Ingram v. Earthman

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

FILED

0ctober 21, 1998

FREDERIC B. INGRAM, )

) Cecil W. Crowson

Plaintiff/Appellee, ) Appellate Court Clerk

) Davidson Chancery

VS. ) No. 94-842-III

)

) Appeal No.

WILLIAM F. EARTHMAN, ) 01A01-9510-CH-00439

)

Defendant/Appellant. )

APPEAL FROM THE CHANCERY COURT FOR DAVIDSON COUNTY

AT NASHVILLE, TENNESSEE

THE HONORABLE ROBERT S. BRANDT, CHANCELLOR

For the Plaintiff/Appellee: For the Defendant/Appellant:

James V. Doramus Maclin P. Davis, Jr.

Gregory Mitchell H. Buckley Cole

Doramus & Trauger Jonathan Cole

Nashville, Tennessee Baker Donelson Bearman & Caldwell

Nashville, Tennessee

AFFIRMED AND REMANDED

WILLIAM C. KOCH, JR., JUDGE

OPINION

This appeal involves a dispute between two former friends and business

associates over a sizeable personal debt. After one of the friends failed to repay a

$1,700,000 loan, the friend who had loaned the money filed suit in the Chancery

Court for Davidson County seeking to recover the loan and interest. The borrower

asserted that the lender had delayed too long in filing suit and counterclaimed for

allegedly unpaid compensation and retirement benefits. A jury awarded the lender

$5,667,122.84 on the debt, and the trial court, with the parties’ consent, awarded the

lender an additional $400,000 for his legal expenses. On this appeal, the borrower

raises numerous issues relating to the denial of his motions for directed verdict, the

adequacy of the jury instructions, the instructions limiting the use of the evidence of

the lender’s prior criminal conviction, and the excessiveness of the verdict. We have

determined that the judgment should be affirmed.

I.

Frederic B. Ingram and William F. Earthman became acquaintances in the early

1960's. Mr. Ingram was the scion of a prominent, wealthy Nashville family. Mr.

Earthman was the young, fast-rising president of Nashville’s Commerce Union

Bank,1 one of a group of banks extending credit to the Ingram Corporation. Mr.

Earthman had been the bank officer assigned to the Ingram Corporation accounts for

several years and had developed a cordial business relationship with Mr. Ingram’s

father. The business dealings between the two men ripened into a close personal

relationship between the two men and their families.

In 1970 Mr. Earthman was elected chief operating officer of Tennessee Valley

Bancorp, the holding company that owned Commerce Union Bank. He retained his

position as president of Commerce Union Bank. Despite the outward appearance of

financial success and security, Mr. Earthman’s personal finances were burdened by

large medical expenses associated with a chronic mental illness of one of his children.

Mr. Earthman was struggling to keep up with these expenses, and in September 1972,

1

Commerce Union Bank was later acquired by Sovran Bank. Sovran Bank, in turn, was

acquired by NationsBank. For the sake of consistency, we will refer to the bank as “Commerce

Union Bank” because the ownership of the bank plays no direct role in the resolution of the issues

involved in this appeal.

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he turned to Mr. Ingram for help. Mr. Ingram agreed to loan Mr. Earthman $600,000

for six months, and Mr. Earthman executed a note made payable to Mr. Ingram

bearing an interest rate of 5½%. Mr. Earthman was unable to pay the note when it

came due, but Mr. Ingram did not insist on being repaid as long as Mr. Earthman

continued to pay the interest accruing on the note.

In the early 1970's, the Ingram Corporation decided to pursue a lucrative

sludge-hauling contract with the sanitary district serving Chicago and surrounding

communities. Sometime before the fall of 1974, a federal grand jury in Chicago

began looking into how the Ingram Corporation had secured the contract and how it

had obtained favorable modifications to the contract. The grand jury eventually

indicted Mr. Ingram and other business associates for paying more than $900,000 in

bribes to an Illinois legislator and other city officials. In November 1977, following

a nine-week trial, Mr. Ingram was convicted of authorizing political payoffs and was

sentenced to imprisonment for four years. Mr. Earthman attended portions of the trial

to support Mr. Ingram.

Mr. Ingram remained free on bond pending the appeal of his conviction. In

1978, he and his brother decided to divide the family business. Mr. Ingram formed

a new entity and invited several members of the board of the former Ingram

Corporation to serve on the board of his new corporation. His brother invited the

remaining board members to serve on the board of his corporation. After the United

States Court of Appeals for the Sixth Circuit affirmed his conviction in March 1979,2

Mr. Ingram recruited several new board members, one of whom was Mr. Earthman.

According to Mr. Ingram, he sought out Mr. Earthman because he was “an astute and

honest businessman.” Mr. Earthman, for his part, later stated that Mr. Ingram invited

him to join the board to be “his eyes and ears” while he was in prison.

Mr. Ingram began serving his sentence in January 1980. Mr. Earthman visited

him for the first time in April 1980. After the federal Parole Commission set his

release date for September 1982 even though he was eligible for parole in May 1981,

Mr. Ingram requested Mr. Earthman and others to assist him in seeking an earlier

release from prison. Mr. Earthman enlisted the aid of a local politician, John Jay

Hooker, who assisted in obtaining the services of a lawyer and a political consultant

2

See United States v. McPartlin, 595 F.2d 1321 (7th Cir. 1979).

-3-

with governmental connections and who also contacted President Carter’s chief of

staff on Mr. Ingram’s behalf.

Mr. Earthman visited Mr. Ingram in prison in September or October 1980 to

discuss his personal financial problems caused by his child’s continuing illness. He

continued to be unable to repay Mr. Ingram the $600,000 he had borrowed eight

years earlier, and he had accumulated large secured and unsecured debts at other

banks.3 Mr. Earthman again asked Mr. Ingram for financial assistance. Mr. Ingram

desired to help his friend but made it clear that he would not incur any personal

expense in doing so. Accordingly, he proposed to guaranty a $1,700,000 loan to Mr.

Earthman from another Nashville bank which held a sizeable amount of Mr. Ingram’s

collateral. Mr. Earthman informed Mr. Ingram that he planned to use the stock

options he was receiving from Commerce Union Bank to repay his personal debts.

Instead of following Mr. Ingram’s suggestion, Mr. Earthman returned to

Nashville and arranged for a $1,700,000 loan from United American Bank in

Knoxville directly to Mr. Ingram. On October 14, 1980, he also prepared and

executed a personal $1,700,000 note to Mr. Ingram, using a standard Commerce

Union Bank note form. Mr. Earthman wrote “Frederic B. Ingram” in the space for

identifying the lending bank and also filled in another blank stating that the note

would be due “Eighteen Months after Date.” With regard to the interest, Mr.

Earthman checked a box signifying that the interest would be “At the Bank’s ‘Prime

Rate’ plus _____ % per year.”4

Thereafter, Mr. Earthman mailed the note to Mr. Ingram’s assistant in New

Orleans. United American Bank wired the loan proceeds to Mr. Ingram’s personal

account at a New Orleans bank. On October 24, 1980, the $1,700,000 was transferred

to Mr. Earthman’s account at a New York bank. Three days later, Mr. Earthman used

$600,000 of the proceeds to repay Mr. Ingram’s 1972 loan.

3

In late 1980, Mr. Earthman’s debts to other banks were between $1,050,000 and $1,291,000.

4

The standard form note defined the term “prime rate” as follows:

Prime Rate means the Bank’s rate for loans to its most credit worthy customers for

90-day unsecured loans. At the time of this agreement, that rate is _________% per

year, although it will change from time to time. If a change in the Prime Rate occurs,

the interest on my loan may be adjusted upward or downward.

-4-

Mr. Ingram received word in late December 1980 that he had been granted a

presidential commutation enabling him to be released from prison in May 1981.

Following his release, Mr. Ingram pursued discussions with Mr. Earthman about Mr.

Earthman’s leaving Commerce Union Bank and working full-time for the Ingram

Corporation. The two men also discussed in general terms the possibility that Mr.

Ingram might forgive Mr. Earthman’s $1,700,000 loan out of gratitude for his efforts

in helping secure Mr. Ingram’s early release from prison.

With regard to the offer of employment with the Ingram Corporation, Mr.

Earthman told Mr. Ingram that leaving Commerce Union Bank would depend on

obtaining the bank board’s approval of his early retirement and that it could take

several years to work this out. In the meantime, Messrs. Ingram and Earthman agreed

that Mr. Earthman would become the “managing director” of Ingram Worldwide

Investments, Ltd. On September 23, 1981, Mr. Ingram provided Mr. Earthman with

a letter agreeing to pay Mr. Ingram supplemental retirement benefits in return for his

services to the Ingram Corporation and other related corporations. The purpose of

this agreement was to compensate Mr. Earthman for the difference between the

amount of his early retirement benefit from the bank and the amount of his regular

retirement benefit if he retired at the age of sixty-five. In the letter, Mr. Ingram

agreed to pay the supplemental retirement benefits himself if the Ingram Corporation

did not make them because of “the Board’s not having authorized and approved this

agreement.”

In mid-December 1981, Mr. Ingram renounced his United States citizenship

and became a citizen of Ireland. He explained later that he took this step for tax

reasons, but Mr. Earthman added that Mr. Ingram was also angry about his treatment

by the federal government. In late 1981 or early 1982, Mr. Ingram established

several trusts in Liechtenstein and placed his personal assets, valued at between

$100,000,000 and $150,000,000, in the hands of the professional trustees retained to

manage the trusts. On January 26, 1982, Mr. Ingram executed an assignment in blank

of Mr. Earthman’s note and forwarded the original note and the incomplete

assignment document to a Swiss lawyer who was serving as a trustee of the

Liechtenstein trusts.

Following their discussion in mid-1981, Mr. Earthman continued to find ways

to induce Mr. Ingram to forgive his $1,700,000 debt. During a telephone

-5-

conversation in early January 1982, Mr. Ingram’s New Orleans lawyer and Mr.

Earthman’s New York lawyer discussed various possible forms for the gift including

a testamentary gift to Mr. Earthman’s children and an outright inter vivos gift. They

reached no conclusion because of the unresolved question about the tax consequences

of this gift to Mr. Ingram.

In April 1982, Mr. Ingram received word that the $1,700,000 note in his name

at United American Bank was about to come due. Mr. Earthman informed Mr.

Ingram that he was unable to repay the loan and that he had made arrangements for

United American Bank to renew the loan. Four months later, when it encountered

federal regulatory problems of its own, United American Bank called upon

Commerce Union Bank to purchase Mr. Ingram’s loan. Despite the fact that

Commerce Union Bank’s loan committee had declined to purchase Mr. Ingram’s

note, a high ranking bank officer authorized the purchase of the note after Mr.

Earthman assured him that “the loan will be out of the bank in a few days.”

Accordingly, Commerce Union Bank purchased Mr. Ingram’s United American Bank

note and placed the current amount of the loan and accumulated interest –

$2,540,527.46 – on its own books as a personal loan to Mr. Ingram.

On December 1, 1982, Commerce Union Bank debited Mr. Ingram’s account

for a $66,333.99 interest payment and then sold the loan to a Cayman Island bank

named Banque d’l Union Europeene for $2,606,863.45. As a condition to the sale,

the Banque d’l Union Europeene required Commerce Union Bank to execute an

agreement to repurchase the loan if it was not paid off before May 15, 1983.

On March 29, 1983, Commerce Union Bank’s internal auditor and Mr.

