of evidence that does not
contradict the written contract. Individual Healthcare Specialists, Inc. v. BlueCross
BlueShield of Tenn., Inc., 566 S.W.3d 671, 695 (Tenn. 2019). “[T]he parol evidence rule
assumes that the parties deliberately chose to put their agreement in writing to avoid the
uncertainties of oral evidence, including the possibility of false testimony as to oral
conversations.” Farmers & Merchants Bank v. Petty, 664 S.W.2d 77, 82 (Tenn. Ct. App.
1983). This Court discussed the parol evidence rule in GRW Enterprises, Inc. v. Davis:

             The parol evidence rule is a rule of substantive law intended to protect
      the integrity of written contracts. Since courts should not look beyond a
      written contract when its terms are clear, the parol evidence rule provides
      that contracting parties cannot use extraneous evidence to alter, vary, or
      qualify the plain meaning of an unambiguous written contract.
             The rule appears to be quite all-encompassing. However, the courts
      have been reluctant to apply it mechanically and have now recognized that it
      has numerous exceptions and limitations. Thus, the rule does not prevent
      using extraneous evidence to prove the existence of an agreement made after
      an earlier written agreement, or to prove the existence of an independent or
      collateral agreement not in conflict with a written contract. In each of these
      circumstances, the courts have conceived that the parol evidence is not being
      used to vary the written contract but rather to prove the existence of another,
      separate contract.

797 S.W.2d 606, 610-11 (Tenn. Ct. App. 1990) (citations omitted). Concerning oral
modifications to existing contracts, this Court has stated:

             A modification to a contract is a change to one or more contract terms
      which introduces new elements into the details of the contract, or cancels
      some of them, but leaves the general purpose and effect of the contract
      undisturbed.

              After a written contract is made, it may be modified by the express
      words of the parties in writing or by parol, where both parties consent to such
      modifications. Generally, Tennessee courts follow the rule that allows
      contracts to be orally modified even if the contracts specifically state that the
      contract can only be modified in writing. Even where the written contract
      prohibits oral modifications of the agreement, oral alterations will still be
      given effect if otherwise valid, as men cannot tie their hands or bind their
      wills so as to disable them from making any contract allowed by law, and in
      any mode in which it may be entered into. A party’s agreement to a
      modification need not be express, but may be implied from a course of
      conduct; this is true even where the agreement expressly specifies, as in this
      case, that the parties may only modify the agreement in writing.

                                            -7-
Lancaster v. Ferrell Paving, Inc., 397 S.W.3d 606, 611-12 (Tenn. Ct. App. 2011) (internal
citations and quotations omitted). But see Tenn. Code Ann. § 47-50-112(c) (providing that
if a note or other contract “contains a provision to the effect that no waiver of any terms or
provisions thereof shall be valid unless such waiver is in writing, no court shall give effect
to any such waiver unless it is in writing”).

       The evidence presented at trial was conflicting as to whether Mr. Boruff even
requested TBT sell the stocks to pay off the loan.4 He testified that he made such a request
to TBT in December 2014; however, three bank representatives testified that he never made
such a request, that he in fact asked them not to sell the stock, and that he represented to
them that he would be able to repay the note without needing to resort to selling the stock.

        Assuming, arguendo, that he did make such a request in December 2014, no default
had yet occurred, since Mr. Boruff was in compliance with the terms of the note. At that
time, the note, as modified in writing by the parties two months prior, provided that the
principal amount of the note was reduced to $1,600,000. The maturity date remained
October 1, 2015, as had been previously modified. The payment schedule also remained
unaffected, which required Mr. Boruff to pay off the principal balance over $2,000,000 on
October 1, 2014, and to pay off the principal balance over $1,500,000 on March 31, 2015.
As of October 3, 2014, the principal balance was $872,780.00, and Mr. Boruff made a
sizeable payment of $850,000 that day, which brought the principal down to $22,780. In
October and November, he received additional advances from TBT totaling $1,592,268.98
and was making monthly interest payments. Exhibit 15 indicates that the value of the stock
was close to $5,000,000 in December 2014.5 The value of the collateral exceeded the
amount of the loan and could not have been a basis for the bank to declare itself insecure
at that time.