Earthman discussed the $2,540,527.46 personal loan to Mr. Ingram as well as two

other personal loans to others that Mr. Ingram had guaranteed. The auditor explained

that there was an “appearance problem” with these loans because they had been made

while Mr. Earthman served on the Ingram Corporation’s board of directors. Two

weeks later, Mr. Earthman had a similar conversation with the chairman of the loan

audit committee. During neither conversation did Mr. Earthman reveal that he had

received the proceeds of Mr. Ingram’s loan.

As the payment date for Mr. Ingram’s loan approached, the Banque d’l Union

Europeene called upon Commerce Union Bank to repurchase the loan in accordance

-6-

with the buy-back agreement. Mr. Earthman still lacked the funds to pay the note and

accumulated interest5 and understood that having the bank purchase the note could

jeopardize his position with the bank. Accordingly, he asked Mr. Ingram to pay the

note. Mr. Ingram expressed displeasure at being required to raise such a large amount

of money on short notice in order to prevent embarrassment to Mr. Earthman and

Commerce Union Bank. However, on May 6, 1983, Mr. Ingram paid Banque d’l

Union Europeene $2,729,675.95 to retire the loan after Mr. Earthman promised him

that he would repay the loan as soon as he could.

Mr. Earthman’s career at Commerce Union Bank was nearing an end in mid-

1983. He had already accepted full-time employment with the Ingram Corporation

when he negotiated a $200,000 per year consulting contract with Commerce Union

Bank without informing Mr. Ingram. On May 31, 1983, Mr. Earthman resigned as

president of Commerce Union Bank and as chief executive officer of Tennessee

Valley Bancorp effective on June 30, 1983. He remained on Commerce Union

Bank’s board and accepted the title of chair of the executive committee.

On June 19, 1983, Mr. Earthman signed an employment contract with the

Ingram Corporation in which Ingram agreed to pay him $300,000 per year in salary

and an additional $100,000 per year in deferred compensation. Mr. Earthman’s

combined income from the Commerce Union Bank consulting contract and from the

Ingram Corporation far exceeded the salary he had been earning as president of the

bank and chief executive officer of the bank holding company.

Mr. Earthman went to work for the Ingram Corporation on July 1, 1983. As

one of his first assignments, Mr. Earthman traveled to London at Mr. Ingram’s

request to examine the soundness of the business and investment practices of

Tampimex, an Ingram subsidiary. Two months after Mr. Earthman reported that

Tampimex’s internal controls were sound, Tampimex lost approximately

$100,000,000 because its internal controls failed to respond to a downturn in the oil

market. Tampimex’s failure caused Mr. Ingram to sell off the Ingram Corporation

assets and to disband the company. Tampimex’s creditor banks also directed Mr.

Ingram to reduce Mr. Earthman’s salary from $300,000 to $100,000.

5

In addition to his debt to Mr. Ingram, Mr. Earthman’s secured and unsecured debt at the time

was between $775,000 and $1,305,000.

-7-

Mr. Earthman formally retired from Commerce Union Bank in February 1985.

During the same month, Mr. Ingram received a telephone call from Mr. Earthman’s

Nashville lawyer seeking information about Mr. Earthman’s activities with regard to

Mr. Ingram’s accounts at Commerce Union Bank. The lawyer informed Mr. Ingram

that the bank had appointed a special committee to review Mr. Earthman’s activities

while president and chief executive officer with regard to Mr. Ingram’s loans and that

the bank was considering canceling Mr. Earthman’s $200,000 per year consulting

contract, withdrawing his retirement package, and rescinding his stock options. Mr.

Ingram informed the lawyer that Mr. Earthman had received the proceeds of one of

the loans being questioned by the bank.

Several days later, Mr. Earthman visited Mr. Ingram in London and expressed

concern about his precarious position with the bank. Within a month, however, Mr.

Earthman exercised the stock options he had accumulated while working at the bank

and earned between $4,000,000 and $5,000,000. Mr. Earthman did not inform Mr.

Ingram that he had exercised these options and did not use any of the proceeds to

repay his October 1980 debt to Mr. Ingram.

Later in 1985, Commerce Union Bank reduced Mr. Earthman’s consulting

contract from $200,000 per year to $100,000. Mr. Ingram also informed Mr.

Earthman that “there . . . [was] nothing more he could add to the Ingram Corporation”

and requested his resignation. Mr. Earthman submitted his letter of resignation from

the Ingram Corporation on October 30, 1985. The other directors of the Ingram

Corporation later resigned, and the company eventually went out of business as a

result of Tampimex’s financial reversals.

Mr. Earthman’s resignation from the Ingram Corporation did not end his

relationship with Mr. Ingram. At Mr. Ingram’s request, he remained on the board of

directors of Arcata Corporation, a printing and wood products company in which

Ingram Worldwide Investments had purchased an 8% interest in 1982. One of the

plans for Arcata was to break up the company and sell its assets to Japanese buyers.

Mr. Ingram believed that Mr. Earthman could play an instrumental role in this

process because of his contacts with Japanese businessmen and agreed to pay Mr.

Earthman $10,000 per month to continue to serve on Arcata’s board. Arcata also

contracted with Mr. Earthman’s Cayman Island consulting company to serve as its

“financial advisor” with regard to its negotiations with the Japanese. Mr. Ingram and

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Mr. Earthman anticipated that Mr. Earthman could earn a commission of as much as

$8,000,000 if he engineered the sale of Arcata and that he would use a portion of this

commission to repay his debt to Mr. Ingram.

In April and May 1987, Mr. Earthman sent Mr. Ingram a series of written

proposals intended to resolve their financial relationships. Each of these proposals

was based on Mr. Earthman’s assumption that Mr. Ingram would agree to assume

personal liability for unpaid compensation due from the Ingram Corporation and that

Mr. Ingram would forgive his $1,700,000 debt. In his April 21, 1987 letter offering

two alternatives, Mr. Earthman warned that the lack of a resolution of the

compensation and debt issues could “‘fester’ in such a way as to be detrimental to our

mutual best interest.” He also conceded that he could not play a “constructive role”

in Mr. Ingram’s business ventures following the completion of the Arcata project.

In discussions following his receipt of the April 21, 1987 letter, Mr. Ingram

told Mr. Earthman that his proposals were not acceptable. He told Mr. Earthman that

the assumption that he would assume the Ingram Corporation’s financial obligations

was “nuts” because he had already lost $100,000,000 when the Ingram Corporation

failed and because he was not responsible for assuming any other corporate

obligations. Despite Mr. Ingram’s response, Mr. Earthman stated that he would

submit a revised proposal in a more final form.

Mr. Earthman sent Mr. Ingram a revised proposal on May 21, 1987. On this

occasion, Mr. Earthman proposed that they enter into a termination agreement on or

before December 31, 1987 and that either Mr. Ingram or his trust forgive his debt and

pay him an additional $500,000 by June 30, 1987. Mr. Ingram’s response, like his

response to the earlier proposal, was blunt. He informed Mr. Earthman that the

proposal was “totally unacceptable in concept and every other way” and that the only

thing they had to talk about was “how he was going to pay me back the money he

owed me on the note.” According to Mr. Ingram, the two men discussed using the

commission Mr. Earthman expected from the sale of Arcata to repay the debt after

Mr. Ingram insisted that they stop “worry[ing] with these silly schemes of trying to

figure out a way to get me to pay some money that I wasn’t obligated to pay.”

After this May 21, 1987 letter, Mr. Earthman made no other formal proposals

concerning the forgiveness of his debt. In April 1988, as the statute of limitations

-9-

was about to run on his debt to Mr. Ingram, Mr. Earthman told Mr. Ingram that he

was still unable to repay the loan and accrued interest and that he was still relying on

the Arcata commission to provide the funds to do so. He did not tell Mr. Ingram that

he had exercised his stock options or that his bank stock made up $5,000,000 of his

$5,520,000 net worth.

Even though Mr. Ingram replaced Mr. Earthman on Arcata’s board during the

Spring of 1988, Messrs. Earthman and Ingram traveled to Japan in August or

September 1988 to promote the Arcata sale. While in Tokyo, they agreed that the

first $2,000,000 of any commission from the sale of Arcata would be paid to the

former chairman of Citibank who was assisting them with the negotiations. They

also agreed that the next portion of the commission would be used to pay off Mr.

Earthman’s debt to Mr. Ingram and that the remaining commission would be paid to

Mr. Earthman. In October 1988, after the efforts to sell Arcata did not bear fruit,

Arcata informed Mr. Ingram that it would not renew its consulting contract with him.

In April 1991, Mr. Earthman enlisted Mr. Ingram’s assistance in another

business venture involving the sale of bottled water from a spring Mr. Earthman

owned at Beersheba Springs. Because of the growing popularity of bottled water, Mr.

Earthman told Mr. Ingram that the venture could earn “more than ‘walking around

money’” and requested Mr. Ingram to contact a friend on Coca Cola’s board with the

proposal. According to Mr. Ingram, Mr. Earthman offered him 40% of the venture

to settle his debt. Coca Cola eventually rejected the proposal, and by early 1992, Mr.

Ingram believed that Mr. Earthman was losing enthusiasm about the venture.

As 1992 wore on, Mr. Ingram became increasingly concerned about the

repayment of Mr. Earthman’s loan and eventually hired a Washington, D.C. law firm

to look into the activities of Mr. Earthman and Commerce Union Bank during the

early 1980's. In late 1992, Mr. Ingram requested a meeting with Mr. Earthman after

his lawyers informed him that the bank could be liable to Mr. Ingram based on the

way it handled Mr. Ingram’s loans with United American Bank and the Banque d’l

Union Europeene. In early December 1992, Mr. Ingram recounted his lawyer’s

conclusions to Mr. Earthman during a three hour meeting at the Admiral’s Club in the

Dallas airport. Mr. Ingram also asked Mr. Earthman to sign a statement detailing his

actions with regard to Mr. Ingram’s loans and suggested that this statement could

force the bank to be “a 50-50 partner in paying off his obligation to me.” According

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to Mr. Ingram, Mr. Earthman acknowledged that he owed Mr. Ingram the money and

that “it would be very useful to him if . . . [the bank] would pay part of the bill.”

According to Mr. Earthman, Mr. Ingram also promised him that he “could go to

Zurich and pick up the note” if he signed the statement.

Shortly after the meeting in Dallas, Mr. Ingram’s Washington lawyers sent Mr.

Earthman’s Nashville lawyer a draft of a statement for Mr. Earthman’s signature. Mr.

Earthman declined to sign the statement because he asserted that it was not accurate

and because his lawyer advised him that signing the statement could expose him to

criminal liability. With this development, Mr. Ingram decided that he had “gone the

last mile” with Mr. Earthman.

In March 1994, Mr. Ingram filed a multi-count complaint against Mr. Earthman

in the Chancery Court for Davidson County seeking to recover the $1,700,000 debt

and accrued interest and attorney’s fees. In response, Mr. Earthman admitted that he

had borrowed $1,700,000 from Mr. Ingram in October 1980 and that he had not

repaid the loan or paid any interest on the loan. However, he also asserted numerous

defenses, including laches and the statute of limitations, and counterclaimed for

$6,500,000 in unpaid compensation and retirement benefits. In response, Mr. Ingram

asserted that Mr. Earthman was estopped to assert a statute of limitations defense.

Both parties eventually moved for summary judgment, and the trial court dismissed

all of Mr. Ingram’s claims against Mr. Earthman except for the “breach of

contract/promissory note” claim and declined to dismiss Mr. Earthman’s

counterclaim against Mr. Ingram.

Following a nine day trial, the jury deliberated less than one hour before

returning a verdict finding that Mr. Earthman was estopped from relying on the

statute of limitations defense and awarding Mr. Ingram a $5,667,122.84 judgment

against Mr. Earthman. The jury also determined that Mr. Earthman was not entitled

to receive a pension from Mr. Ingram personally. Based on the parties’ agreement,

the trial court also awarded Mr. Ingram $400,000 for his legal expenses. Mr.

Earthman has perfected this appeal.

II.

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The first step in suits like this one is to identify the body of law applicable to

the dispute. See Richard B. Hagedorn, The Law of Promissory Notes ¶ 1.05 (1992)

(“Hagedorn”). This case presents two issues in this regard. The first issue concerns

which version of the Uniform Commercial Code should be used to determine whether

Mr. Earthman’s October 14, 1980 note is a negotiable instrument. The second issue

concerns whether the note is a negotiable instrument under the applicable version of

the Uniform Commercial Code. If the note is a negotiable instrument, the parties’

rights are governed by Article 3 of the Uniform Commercial Code; if it is

nonnegotiable, we must look to the common law of contracts to define the parties’

rights and remedies.

A.

In 1990 the National Conference of Commissioners on Uniform State Laws

and the American Law Institute made significant substantive revisions to Article 3

of the Uniform Commercial Code. See 2 James J. White & Robert S. Summers,

Uniform Commercial Code § 16-2 (4th ed. 1995) (“White & Summers”). The

General Assembly incorporated many of these changes into Tennessee’s version of

the Uniform Commercial Code in 1995.6 Because Mr. Ingram’s $1,700,000 loan to

Mr. Earthman and Mr. Earthman’s execution of the promissory note occurred in

1980, we must at the outset determine which version of the Uniform Commercial

Code should be used to determine whether Mr. Earthman’s note was a negotiable

instrument.

The pre-1995 version of Article 3 of the Uniform Commercial Code applies to

this transaction for two reasons. First, the 1995 amendments themselves state that

they will take effect on July 1, 1996.7 Second, amendatory acts that make

substantive, as opposed to procedural, changes in existing law must be applied

prospectively. See Kuykendall v. Wheeler, 890 S.W.2d 785, 787 (Tenn. 1994);

Saylors v. Riggsbee, 544 S.W.2d 609, 610 (Tenn. 1976). Thus, like other statutes

making substantive changes in existing law, we will not apply the 1995 amendments

to Article 3 to a transaction occurring before the amendments’ effective date. See

Resolution Trust Corp. v. Maplewood Invs., 31 F.3d 1276, 1286-88 (4th Cir. 1994);

6

See Act of May 22, 1995, ch. 397, 1995 Tenn. Pub. Acts 617, codified at Tenn. Code Ann.

§§ 47-3-101, -605 (1996).

7

See Act of May 22, 1995, ch. 397, § 6, 1995 Tenn. Pub. Acts 617, 667.

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Bankers Trust (Del.) v. 236 Beltway Inv., 865 F. Supp. 1186, 1192 n.7 (E.D. Va.

1994); Johnson v. Johnson, 614 N.E.2d 348, 354 (Ill. App. Ct. 1993); Woo v. Smart,

442 S.E.2d 690, 693 (Va. 1994). Instead, we will apply the version of the Uniform

Commercial Code in effect at the time of the parties’ agreement and the execution of

the October 14, 1980 note. See Yin v. Society Nat’l Bank Indiana, 665 N.E.2d 58, 62

(Ind. Ct. App. 1996).

B.

We now turn to the question concerning whether Mr. Earthman’s note is

negotiable and, therefore, governed by Article 3 of the Uniform Commercial Code.

Whether an instrument is negotiable is a question of law to be determined by the

court. See Northern Bank v. Pefferoni Pizza Co., 562 N.W.2d 374, 376 (Neb. 1997);

Cartwright v. MBank Corpus Christi, N.A., 865 S.W.2d 546, 549 (Tex. Ct. App.

1993); 5A Ronald A. Anderson, Anderson on the Uniform Commercial Code § 3-

101:48 (3d ed. 1994) (“Anderson”). Using a version of the “four corners rule,” the

courts determine the negotiability from the face of the instrument without reference

to extrinsic facts. See Bankers Trust (Del.) v. 236 Beltway Investment, 865 F. Supp.

at 1192; Holsonback v. First State Bank, 394 So. 2d 381, 383 (Ala. Civ. App. 1980);

Partney v. Reed, 889 S.W.2d 896, 900 (Mo. Ct. App. 1994). If there is any doubt that

an instrument is negotiable, the courts generally find that it is nonnegotiable. See

Geiger Fin. Co. v. Graham, 182 S.E.2d 521, 525 (Ga. Ct. App. 1971); Pacific Fin.

Loans v. Goodwin, 324 N.E.2d 578, 580 (Ohio Ct. App. 1974); 5A Anderson, §§ 3-

101:21, -104:13, at 117.

As it existed in 1980, Tennessee’s version of the Uniform Commercial Code

contained six requirements for negotiability. In order to be negotiable, an instrument

was required to (1) be in writing,8 (2) be signed by the maker or drawer,9 (3) contain

an unconditional promise or order,10 (4) provide for the payment of a sum certain in

8

See Tenn. Code Ann. § 47-3-104(1) (1979).

9

See Tenn. Code Ann. § 47-3-104(1)(a).

10

See Tenn. Code Ann. §§ 47-3-104(1)(b), -105 (1979).

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money,11 (5) be payable on demand or at a definite time,12 and (6) be payable to order

or to bearer.13 At that time, the “sum certain” provision in Tenn. Code Ann. §§ 47-3-

104(1)(b), -106 required that the “computation [of interest] must be one which can

be made from the instrument itself without reference to any outside source.” See

Tenn. Code Ann. § 47-3-106 cmt. 1 (1979); Black v. Commerce Union Bank, No.

01A01-9206-CH-00220, 1992 WL 335948, at *2 (Tenn. Ct. App. April 4, 1994) (Not

for Publication). Thus, a majority of courts construing similar provisions have held

that notes containing variable interest rate terms were nonnegotiable. See Doyle v.

Trust Sav. & Loan Ass’n, 869 F.2d 558, 560 (10th Cir. 1989); Northern Trust Co. v.

E. T. Clancy Export Corp., 612 F. Supp. 712, 715 (N.D. Ill. 1985); Johnson v.

Johnson, 614 N.E.2d at 352-53; Centerre Bank of Branson v. Campbell, 744 S.W.2d

490, 496-98 (Mo. Ct. App. 1988); DH Cattle Holdings Co. v. Reinoso, 575 N.Y.S.2d

203, 204 (App. Div. 1991); 2 White & Summers, § 17-4, at n.7. After Mr. Earthman

prepared and executed the $1,700,000 promissory note, the General Assembly

amended Tenn. Code Ann. §§ 47-3-104(1)(b) and 47-3-106(1) to enable notes with

variable interest rates to be considered negotiable instruments.14

Mr. Earthman’s note did not satisfy the “sum certain” requirement in Tenn.

Code Ann. §§ 47-3-104(1)(b), -106 when it was signed because its interest rate could

not be computed “from the instrument itself without reference to any outside source.”

See Tenn. Code Ann. § 47-3-106 cmt. 1. The note provided for interest “[a]t the

Bank’s ‘Prime Rate’ plus ___% per year.” It also defined the “Bank” as “Frederic B.

Ingram” and “Prime Rate” as the “Bank’s rate for loans to its most credit worthy

customers for 90-day unsecured loans.” Thus, the note required Mr. Earthman to pay

interest at whatever rate Mr. Ingram charged his most credit worthy customers for

ninety-day unsecured loans.

This interest rate provision makes little sense on its face and certainly does not

permit the calculation of interest from the face of the instrument itself. Mr. Ingram

was not in the business of making ninety-day unsecured loans, and it is not possible

11

See Tenn. Code Ann. §§ 47-3-104(1)(b), -106, -107 (1979).

12

See Tenn. Code Ann. § 47-3-104(1)(c).

13

See Tenn. Code Ann. § 47-3-104(1)(d).

14

See Act of May 27, 1981, ch. 511, §§ 2 & 3, 1981 Tenn. Pub. Acts 846. The legislative

debates clearly indicate that this bill was designed to address the uncertainty about whether notes

with variable interest rate terms were negotiable instruments.

-14-

to determine from the face of the note what Mr. Ingram’s “Prime Rate” might have

been. Accordingly, the note was not for a sum certain and, therefore, was not

negotiable.

The 1981 changes in the substance of Tenn. Code Ann. §§ 47-3-104(1)(b), -

106(1) do not apply to Mr. Earthman’s note. However, even if they did, they would

not render the note negotiable. As amended, Tenn. Code Ann. § 47-3-104(1)(b)(ii)

and Tenn. Code Ann. § 47-3-106(1)(f) permitted negotiable instruments to contain

renegotiable or variable rates of interest and to require the payment of a “sum of

money which is determinable by a formula as provided in the writing, whether or not

such formula requires the use of extrinsic criteria.” Other courts that have construed

these provisions have held that they authorize the use of readily ascertainable

formulae based on some objective or marketplace factor. See Randolph v. Resolution

Trust Corp., 995 F.2d 611, 614 (5th Cir. 1993); Walters v. First Tenn. Bank, 855 F.2d

267, 274-75 (6th Cir. 1988); First City Fed. Sav. Bank v. Bhogaonker, 715 F. Supp.

1216, 1219 (S.D.N.Y. 1989). Mr. Ingram’s “Prime Rate” is not based on a readily

ascertainable, objective marketplace standard. Thus, Mr. Earthman’s October 14,

1980 note fails to meet the negotiability requirements in Tenn. Code Ann. § 47-3-

104(1)(b)(ii) and Tenn. Code Ann. § 47-3-106(1)(f).

C.

The conclusion that Mr. Earthman’s note was not a negotiable instrument is

entirely consistent with the conduct of the parties. Their transaction was not a

commercial one, but rather a financial accommodation between friends. Mr.

Earthman prepared the note, not with the intention or anticipation that it would enter

the stream of commerce as a negotiable instrument, but rather as evidence of his

agreement to repay Mr. Ingram’s $1,700,000 loan. Thus, concluding that the note

was not negotiable does not conflict with the parties’ expectations.

Likewise, the conclusion that Mr. Earthman’s note was not negotiable does not

materially alter or undermine the parties’ legal rights or responsibilities. An

instrument may still be a note even if it is not negotiable. See Cummings v. Freeman,

21 Tenn. (2 Hum.) 143, 145 (1840) (holding that negotiability is not an essential

element of a note); see also Gibson v. Harl, 857 S.W.2d 260, 267 (Mo. Ct. App.

1993). Thus, the negotiability of an instrument is irrelevant in an action between the

-15-

original parties to the note based either on the note itself or the underlying obligation.

See Clements v. Lindsay, 320 So. 2d 608, 609 (La. Ct. App. 1975); Terry v.

Superintendent of Educ., 52 So. 2d 13, 14 (Miss. 1951); Mauricio v. Mendez, 723

S.W.2d 296, 298 (Tex. Ct. App. 1987); Joseph Story, Commentaries on the Law of

Promissory Notes § 41 (Boston, Little, Brown, and Co. 1868).

III.