        While the value of the stock was certainly falling at the time of his supposed request
in December 2014, no event of default had actually occurred, so the bank had no right to
sell the collateral to satisfy its debt. Accordingly, any action to sell the collateral by the
bank at that time would have required a modification of the terms of the parties’ agreement.
There is no evidence of an oral agreement or behavior on the part of the parties to indicate
that they had agreed to modify the terms of the parties’ note to allow TBT to sell the

   4
    We are perplexed by Mr. Boruff’s inconsistent positions in his brief with respect to whether or not he
wanted the collateral sold. For example, he says that he “instructed TBT to sell the stock” but also that he
“desire[d] to not have it sold.”
   5
     The graphs in Exhibit 15 are imprecise as to dates and values, and the collective account statements
from TD Ameritrade that Mr. Boruff placed in evidence as Exhibit 12 do not include a statement showing
the value of the account for December 2014 (or any monthly statements for the relevant time period of
November 2014 through February 2015).
                                                   -8-
collateral prior to a default, and the note itself would have required such a modification to
be in writing, as found by the trial court.

        When events of default did occur shortly thereafter, TBT still chose not to sell the
stock, which brings us to a consideration of Mr. Boruff’s contentions on appeal that he
“was not asking the Trial Court to change, modify or alter the terms of the contract . . .
[but] to require [TBT] to mitigate its damages.” Mr. Boruff argues that because TBT failed
to sell shares of stock at a time when they were much more valuable, the bank failed to
eliminate or significantly reduce the balance due on his note, such that it should be
“absolved in its entirety or reduced to $527,488.60.”

      “[T]he failure to mitigate damages is an affirmative defense, and the burden of
proving a failure to mitigate falls on the defendant.” B.W. Byrd Metal Fabricators, Inc.,
2019 WL 3889798, at *6. In Memphis Light, Gas & Water Division v. Starkey, this Court
examined the doctrine of mitigation of damages, which dictates that:

              [O]ne who is injured by the wrongful or negligent act of
              another, whether by tort or breach of contract, is bound to
              exercise reasonable care and diligence to avoid loss or to
              minimize or lessen the resulting damage, and to the extent that
              damages are the result of his active and unreasonable
              enhancement thereof, or due to his failure to exercise such care
              and diligence, he cannot recover.

       Cook & Nichols, Inc. v. Peat, Marwick, Mitchell & Co., 480 S.W.2d 542,
       545 (Tenn. Ct. App. 1971). Thus, a party injured by the wrongful act of
       another is under a legal duty to use reasonable efforts to minimize the loss
       and, to the extent that the injured party fails to do so, he or she cannot recover.
       Id.; see also Kline v. Benefiel, No. W1999-00918-COA-R3-CV, 2001 WL
       25750, at *7 (Tenn. Ct. App. Jan. 9, 2001). The injured party is not, however,
       required to mitigate damages where the duty would impose an undue burden
       or be impossible under the circumstances. See Kline, 2001 WL 25750, at *7
       (citing Cummins v. Brodie, 667 S.W.2d 759, 766 (Tenn. Ct. App. 1983)).

244 S.W.3d 344, 353 (Tenn. Ct. App. 2007). In Forrest Const. Co., LLC v. Laughlin, this
Court observed:

       The critical factor in determining fulfillment of a plaintiff’s duty to mitigate
       is whether the method which he employed to avoid consequential injury was
       reasonable under the circumstances existing at the time. The rule with respect
       to the mitigation of damages may not be invoked by a contract breaker “as a
       basis for hypercritical examination of the conduct of the injured party, or
       merely for the purpose of showing that the injured person might have taken

                                              -9-
       steps which seemed wiser or would have been more advantageous to the
       defaulter.” As stated in McCormack, Damages, Sec. 35 (1935), “a wide
       latitude of discretion must be allowed to the person who by another’s wrong
       has been forced into a predicament where he is faced with a probability of
       injury or loss. Only the conduct of a reasonable man is required of him.”