We now turn to Mr. Earthman’s assertion that he was entitled to a directed

verdict because Mr. Ingram failed to produce the original note at trial. He insists that

the evidence of the creation of Mr. Ingram’s trusts and the possession of the note by

one of Mr. Ingram’s trustees requires the conclusion that Mr. Ingram was not the

holder or owner of the note after 1982. We have determined that the evidence does

not weigh so heavily in Mr. Earthman’s favor that it requires the finder-of-fact to

conclude that Mr. Ingram assigned the note to another and, therefore, was no longer

the holder or owner of the note.

A.

An appeal from the denial of a directed verdict involves a question of law

concerning whether the evidence is sufficient to create an issue for the jury to decide.

See Underwood v. Waterslides of Mid-America, Inc., 823 S.W.2d 171, 176 (Tenn. Ct.

App. 1991); Norman v. Liberty Life Assurance Co., 556 S.W.2d 772, 773 (Tenn. Ct.

App. 1977). The reviewing court does not weigh the evidence, see Conatser v.

Clarksville Coca-Cola Bottling Co., 920 S.W.2d 646, 647 (Tenn. 1995); Benton v.

Snyder, 825 S.W.2d 409, 413 (Tenn. 1992), or evaluate the credibility of the

witnesses. See Benson v. Tennessee Valley Elec. Coop., 868 S.W.2d 630, 638-39

(Tenn. Ct. App. 1993). Instead, it reviews the evidence most favorably to the party

against whom the motion is made, gives that party the benefit of all reasonable

inferences from the evidence, and also disregards all evidence contrary to that party’s

position. See Eaton v. McClain, 891 S.W.2d 587, 590 (Tenn. 1994); Gann v.

International Harvester Co., 712 S.W.2d 100, 105 (Tenn. 1986).

Directed verdicts are appropriate only when reasonable minds can reach one

conclusion. See Williams v. Brown, 860 S.W.2d 854, 857 (Tenn. 1993); Crosslin v.

Alsup, 594 S.W.2d 379, 380 (Tenn. 1980). A case should go to the jury, even if the

-16-

facts are undisputed, when reasonable persons could draw conflicting conclusions

from the facts. See Gulf, M. & O.R.R. v. Underwood, 182 Tenn. 467, 474, 187

S.W.2d 777, 779 (1945); Pettus v. Hurst, 882 S.W.2d 783, 788 (Tenn. Ct. App.

1993). These conclusion, however, must be based on more than speculation,

conjecture, and guesswork. See Daniels v. White Consol. Indus., Inc., 692 S.W.2d

422, 425 (Tenn. Ct. App. 1985).

B.

Despite his assertion that he had owned nothing except his clothes since 1982,

Mr. Ingram did not surrender all his assets directly into the Liechtenstein trusts.

Florian von Meiss, the Swiss lawyer serving as one the trustees, held several assets

for Mr. Ingram until he could decide what to do with them. One of the assets being

held by Mr. von Meiss was Mr. Earthman’s note.

Mr. Ingram turned over the note to Mr. von Meiss on January 26, 1982 in

Zurich. On that date, Mr. Ingram executed a written assignment prepared by Mr. von

Meiss but purposely did not fill in the name of the assignee. The written assignment

was not affixed to the note in any way. He then gave the original note and the

assignment form to Mr. von Meiss. Both the assignment and the original note have

been in Mr. von Meiss’s hands ever since, awaiting Mr. Ingram’s directions.

Mr. Earthman was generally aware in late 1981 that Mr. Ingram was placing

all his assets in trust in order to avoid paying taxes in the United States. He was not

necessarily aware of the location or status of his note until December 1992. During

their meeting in the Dallas airport, Mr. Ingram told Mr. Earthman that the note was

in Zurich and invited him to pick up the note in Zurich in return for his signature on

a statement implicating Commerce Union Bank in the handling of Mr. Ingram’s loans

at the United American Bank and the Banque d’l Union Europeene. In light of this

conversation, Mr. Earthman knew more than sixteen months before Mr. Ingram filed

suit that the note was in Zurich.

Mr. Ingram alleged in his complaint that Mr. Earthman executed the

$1,700,000 promissory note on October 14, 1980 and appended a copy of the note to

-17-

his complaint.15 He also alleged that Mr. Earthman had “refused to repay any of the

money he borrowed or received from Ingram,” that he had “not recovered any of the

funds he advanced to Earthman” and that Mr. Earthman did not dispute that he had

not repaid the funds he had borrowed. Based on these allegations, Mr. Ingram

asserted in Count I of his complaint , called “Breach of Contract/Promissory Note,”

that “Earthman has agreed in writing and orally to repay Ingram for all of his loans,

advances and payments. Earthman has breached his obligations under the Note and

his other obligations.”

Mr. Earthman admitted in his answer that he signed the note and that the copy

of the note appended to Mr. Ingram’s complaint was a true and accurate copy of the

note he executed on October 14, 1980. He also admitted that he had “not repaid the

note to Plaintiff of $1,700,000 with interest or any amount to repay the Cayman

Islands debt or attorneys’ fees and expenses.” With specific reference to Mr.

Ingram’s “Breach of Contract/Promissory Note” claim, Mr. Earthman denied that he

renewed his promise to pay Mr. Ingram on many occasions and asserted affirmative

defenses based on laches and the six-year statute of limitations.

In November 1994, in response to Mr. Earthman’s motion for summary

judgment, the trial court dismissed four of Mr. Ingram’s five claims against Mr.

Earthman after concluding that “[t]he facts Ingram alleges do not state a cause of

action for anything other than on the note.” Thus, after November 1994, the parties

prepared for trial with the understanding that Mr. Ingram’s claim against Mr.

Earthman was essentially a suit based on Mr. Earthman’s note.

Mr. Ingram was deposed on April 20, 1995. In response to questions by Mr.

Earthman’s lawyer, he described the creation of the Liechtenstein trusts and

explained how he had transferred assets worth between $100,000,000 and

$150,000,000 to these trusts. While he claimed that he owned no assets except his

clothes after 1982, Mr. Ingram also explained that Mr. von Meiss was holding the

original note and the blank assignment form until he decided what to do with the

15

Paragraph 14 of the complaint states:

On or about October 14, 1980, Earthman signed an eighteen month

promissory note on a Commerce Union promissory note form promising to pay

Ingram $1,700,000 together with interest and delivered that note to Ingram’s

secretary (the “Note”). A copy of the Note, which is due, owing and unpaid to the

present day, is attached hereto as Exhibit A.

-18-

note. Mr. Ingram also provided Mr. Earthman’s lawyer with a copy of the note and

the January 26, 1982 assignment.

Both parties tried the case on the basis that Mr. Ingram’s claim against Mr.

Earthman was premised on the October 14, 1980 note. Mr. Ingram’s lawyer

displayed an enlarged copy of the note during his opening argument. Mr. Earthman’s

lawyer argued that Mr. Ingram’s claim was based on the note and admitted that Mr.

Earthman had not paid the note when it came due in April 1982. He told the jury that

Mr. Earthman had not paid the note because Mr. Ingram had gratuitously promised

to forgive Mr. Earthman’s $1,700,000 debt and that Mr. Ingram lost his right to insist

on payment of the note after the statute of limitations ran in April 1988. Mr.

Earthman’s lawyer did not argue to the jury that Mr. Ingram was not entitled to

recover on the note because he was no longer the owner or holder of the note.

Mr. Ingram was the first witness during his case-in-chief. Early on the second

day of trial, his lawyer sought to introduce a copy of Mr. Earthman’s note into

evidence by asking him to identify the copy. One of the lawyers representing Mr.

Earthman pointed out that Mr. Ingram was seeking to introduce a copy of the note

rather than the original. After Mr. Ingram testified that the copy sought to be

introduced was a true and accurate copy of the original note, the trial court admitted

the copy into evidence without objection from Mr. Earthman.

On the third day of trial, while being cross-examined about the discussion

surrounding Mr. Ingram’s gift of the note to Mr. Earthman, one of Mr. Ingram’s New

Orleans lawyers testified that “the note obviously would not be in Ingram’s

possession if it had been given away.” This statement prompted the trial court, with

the agreement of the lawyers for both parties, to give the jury a detailed instruction

concerning the legal significance of a holder of a note giving the original note back

to the maker.16 Before Mr. Ingram closed his case-in-chief, he introduced portions

of Mr. Earthman’s deposition in which Mr. Earthman admitted (1) that he borrowed

$1,700,000 from Mr. Ingram in 1980, (2) that he prepared and signed a promissory

note for the $1,700,000 loan on October 14, 1980, (3) that he did not pay the note

16

During this instruction, the trial court illustrated its point by explaining: “If you borrow

money from the bank and sign the note and you go back in and say to the bank, give me my note

back, and they give you the note, they can’t enforce the note anymore because they don’t have it.”

-19-

when it came due in April 1982, (4) that he has never repaid the principal and interest,

and (5) that Mr. Ingram never gave him the original note.

Mr. Earthman moved for a directed verdict at the close of Mr. Ingram’s case-

in-chief on two grounds. First, he asserted that Mr. Ingram had presented no material

evidence on which a verdict for the plaintiff could stand. Second, he asserted that Mr.

Ingram had failed to present evidence upon which the jury could find that his claim

was not barred by the statute of limitations. He did not elaborate on his first ground

and never asserted specifically that Mr. Ingram had failed to prove that he was the

holder or owner of the note. The trial court responded to the motion as follows:

in this case, Mr. Earthman has admitted execution of the

note and . . . that he hasn’t paid it. Then the burden shifts

to him to prove a defense. All the holder of the note has to

do is prove the signature and nonpayment.

The defense that Mr. Earthman offers, and the only

defense, is the statute of limitations; I mean, the only one

for the jury to decide.

Thereafter, the trial court overruled Mr. Earthman’s motion for directed verdict,

stating that “there is ample evidence in the record so far to support a jury conclusion

that Mr. Earthman is estopped from raising the statute of limitations or Mr. Ingram’s

excused for [sic] filing the case within the time period, however you want to put it.”

During his testimony on the fifth day of trial, Mr. Earthman admitted that he

borrowed $1,700,000 from Mr. Ingram in October 1980 and that he had never repaid

the principal or interest. He also admitted that he prepared and signed the note, that

he sent the note to Mr. Ingram’s secretary in New Orleans, and that Mr. Ingram had

never given him the original note despite their discussions.

On the eighth day of trial as Mr. Earthman’s case came to a close, Mr.

Earthman’s lawyer sought to introduce the portions of Mr. Ingram’s deposition

containing his testimony about the transfer of his assets to the Liechtenstein trusts.

For the first time, Mr. Earthman’s lawyer argued that this testimony was relevant

because it “shows that he [Mr. Ingram] is not the holder of this note and that he

transferred the note to the trust, and he is not the holder and he has no right to bring

this action.” In response to this new argument, the trial court ruled “that the defense

that Mr. Ingram is not a holder of the note sued upon is an affirmative defense and

must be pled and is not plead and, therefore, it is not relevant in this case.”

-20-

Despite its ruling, the trial court permitted Mr. Ingram’s lawyer to recall Mr.

Ingram to the stand to testify that he owned the note. Following Mr. Ingram’s

testimony, the trial court permitted Mr. Earthman’s lawyer to read to the jury portions

of Mr. Ingram’s April 29, 1995 deposition in which he stated that he owned no assets

after 1982 except his clothes and that Mr. von Meiss had kept the note since 1982.

The trial court also permitted Mr. Ingram’s lawyer to read additional portions of the

deposition in which Mr. Ingram explained that Mr. von Meiss was holding the note

for him until he decided what to do with it.

At the close of all the proof, on the ninth and last day of trial, Mr. Earthman’s

lawyer moved for a directed verdict on the grounds that Mr. Ingram had failed to

prove that he was the holder of the note and that the statute of limitations barred Mr.

Ingram’s claim. Mr. Ingram’s lawyer responded:

This issue about the ownership of the note came up

at the last two days of the trial and doesn’t have anything

to do with any issue in this trial. What it is is a blank

assignment, which in the course of discovery I provided to

Mr. Davis; it is a common way that something held in

safekeeping in another country so that in the event Mr.

Ingram wants to transfer it to somebody, he can tell Mr.

von Meiss to put the name in there.

It is a blank assignment. Mr. Ingram is the owner of

the note and has been the owner of the note. It has been

held, as he testified to in his deposition, for safekeeping by

Mr. von Meiss with his other papers in Switzerland.

* * *

We could have the note here probably on Tuesday if

it’s needed. We have been prejudiced by his delay in

raising this action because all we have to do is call Mr.

Florian von Meiss in Switzerland and he will send it by

courier to the United States, and we can’t have it here

before Tuesday.

Following these arguments, the trial court overruled Mr. Earthman’s motion for

directed verdict by stating: “That was raised for the first time on the eighth day of a

nine-day trial and as I previously held, I believe that’s an affirmative defense. It must

be pled and it is not pled, and that’s not an issue in this case, at least today, and so I

overrule the motion based on that.”

During its instructions, the trial court explained to the jury that Mr. Ingram’s

claim against Mr. Earthman was based on Mr. Earthman’s note. The trial court also

-21-

pointed out that Mr. Earthman had admitted that he signed the note and that he had

not repaid it. The trial court also explained that Mr. Earthman’s defense was based

on the statute of limitations and that Mr. Ingram had the burden of proving that Mr.

Earthman was estopped to assert this defense. The trial court summarized the jury’s

responsibility as follows: “[T]here are two questions you must decide. First, has

Ingram established that Earthman is estopped from relying on the statute of limitation

as a defense . . . If, and only if, you decide that issue in favor of Ingram, you should

answer the second question which is, what is the amount Earthman owes Ingram on

the note.”

The jury returned a judgment for Mr. Ingram, and on June 19, 1995, the trial

court entered a judgment and final order awarding Mr. Ingram $5,667,122.84 plus

$400,000 in legal expenses. Mr. Earthman filed post-trial motions on July 17, 1995

asserting, among other issues, that the trial court should have directed a verdict on the

statute of limitations and holder issues. Mr. Ingram filed a response to these motions

on August 28, 1995, and also submitted the original note. The trial court denied Mr.

Earthman’s post-trial motions on September 8, 1995 and approximately one month

later denied Mr. Earthman’s motion to strike the original note from the record.

C.

Mr. Earthman insists that he was entitled to a directed verdict because Mr.

Ingram failed to prove that he was the holder or owner of the note by producing the

original note at trial.17 While producing the original note at trial is the most efficient

and conclusive way for a party to prove that it is the holder or owner of a note, it is

not the only way. Under the facts of this case, Mr. Ingram introduced other sufficient

competent evidence from which the jury could have concluded that he was the holder

and owner of Mr. Earthman’s note.

17

Producing a note at trial differs from the plaintiff’s traditional obligation to make profert

of the note in its complaint. Making profert amounted to an averment by the plaintiff that the

original instrument on which its suit was based was in court or in the possession of the pleader, ready

to be produced or shown to the adverse party if desired. See Sam B. Gilreath & Bobby R. Aderholt,

Caruthers’ History of a Lawsuit § 128, at 143 (8th ed. 1963). Profert was not required at common

law in a suit on a note, see Gardner v. Henry, 45 Tenn. (5 Cold.) 458, 459 (1868), but had been

required by statute in Tennessee ever since 1819. See Tenn. Code Ann. § 20-706 (1955). The

statutory obligation to make profert was repealed in 1972 following the adoption of the Tennessee

Rules of Civil Procedure, see Act of March 21, 1972, ch. 565, § 1(6), 1972 Tenn. Pub. Acts. 382,

384, and was replaced by Tenn. R. Civ. P. 10.03 which permits attaching a copy of the written

instrument sued on rather than the original. Profert was never required in suits on the debt

underlying the note. See Gardner v. Henry, 45 Tenn. (5 Cold.) at 459.

-22-

Mr. Ingram’s claim against Mr. Earthman is based only on the note.18 In a suit

on a note, the holder makes out a prima facie case by producing the note signed by

the maker and by showing that there is a balance due on the note. See Crossland Fed.

Sav. Bank v. A. Suna & Co., 935 F. Supp. 184, 191 (E.D.N.Y. 1996); Smith v.

Weindrop, 833 P.2d 856, 857 (Colo. Ct. App. 1992); Misemer v. Freda’s Restaurant,

Inc., 961 S.W.2d 120, 121 (Mo. Ct. App. 1998); L. Harvey & Son, Co. v. Jarman, 333

S.E.2d 47, 52-53 (N.C. App. 1985); Judarl, L.L.C. v. Cycletech, Inc., 667 N.Y.S.2d

451, 452 (App. Div. 1998).

Producing the original note is not, however, the only way to establish a prima

facie case. The holder may also produce a copy of the note along with evidence that

(1) the plaintiff is the holder or owner of the note, (2) that the maker signed the note,

(3) that the note is in default and there is a balance due on the note, (4) that the copy

produced at trial is a true and accurate copy of the note sued on, and (5) that the

holder has not assigned, pledged, or transferred the note to another. See Resolution

Trust Corp. v. Starkey, 41 F.3d 1018, 1023 (5th Cir. 1995); FDIC v. McCrary, 977

18

The maker of a note, as a general matter, gives a note as payment for an underlying

obligation. See Hagedorn, ¶ 11.06. The underlying obligation, usually itself a contract, is the

original obligation between the parties that led to the issuance of the note. The issuance of a note

does not discharge the underlying obligation, but rather suspends it. See 2 White & Summers, § 16-

14.

Refusal to pay a note when due results not only in a breach of the terms of the note but also

a breach of the underlying obligation. When a maker dishonors a note, the holder may seek judicial

relief on the note itself, the underlying obligation, or both in the alternative. See First State Bank

& Trust Co. v. McIver, 681 F. Supp. 1562, 1564 (M.D. Ga. 1988); Reifeiss v. Barnes, 192 S.W.2d

427, 430 (St. L. Ct. App. 1946); Rubbelke v. Strecker, 765 P.2d 314, 316 (Wash. Ct. App. 1988).

Thus, as between the original parties, the payee may sue the maker on the note or may waive the

cause of action on the note and sue on the underlying obligation. See Alsobrook v. Hathaway, 35

Tenn. (3 Sneed) 454, 457 (1856); Cook v. Beech, 29 Tenn. (10 Hum.) 412, 414 (1849); see also

Affiliated Acceptance Corp. v. Boggs, 917 S.W.2d 652, 656 (Mo. Ct. App. 1996); Mansion Carpet,

Inc. v. Marinoff, 265 N.Y.S.2d 298, 299 (App. Div. 1965); Doyle v. Chladek, 401 P.2d 18, 25 (Ore.

1965).

The suit on the note is preferable. See 3 Joseph F. Randolf, A Treatise on the Law of

Commercial Paper § 1673 (St. Paul, West 2d ed. 1899). However, if the action is brought on the

underlying obligation, the plaintiff need not produce the note. See Gardner v. Henry, 45 Tenn. (5

Cold.) at 459 (holding that profert was not necessary); see also United Postal Savs. Ass’n v. Norbob

Enters., Inc., 792 S.W.2d 898, 901 (Mo. Ct. App. 1990). In this circumstance, the note is simply

evidence of the maker’s indebtedness to the payee. See Owen v. George Cole Motor Co., 155 Tenn.

250, 252, 292 S.W. 1, 2 (1927); see also Price v. Mize, 628 P.2d 705, 706 (Okla. 1981); Mortgage

Assocs., Inc. v. Monona Shores, Inc., 177 N.W.2d 340, 347 (Wis. 1970).

The wording of Mr. Ingram’s complaint is broad enough to include a claim based on the

October 14, 1980 note and a claim based on the underlying $1,700,000 loan. Thus, while Mr.

Ingram could have elected to pursue Mr. Earthman on the underlying loan, he did not. The entire

course of the proceedings following the trial court’s November 1994 order dismissing all of Mr.

Ingram’s claims against Mr. Earthman except the claim based on the note demonstrates that Mr.

Ingram elected to pursue the claim based on Mr. Earthman’s October 14, 1980 note.

-23-

F.2d 192, 194 (5th Cir. 1992); United States v. Golden Elevator, Inc., 868 F. Supp.

1063, 1065 (C.D. Ill. 1994); Sonne v. FDIC, 881 S.W.2d 789, 794 (Tex. Ct. App.

1994); Edlund v. Bounds, 842 S.W.2d 719, 724 (Tex. Ct. App. 1992). The holder

may supply one or more of these elements of proof using the maker’s admissions in

its answer or during discovery or at trial. See Vetter v. FDIC, 426 So. 2d 444, 446

(Ala. Civ. App. 1983); McLemore v. Southwest Ga. Farm Credit, ACA, 495 S.E.2d

335, 337 (Ga. Ct. App. 1998); Good v. Good, 324 S.E.2d 43, 45 (N.C. Ct. App. 1985).

The purpose of the presentment rule is to facilitate proof that the plaintiff is the

holder of the note, see James Talcott, Inc. v. Allahabad Bank, Ltd., 444 F.2d 451, 458

(5th Cir. 1971); Union Sav. Bank v. Cassing, 691 S.W.2d 513, 515 (Mo. Ct. App.

1985), and to avoid the risk that the maker might be required to pay the same note

twice. See McKirgan v. American Hosp. Supply Corp., 375 A.2d 591, 593 (Md. Ct.

Spec. App. 1977); Prime Fin. Group, Inc. v. Smith, 623 A.2d 757, 759 (N.H. 1993);

Haupt v. Coldwell, 500 S.W.2d 563, 565 (Tex. Civ. App. 1973). In disputes between

the original parties, the presentment rule is not as important when the note is not

negotiable because the holder is not a holder in due course and thus, the maker can

assert the defense of payment under Tenn. R. Civ. P. 8.05 in a subsequent suit on the

same note.

D.

It is the better practice in a suit on a note, negotiable or not, for the plaintiff to

produce the original note at trial and introduce it into evidence. Doing so effectively

forestalls any issue concerning whether the plaintiff is the holder or owner of the

note. Had Mr. Ingram produced Mr. Earthman’s original note, no dispute would have

been precipitated later concerning his status as the holder or owner of the note.

However, Mr. Ingram did not produce the original note, and thus we must now

determine whether the record contains sufficient evidence to defeat Mr. Earthman’s

motion for directed verdict at the close of all the proof.

Mr. Ingram’s testimony and Mr. Earthman’s admissions establish conclusively

(1) that Mr. Earthman prepared and executed the note, (2) that Mr. Earthman

delivered the note to Mr. Ingram, (3) that Mr. Earthman did not pay the note when it

came due, (4) that Mr. Earthman has never repaid Mr. Ingram the principal and

interest due on the note, and (5) that the copy of the note Mr. Ingram produced at trial

-24-

was a true and accurate copy of the original note. The only remaining essential

element of Mr. Ingram’s case concerns whether Mr. Ingram is the holder or owner of

the note or whether he assigned or transferred the note to another.