337 S.W.3d 211, 230 (Tenn. Ct. App. 2009) (quoting Salley v. Pickney Co., 852 S.W.2d
240 (Tenn. Ct. App. 1992)).

        Mr. Boruff argues that TBT failed to mitigate its damages because “[t]he act of
selling the stock, regardless of the Defendant/Appellant’s desires to not have it sold and
the Board of Miller Energy’s desires not to have it sold, was not impossible nor duly
burdensome.” While the terms of the parties’ agreement rendered it possible for TBT to
sell the stock and apply those proceeds to the outstanding balance of the loan once an event
of default occurred, those same terms did not require it to do so. Even if it had attempted
to sell the stock shares, Mr. Choppin testified that it may not have yielded as high a value
as asserted by Mr. Boruff:

       Q.      The bank could have called the default and exercised its rights to sell
       that stock at that time in May of 2015, couldn’t it?
       A.      When you have that many shares of stock the price per share is really
       not indicative of what the value of that amount of stock is going to be,
       because it’s like a triangle. The thinner the stock is traded, the bigger discount
       you’ll have to take in order to move that many shares. So that was some of
       our issue, is that it would just take -- this was a small company, thinly traded,
       and it would be very difficult to repay that.

        Importantly, the duty to engage in reasonable efforts to minimize a loss after a
breach of contract does not impose a duty on the lender who holds shares of stock as
collateral to sell the stock in order to satisfy the loan. In Tennessee, “the duty of reasonable
care when applied to stock pledged as collateral refers to the physical possession of the
stock certificates and neither imposes liability upon a lender if the market value of the stock
declines nor establishes a duty to notify the pledgor of the decline in value.” First Tenn.
Bank Nat’l Ass’n v. Bad Toys, Inc., 159 S.W.3d 557, 564 (Tenn. Ct. App. 2004) (quoting
Marriott Emps.’ Fed. Credit Union v. Harris, 897 S.W.2d 723, 728 (Tenn. Ct. App. 1994)).
In Marriott Employees’ Federal Credit Union, this Court adopted the rule set forth by the
Seventh Circuit Court of Appeals that a lender who merely accepts stock as collateral does
not “undertake to act as an investment adviser, although imposing a duty on the lender to
sell the stock at the ‘reasonable’ time would foist that role upon it.” 897 S.W.2d at 727
(quoting Capos v. Mid–America Nat’l Bank, 581 F.2d 676, 680 (7th Cir. 1978)).

       In this case, TBT received stock as collateral and did not assume an obligation to
act as an investment adviser. Thus, it was under no duty to sell the stock at a reasonable

                                             - 10 -
time to secure repayment of the loan. As the value of the collateral continued to decline,
the evidence showed that TBT took reasonable steps to protect itself from loss by regularly
communicating and collaborating with Mr. Boruff and seeking additional collateral, which
he provided in the form of a deed of trust on his real property in Knox County and a pledge
of his interest in an LLC. Mr. Andrews testified that the bank did not sell the stock because
Mr. Boruff “asked us not to” and also because Mr. Boruff “had the wherewithal in his
financial statement with other assets to add to that in place of the stock.” The parties
memorialized their efforts to get the loan repaid in a mutually beneficial way with written
modifications to their initial agreement. Though Mr. Boruff benefitted from the bank’s
forbearance at the time, he now asserts that it is evidence of “ulterior motives” and a failure
to mitigate damages. On the record presented, we conclude that Mr. Boruff has not carried
his burden to demonstrate that TBT’s actions were unreasonable; accordingly, his failure
to mitigate damages defense fails.

                                        CONCLUSION

       The judgment of the trial court is affirmed. Costs of this appeal are assessed against
the appellant, Scott Michael Boruff, for which execution may issue if necessary.

                                                     _/s/ Andy D. Bennett_______________
                                                     ANDY D. BENNETT, JUDGE

                                            - 11 -