Mr. Earthman would be entitled to a directed verdict only if the evidence

permitted the jury to draw only one reasonable conclusion – that Mr. Ingram was not

the holder or owner of the note because he assigned it to Mr. von Meiss in 1982. The

evidence is simply not sufficiently one-sided to support this conclusion. To the

contrary, the evidence demonstrates rather convincingly that Mr. von Meiss was

holding the original note as Mr. Ingram’s agent while Mr. Ingram decided what to do

with the note. Accordingly, rather than establishing that Mr. Ingram was not the

holder or owner of the note, the evidence points toward a contrary result. Therefore,

the trial court properly denied Mr. Earthman’s motion for directed verdict at the close

of all the proof based on the claim that Mr. Ingram had not proved that he was the

holder or owner of the note.

IV.

Mr. Earthman also asserts that he was entitled to a directed verdict on his

statute of limitations defense. He argues that the only conclusions a reasonable fact-

finder could draw from the evidence were either that he did not induce Mr. Ingram

to delay filing suit on the note by promising to pay the note or that he did not revive

the note after the statute of limitations ran by expressly promising to pay it or by

acknowledging the debt and expressing a willingness to pay it. We have determined

that the evidence presents a jury question concerning whether Mr. Earthman was

estopped to rely on the statute of limitations and whether Mr. Earthman, by his

statements and conduct, revived his obligation under the note after the statute of

limitations ran.

A.

A defense based on the statute of limitations is an affirmative defense. See

Tenn. R. Civ. P. 8.03. The defendant asserting it has the burden of establishing all

of its elements. See Carr v. Borchers, 815 S.W.2d 528, 532 (Tenn. Ct. App. 1991);

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Stockburger v. Ray, 488 S.W.2d 378, 382 (Tenn. Ct. App. 1972); Jones v. Hamilton

County, 56 Tenn. App. 240, 247, 405 S.W.2d 775, 779 (1965). However, once the

defendant establishes the defense, the burden shifts to the plaintiff to establish one

or more of the recognized exceptions to the defense. See Jones v. Coal Creek Mining

& Mfg. Co., 133 Tenn. 159, 169, 180 S.W. 179, 182 (1915); Smith v. Southeastern

Properties, Ltd., 776 S.W.2d 106, 109 (Tenn. Ct. App. 1989).

Mr. Earthman did not repay his note to Mr. Earthman when it came due on

April 14, 1982. Accordingly, Tenn. Code Ann. § 28-3-109(a)(3) (1980) required Mr.

Ingram to file suit against Mr. Earthman based on the note within six years or by no

later than April 14, 1988. The parties agreed that Mr. Ingram did not file suit against

Mr. Earthman until March 24, 1992 – well after the six-year limitations period had

expired. Thus, Mr. Earthman established a prima facie defense based on the running

of the applicable statute of limitations, and the burden shifted back to Mr. Ingram to

establish one or more of the exceptions to a statute of limitations defense. Mr.

Ingram relied on two exceptions. First, he asserted that Mr. Earthman was estopped

to assert a statute of limitations defense. Second, he asserted that Mr. Earthman

revived his obligation under the note after the limitation period had expired.

In its jury instructions concerning the parties’ respective burdens with regard

to the statute of limitations defense, the trial court informed the jury that Mr.

Earthman had established that Mr. Ingram did not file his suit until after the six-year

limitations period expired. Accordingly, the trial court instructed the jury that Mr.

Ingram had the burden of establishing either that Mr. Earthman was estopped to

assert the statute of limitations defense or that Mr. Earthman had revived his

obligation under the note after the statute of limitations had run. The trial court also

included a question on the jury form asking: “Has Ingram proven facts which estop

Earthman from relying upon the statute of limitation as a defense or which excuse

Ingram from failing to file suit within the six year limitation period.” The jury

answered “Yes” to this question. Mr. Earthman now argues that this question should

have been decided in his favor as a matter of law.

B.

Estoppel and revival are complementary responses to a statute of limitations

defense. A defendant will be estopped to assert a statute of limitations defense when

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it induces a plaintiff to refrain from filing suit during the applicable limitations

period. See Dukes v. Montgomery County Nursing Home, 639 S.W.2d 910, 912

(Tenn. 1982); American Mut. Liability Ins. Co. v. Baxter, 210 Tenn. 242, 247, 357

S.W.2d 825, 827 (1962). Statements or conduct that support an estoppel claim

include representations, made prior to the expiration of the limitations period, that the

defendant either would not assert a statute of limitations defense or that the dispute

would be amicably resolved without filing suit. See Sparks v. Metropolitan Gov’t,

771 S.W.2d 430, 433 (Tenn. Ct. App. 1989); Whitlow v. Hardin County, 13 Tenn.

App. 347, 359 (1930). Persons who successfully establish the estoppel exception to

a statute of limitations defense must file suit within a reasonable time after becoming

aware that the debtor will not pay the debt. See Neaterour v. Holt, 544 N.E.2d 846,

852 (Ill. App. Ct. 1989); Cacdac v. Hiland, 561N.E.2d 758, 758 (Ind. 1990);

Reifschneider v. Nebraska Methodist Hosp., 447 N.W.2d 622, 626 (Neb. 1989);

Leonard v. Eskew, 731 S.W.2d 124, 129 (Tex. Ct. App. 1987).

Similarly, a defendant may revive a plaintiff’s remedy that had been barred by

the running of a statute of limitations19 either by expressly promising to pay the debt

or by acknowledging the debt and expressing a willingness to pay it. See Hall v.

Skidmore, 180 Tenn. 23, 27, 171 S.W.2d 274, 275 (1943), overruled on other

grounds, Graves v. Sawyer, 588 S.W.2d 542, 544 (Tenn. 1979); Warren v. Cleveland,

111 Tenn. 174, 177, 76 S.W. 910, 910 (1903); Crowder v. Nichol, 17 Tenn. (9 Yer.)

453, 454 (1836). The defendant must make the promise or give the acknowledgment

directly to the plaintiff or someone standing in such a close relationship with the

plaintiff that it is reasonable to infer that the defendant’s statements will reach the

plaintiff. See Jones v. Miller, 173 Tenn. 360, 363, 117 S.W.2d 745, 746 (1938);

Roller v. Bachman, 73 Tenn. 153, 157 (1880).

The expression of willingness to pay the debt that must accompany the

acknowledgment of the debt may be implied from the defendant’s words or acts but,

19

A statute of limitations bars the remedy only; it does not undermine the substance of the

plaintiff’s claim or cause of action. See Woodlie v. Towles, 68 Tenn. 592, 593-94 (1877); Wyatt v.

A-Best Prods. Co., 924 S.W.2d 98, 102 (Tenn. Ct. App. 1995); Rankhorn v. Sealtest Foods, 63 Tenn.

App. 714, 723, 479 S.W.2d 649, 652 (1971). Some older decisions hold that the revival exception

predicates liability on the original debt that has been revived, see e.g., Jordan v. Jordan, 85 Tenn.

561, 565 (1887);Woodlie v. Towles, 68 Tenn. at 594; Williamson Bros. v. Daniel, 21 Tenn. App. 346,

351, 110 S.W.2d 1028, 1031 (1937); while other older decisions predicated liability on the new

promise. See e.g., Belote’s Executors v. Wynne, 15 Tenn. (7 Yer.) 534, 543-44 (1835). Other courts

have observed that whether the remedy for the old cause of action is revived or a new cause of action

based on the old consideration is created are “questions of some metaphysical nicety, but [are] of no

practical importance.” Hannah v. Hawkins, 73 Tenn. 240, 242 (1880).

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in whatever form, the words or acts must amount to a recognition of the continuing

obligation. See Hall v. Skidmore, 180 Tenn. at 27, 171 S.W.2d at 275; C.A. Hobbs,

Jr., Inc. v. Brainard, 919 S.W.2d 337, 338 (Tenn. Ct. App. 1995). Persons who

successfully establish the revival exception to a statute of limitations defense must

file suit with the applicable limitations period measured from when the conduct

constituting the revival occurred. See Graves v. Sawyer, 588 S.W.2d 542, 544 (Tenn.

1979).

C.

The record is replete with evidence of numerous instances occurring between

April 1982 and December 1992 in which Mr. Earthman acknowledged his debt to Mr.

Ingram and either stated or indicated a willingness to repay the debt or to enter into

an amicable arrangement to discharge the debt. Mr. Ingram testified that Mr.

Earthman told him during a conversation in April 1982 before Mr. Earthman’s note

came due that he was unable to pay the note and that he would ask United American

Bank to renew the loan in Mr. Ingram’s name. Similarly, in May 1983, Mr. Earthman

acknowledged his continuing obligation to repay Mr. Ingram when he asked Mr.

Ingram to pay Banque d’l Union Europeene $2,729,675.95 in order to prevent

Commerce Union Bank from being called upon to repurchase Mr. Ingram’s note.

In April and May 1987, Messrs. Earthman and Ingram discussed the possibility

that Mr. Ingram might forgive Mr. Earthman’s indebtedness. Mr. Earthman sent Mr.

Ingram three proposals that in essence involved canceling the debt in order to

discharge Mr. Earthman’s compensation claims involving two of Mr. Ingram’s

companies. When Mr. Ingram categorically rejected these proposals, Mr. Earthman

acknowledged his continuing obligation to repay the loan, and the two men discussed

how Mr. Earthman could earn sufficient income from other business ventures to

enable him to repay Mr. Ingram.

The first venture Messrs. Ingram and Earthman discussed involved the sale of

Arcata Corporation to Japanese investors which, if accomplished, would result in a

sizeable commission for Mr. Earthman. In April 1988, just as the statute of

limitations was about to run on the note, Mr. Earthman told Mr. Ingram that he was

still unable to repay the debt but that he hoped to be able to do so from the anticipated

commission from the Arcata sale. Later, in September 1988 during a trip to Tokyo,

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Mr. Earthman and Mr. Ingram agreed that any commission earned would be used to

repay Mr. Earthman’s debt to Mr. Ingram before Mr. Earthman received anything.

In April 1991 after the Arcata transaction fell through, Mr. Earthman offered

to discharge his debt to Mr. Ingram by providing Mr. Ingram a 40% interest in a

venture to bottle and market springwater from Mr. Earthman’s Beersheba Springs

farm. The venture never got off the ground after Coca-Cola Corporation expressed

no interest in it. Mr. Ingram did not agree to accept Mr. Earthman’s offer when he

sensed that Mr. Earthman was losing interest in the project.

The final discussion between Messrs. Earthman and Ingram concerning Mr.

Earthman’s debt occurred in December 1992 when the two men met in the Dallas

airport. According to Mr. Ingram, Mr. Earthman acknowledged the debt and

indicated that he remained willing but unable to pay it. He also told Mr. Ingram that

he would assist Mr. Ingram in his efforts to induce Commerce Union Bank to pay a

portion of the debt because of the way it had managed Mr. Ingram’s United American

Bank and Banque d’l Union Europeene loans. Mr. Ingram filed suit against Mr.

Earthman in March 1994.

Statute of limitations defenses can be factually troublesome. See Hibner v. St.

Paul Mercury Ins. Co., 619 S.W.2d 109, 110 (Tenn. 1981). Accordingly, the jury

should normally decide whether a defendant should be prevented from asserting a

statute of limitations defense. See Apperson v. Pattison, 79 Tenn. 484, 486 (1883);

Frazor v. Osborne, 57 Tenn. App. 10, 20, 414 S.W.2d 118, 123 (1966), overruled on

other grounds, Stanbury v. Bacardi, 953 S.W.2d 671, 675 (Tenn. 1997). The

question should be withdrawn from the jury only when the trial court determines that

reasonable persons could reach only one conclusion based on the evidence. Our

review of the evidence convinces us that a jury question existed concerning whether

Mr. Earthman induced Mr. Ingram to delay filing suit by continuing to acknowledge

his debt and by expressing his willingness but inability to repay it.

V.

Mr. Earthman also takes issue with the jury instructions. Specifically, he

asserts that the trial court’s instructions contain two misstatements of the law and that

the trial court erroneously declined to give four of his requested instructions. We

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have determined that the trial court did not commit reversible error by denying Mr.

Earthman’s requested instructions and that the trial court’s instructions, taken as a

whole, fairly defined the issues in the case and did not mislead the jury.

A.

Juries have the exclusive duty to decide all the disputed factual issues

submitted to them, see McCormic v. Smith, 668 S.W.2d 304, 306 (Tenn. Ct. App.

1984); Finks v. Gillum, 38 Tenn. App. 304, 311-12, 273 S.W.2d 722, 726-27 (1954),

based on the law as explained by the trial court. See McCorry v. King’s Heirs, 22

Tenn. (3 Hum.) 267, 277-78 (1842); Ladd v. Honda Motor Co., 939 S.W.2d 83, 93

(Tenn. Ct. App. 1996). Thus, the trial court’s instructions are the jury’s sole source

of the legal principles used to guide their deliberations. See State ex rel. Myers v.

Brown, 209 Tenn. 141, 148-49, 351 S.W.2d 385, 388 (1961); Grissom v.

Metropolitan Gov’t, 817 S.W.2d 679, 685 (Tenn. Ct. App. 1991).

Trial courts have a duty to give substantially accurate instructions with regard

to every fact and theory raised by the pleadings and supported by the proof. See

Street v. Calvert, 541 S.W.2d 576, 584 (Tenn. 1976); Souter v. Cracker Barrel Old

Country Store, Inc., 895 S.W.2d 681, 684 (Tenn. Ct. App. 1994); Tuggle v. Raymond

Corp., 868 S.W.2d 621, 626 (Tenn. Ct. App. 1992). These instructions should be

couched in plain terms easily understood by lay persons. See Betty v. Metropolitan

Gov’t, 835 S.W.2d 1, 10 (Tenn. Ct. App. 1992); Martin v. Castner-Knott Dry Goods

Co., 27 Tenn. App. 421, 431, 181 S.W.2d 638, 642 (1944).

Instructions should not contain inaccurate or inapplicable statements of legal

principles that might tend to confuse the jury. See Lantroop v. Moreland, 849 S.W.2d

793, 798 (Tenn. Ct. App. 1992). However, instructions are not expected to be perfect.

In re Estate of Elam, 738 S.W.2d 169, 174 (Tenn. 1987); Benson v. Tennessee Valley

Elec. Coop., 868 S.W.2d 630, 642-43 (Tenn. Ct. App. 1993). Our task on appeal is

to review the instructions in their entirety, see Otis v. Cambridge Mut. Fire Ins. Co.,

850 S.W.2d 439, 446 (Tenn. 1992); Abbott v. American Honda Motor Co., 682

S.W.2d 206, 209 (Tenn. Ct. App. 1984), and to examine the challenged instruction

in context to determine whether the instructions, as a whole, fairly and accurately

embody the parties’ theories. See Gorman v. Earhart, 876 S.W.2d 832, 836 (Tenn.

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1994); Mid-South Pavers, Inc. v. Whitaker, 53 Tenn. App. 584, 593, 385 S.W.2d 284,

288 (1964).

Appellate courts review the entire charge just like a jury would, see Memphis

St. Ry. v. Wilson, 108 Tenn. 618, 620, 69 S.W. 265, 265 (1902); Abbott v. American

Honda Motor Co., 682 S.W.2d at 209, rather than through the practiced eye of a

judge or lawyer. See Ladd v. Honda Motor Co., 939 S.W.2d at 94. We will not

invalidate instructions as long as they fairly define the legal issues in the case and do

not mislead the jury. See Otis v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d at 446;

Smith v. Parker, 213 Tenn. 147, 156, 373 S.W.2d 205, 209 (1963); Grissom v.

Metropolitan Gov’t, 817 S.W.2d at 685. An erroneous instruction will not

necessarily be considered reversible error if the trial court later explains or corrects

the instruction or if the trial court adequately explains the issues in the case in other

portions of its charge. See In re Estate of Elam, 738 S.W.2d at 174; Smith v. Parker,

213 Tenn. at 156, 373 S.W.2d at 209; Ladd v. Honda Motor Co., 939 S.W.2d at 94,

103.

Trial courts should carefully consider requested instructions because the

requesting parties are entitled to them (1) if they are supported by the evidence, (2)

if they embody a theory relied on the party, (3) if they are correct statements of the

law, and (4) if their substance is not already contained in other portions of the charge.

See Ladd v. Honda Motor Co., 939 S.W.2d at 103; Spellmeyer v. Tennessee Farmers

Mut. Ins. Co., 879 S.W.2d 843, 846 (Tenn. Ct. App. 1993). However, trial courts

may decline to give a requested instruction (1) if it is not supported by the evidence,

see Payne v. Nashville, C. & St. L. Ry., 106 Tenn. 167, 173-74, 61 S.W. 86, 87

(1900); Hartsell v. Fort Sanders Reg’l Med. Ctr., 905 S.W.2d 944, 949 (Tenn. Ct.

App. 1995), (2) if its substance is already covered in the charge, see Jack M. Bass &

Co. v. Parker, 208 Tenn. 38, 49, 343 S.W.2d 879, 884 (1961); Tuggle v. Raymond

Corp., 868 S.W.2d 621, 626 (Tenn. Ct. App. 1992), or (3) if it is incorrect or

incomplete in any respect. See Otis v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d at

445; Morton v. Martin Aviation Corp., 205 Tenn. 41, 53-54, 325 S.W.2d 524, 530

(1959).

B.

We turn first to Mr. Earthman’s requested jury instructions. Of the four

instructions denied by the trial court, two related to Mr. Ingram’s status as a holder

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or owner of Mr. Earthman’s note, while the remaining two involved Mr. Earthman’s

statute of limitations defense.

THE PROPOSED INSTRUCTIONS CONCERNING MR. INGRAM’S STATUS

Mr. Earthman requested instructions concerning the legal significance of an

endorsement in blank and the consequences of transferring an instrument. Both

instructions were based on the Uniform Commercial Code and were premised on Mr.

Earthman’s assertion that Mr. Ingram was no longer the owner or holder of the note

because he had endorsed it in blank and had assigned it to Mr. von Meiss. While the

trial court could properly have instructed the jury concerning the legal effect of

transferring the note, it did not err by declining to give these instructions.

Requested instructions must be supported by the evidence and must be correct

statements of the applicable law. These two instructions were not correct statements

of the law because the Uniform Commercial Code did not govern Mr. Earthman’s

note. This note was not negotiable and, therefore, the rights and liabilities of the

parties to the note must be found in the common law of bills and notes and in contract

law.

The instructions were also not supported by the evidence. Mr. Ingram did not

endorse the note in blank but rather executed a separate assignment form with the

space for the name of the assignee left blank. The consequences of these acts differ

because the assignment document was not so firmly affixed to the note as to become

part thereof.20 While non-negotiable notes may be transferred or assigned, see Wolfe

v. Tyler, 48 Tenn. (1 Heisk.) 313, 316 (1870), whether an assignment has occurred

depends on the intention and mutual assent of the assignor and the assignee. See

Patton v. Gleaves, 206 Tenn. 541, 544, 334 S.W.2d 946, 948 (1960); Hutsell v.

Citizens’ Nat’l Bank, 166 Tenn. 598, 603, 64 S.W.2d 188, 190 (1933). The evidence

does not establish that Mr. Ingram intended to assign all his interest in the note to Mr.

von Meiss. At most, Mr. Ingram’s unrebutted testimony, buttressed by the separate

assignment form with the name of the assignee left blank, establishes that Mr. von

20

Had Mr. Earthman’s note been governed by the Uniform Commercial Code, the

endorsement of the separate assignment document would not have amounted to an endorsement in

blank of the note. See Tenn. Code Ann. § 47-3-202(2) (1979). Without an assignment in blank, the

note could not have been negotiated by delivery alone. See Tenn. Code Ann. § 47-3-204(2) (1979).

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Meiss was holding the note as Mr. Ingram’s agent until Mr. Ingram decided what to

do with the note.

THE PROPOSED INSTRUCTIONS CONCERNING THE STATUTE

OF LIMITATIONS DEFENSE

Mr. Earthman also requested two instructions regarding his statute of

limitations defense. The first instruction would have informed the jury that

In order to revive the debt, the burden of proof is on the

Plaintiff, Ingram, to prove by a preponderance of the

evidence that the Defendant, Earthman, made an

unconditional promise to pay Ingram on or after March 24,

1988, or that on or after March 24, 1988, Earthman

engaged in conduct that would induce an ordinarily

prudent person not to file suit to collect the note.

The second requested instruction would have informed the jury that

Statements or conduct, like payments on a note,

reaffirming the debt, must be made to the holder of the

note to toll the Statute of Limitations. If you find that

Ingram was not holding the $1.7 million note, the

statements or conduct by Earthman toward Ingram during

such times as Ingram was not holding the $1.7 million

note, will not bar or estop Earthman from relying upon the

Statute of Limitations, as a defense to payment of the $1.7

million note.

The trial court properly declined to give Mr. Earthman’s requested instruction

that statements acknowledging a debt will not revive a cause of action on a note

unless they are made directly to the holder. This proposed instruction is faulty for

two reasons. First, it is legally incorrect because the statements of acknowledgment

need not be made directly to the holder. They may also be made to persons whose

relationship with the holder is so close that it is reasonable to presume that the

statements found their way back to the holder. See Jones v. Miller, 173 Tenn. at 363,

117 S.W.2d at 746; Roller v. Bachman, 73 Tenn. at 157. Second, it is not supported

by the evidence because the evidence is insufficient to create a jury question

concerning Mr. Ingram’s status as the owner or holder of the note.21

21

Even if Mr. von Meiss, rather than Mr. Ingram, was considered the holder of the note, the

relationship between Mr. von Meiss and Mr. Ingram supports an inference that any statements

acknowledging or reaffirming the debt made to Mr. Ingram would have found their way to Mr. von

Meiss in relatively short order.

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Likewise, the trial court did not err by declining to give Mr. Earthman’s

proposed instruction concerning the substance of the statements required to revive a

debt. This proposed instruction was unduly narrow because a cause of action on a

note can be revived not only by an “unconditional promise to pay” but also by an

acknowledgement of the debt coupled with an expression of willingness to pay. See

Hall v. Skidmore, 180 Tenn. at 27, 171 S.W.2d at 275; Warren v. Cleveland, 111

Tenn. at 177, 76 S.W. at 910. The substance of the requested instruction was also

adequately covered in other portions of the trial court’s charge. Following its

instructions on estoppel, the trial court charged the jury that

A debt, a collection of which is barred by the statute

of limitation, may also be revived. If Earthman

acknowledged the debt and promised to pay Ingram after

the six-year period expired then the debt was revived and

the suit is not barred by the six-year statute of limitations.

Ingram has the burden of proving the revival of the debt.

Mr. Earthman’s chief objection to the trial court’s instructions is that they

permitted the jury to decide that statements or conduct occurring before March 24,

1988 could prevent him from asserting a statute of limitations defense. We agree that

the instructions permit the jury to draw this conclusion, but we fail to see the error.

Promises and statements made before the limitations period expired will support an

estoppel claim, just as promises and statements made after the limitations period

expired will support a revival claim. The trial court’s estoppel and revival

instructions, taken as a whole, adequately provided the jury with the legal principles

needed to decide Mr. Earthman’s statute of limitations defense. Accordingly, the trial

court did not err by denying Mr. Earthman’s requested instructions.

C.

Mr. Earthman also asserts that the trial court gave two erroneous instructions

that affected the outcome of the trial. The first instruction involved the permissible

uses of the evidence involving Mr. Ingram’s 1977 criminal conviction. The second

instruction involves the elements of Mr. Ingram’s estoppel claim.

THE INSTRUCTION LIMITING THE USE OF MR. INGRAM’S CONVICTION

Mr. Earthman’s challenge to the trial court’s instruction limiting the jury’s

consideration of Mr. Ingram’s 1977 conviction is puzzling. This instruction followed

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the trial court’s ruling that the conviction could not be used to impeach Mr. Ingram

but that it could be used to illustrate the relationship between Messrs. Ingram and

Earthman and to provide background information concerning the loan transaction

itself. Even though Mr. Earthman has not directly challenged the trial court’s

evidentiary ruling, he takes issue with the instruction necessitated by the ruling. Mr.

Earthman’s failure to challenge the evidentiary ruling limiting the use of Mr.

Ingram’s criminal conviction prevents him from taking issue with the limiting

instruction.

Were we to permit Mr. Earthman to collaterally attack the evidentiary ruling,

we would find that the trial court properly determined that Mr. Ingram’s 1977

conviction could not be used to impeach his credibility. Tenn. R. Evid. 609 permits

using prior convictions to impeach a witness’s credibility. However, evidence of a

conviction that is more than ten years old cannot be used for impeachment unless the

court first determines “that the probative value of the conviction, supported by

specific facts and circumstances, substantially outweighs its prejudicial effect.” See

Tenn. R. Evid. 609(b). The rule discourages the use of stale convictions for

impeachment because they may no longer shed light on a witness’s credibility. See

Neil Cohen, et al., Tennessee Law of Evidence § 609.5 (3d ed. 1995) (“Tennessee

Law of Evidence”). Thus, as a practical matter, the balancing test required by Tenn.

R. Evid. 609(b) ordinarily results in the exclusion of the evidence of the stale

conviction. See Robert E. Burch, Trial Handbook for Tennessee Lawyers § 16.11,

at 220 (2d ed. 1995); Tennessee Law of Evidence, § 609.5, at 372-73.

Like other evidentiary rulings, appellate courts review a trial court’s ruling

under Tenn. R. Evid. 609(b) using an abuse of discretion standard. See State v.

Blanton, 926 S.W.2d 953, 959-60 (Tenn. Crim. App. 1996). The reviewing court

does not reweigh or re-evaluate the probative value and prejudicial effect of the prior

conviction. See State v. Roberts, 943 S.W.2d 403, 408 (Tenn. Crim. App. 1996). The

party desiring to use an old conviction has the burden of demonstrating that its

probative value outweighs its prejudicial effect. See United States v. Beahm, 664

F.2d 414, 417-18 (4th Cir. 1981). Mr. Earthman has failed to carry his burden of

proof and has failed to demonstrate how the trial court erred by preventing him from

using the evidence of Mr. Ingram’s 1977 conviction to impeach his credibility.

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If the trial court decides to permit the introduction of evidence of a conviction

of a party who was released from custody more than ten years before the action was

commenced, it should instruct the jury concerning the permitted use of the evidence.

See Tennessee Law of Evidence § 609.12. The trial court did precisely that when it

instructed the jury that

. . . this evidence about Mr. Ingram’s conviction and being

in prison is being admitted because it goes to the whole

question of the loan and the relationship between the

parties in the loan and any provisions that were or were not

made for paying it back.

And so I instruct you that you’re not to consider this

evidence about this conviction in Chicago as evidence of

bad character on the part of Mr. Ingram, but only for the

limited purpose of helping you understand the transaction

that is involved in this suit.

Because we find no error with the trial court’s evidentiary ruling, we find no error

with its contemporaneous limiting instruction regarding the use of the evidence of

Mr. Ingram’s 1977 conviction.

THE ESTOPPEL INSTRUCTION

Mr. Earthman also takes issue with the portion of the trial court’s estoppel

instruction in which the trial court stated:

Earthman may also be estopped from relying on the

statute of limitations if during the six-year period . . . he

acknowledged his indebtedness to Ingram. An

acknowledgment of the debt constitutes an implied

promise to pay it.

He asserts that this instruction could have induced the jury to decide that he was

estopped to assert his statute of limitations defense even in the absence of evidence

that he expressed a willingness to pay the debt. This argument reflects confusion

between the ingredients for an estoppel claim and a revival claim.

Estoppel claims do not require proof that the debtor has expressed a

willingness to pay. Rather, they require proof that the maker’s statements and

conduct, made or occurring prior to the expiration of the limitations period, induced

the holder of the note to believe that the maker either would not assert a statute of

limitations defense or that the dispute would be settled amicably without litigation.

Expressions of willingness to pay after the expiration of the limitations period are

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necessary ingredients of a claim that an extinguished cause of action has been

revived. See Hall v. Skidmore, 180 Tenn. at 27, 171 S.W.2d at 275.

Depending on the circumstances, a maker’s acknowledgment of a debt could

provide the basis for an estoppel claim if the manner in which the acknowledgment

was made reasonably induced the holder to forego filing suit because of a belief that

the maker would not assert a statute of limitations defense or that the maker intended

to resolve the dispute without litigation. The trial court instructed the jury

A party by his conduct or words may be estopped

from relying on the statute of limitation as a defense. If

Ingram was induced to believe that Earthman was going to

pay the debt, or otherwise satisfy the debt, or reach some

other amicable settlement of the debt and, in reliance on

the conduct or words, Ingram delayed filing the suit within

the applicable limitation period then Earthman is . . .

estopped from relying on the statute of limitations as a

defense or, stated another way, if Earthman by his conduct

or words induced Ingram to believe that the debt would be

paid, or otherwise satisfied, or that some other amicable

settlement would be reached then . . . Ingram is excused

from failing to file the suit within the six-year limitation

period.

* * *

Ingram must prove that he relied on Earthman’s

conduct and words and that his reliance was reasonable.

Whether any reliance was reasonable is . . . for you, the

jury, to decide from all the facts and circumstances

introduced into evidence.

While the statement that “[a]n acknowledgment of the debt constitutes an implied

promise to pay it” may have been imprecise enough to be misinterpreted by the jury,

it should not be considered out of context. The trial court’s estoppel instructions,

taken as a whole, fairly informed the jury of Mr. Ingram’s burden of proof and the

essential ingredients of his estoppel claim. Accordingly, we find no reversible error

in the trial court’s estoppel instructions.

VI.

Mr. Earthman also asserts that the special verdict form is fatally incomplete.

He takes the trial court to task for not including questions concerning whether Mr.

Ingram was the holder or owner of the note and whether the acts found by the jury to

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excuse Mr. Ingram from filing suit occurred within the six-year limitations period.

We find no reversible errors in the special verdict form.

Decisions regarding the use of a special verdict form and the questions to be

included on the form are discretionary. See Tenn. R. Civ. P. 49; Smith v. Parker, 213

Tenn. 147, 159-60, 373 S.W.2d 205, 211 (1963). When a special verdict form is

used, it should repeat and highlight the issues covered in the charge and should be

couched in the same terms as the jury instructions. See Concrete Spaces, Inc. v.

Sender, No. 01A01-9607-CH-00288, 1998 WL 430165, at *6 (Tenn. Ct. App. July

31, 1998) (Tenn. R. App. P. 11 application pending). Instructions and special verdict

forms should be considered together to determine whether they present the contested

issues to the jury in an unclouded and fair manner. See Morton v. City of Chicago,

676 N.E.2d 985, 990 (Ill. App. Ct. 1997); Capers v. The Bon Marche, 955 P.2d 822,

825 (Wash. Ct. App. 1998). Reversal is required only when the special verdict form

is confusing or inconsistent with the trial court’s instructions. See Helmar v.

Harsche, 686 A.2d 766, 775 (N.J. Super. Ct. App. Div. 1996).

The trial court did not accept Mr. Earthman’s proposed instruction concerning

Mr. Ingram’s status as a holder or owner of the note and did not include a

corresponding question on the special verdict form. We have already found that the

trial court did not commit reversible error by declining to give the requested

instruction. Now we find that the trial court did not err by declining to include a

question concerning Mr. Ingram’s status as a holder or owner of the note on the

special verdict form. The proof simply did not warrant including this question.

The facts surrounding the dealings between Messrs. Ingram and von Meiss in

1982 are straightforward. Mr. Ingram sent the original note and a separate,

incomplete assignment form to Mr. von Meiss. By doing so, Mr. Ingram did not

intend to relinquish all his interest in the note but rather intended that Mr. von Meiss,

acting as his agent, would hold the note while Mr. Ingram decided what he wanted

to do with it. The only conclusion that a reasonable fact-finder could draw from this

evidence was that Mr. Ingram retained control over the note after January 1982 and

did not lose his status as the owner or holder of the note. Therefore, the trial court

properly declined to include a question on the special verdict form asking the jury to

determine whether Mr. Ingram was the holder or owner of the note.

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VII.

In his penultimate issue, Mr. Earthman asserts that the trial court should not

have submitted Mr. Ingram’s claim for compound interest to the jury. He argues that

determining whether a note bears simple or compound interest is a question of law

and that the trial court should have concluded that the October 14, 1980 note required

only simple interest. We disagree. The meaning of the interest rate provision in the

note presented a jury question.

Compound interest is permissible in Tennessee as long as the parties have

agreed to it. See Woods v. Rankin, 49 Tenn. (2 Heisk.) 46, 48 (1870); Hale v. Hale,

41 Tenn. (1 Cold.) 233, 236 (1860); Waid v. Greer, 56 S.W. 1029, 1029 (Tenn. App.

1900). In cases involving a promissory note, the parties’ agreement concerning

interest should be reflected in the note itself. Thus, the first place to look for the

parties’ agreement concerning interest is the note. If the interest provision in the note

is unambiguous and consistent with other applicable legal requirements, it will be

enforced as written as a matter of law. If, however, the interest provision is

ambiguous, the fact-finder must look elsewhere to ascertain the parties’ agreement

concerning interest.

The interest rate provision in the October 14, 1980 note prepared by Mr.

Earthman is far from clear. Read literally, it obligates Mr. Earthman to pay interest

at Mr. Ingram’s “prime rate” – that is, the rate of interest that Mr. Ingram charges his

“most credit worthy customers for 90-day unsecured loans.” The record contains no

evidence establishing what Mr. Ingram’s “Prime Rate” was. Thus, the fact-finder was

required to look beyond the note to ascertain the parties’ agreement concerning

interest payments on this loan.

Parol evidence cannot be used to contradict or alter the terms of a written

contract that is complete and unambiguous on its face. See Jones v. Brooks, 696

S.W.2d 885, 886 (Tenn. 1985); Airline Constr., Inc. v. Barr, 807 S.W.2d 247, 259

(Tenn. Ct. App. 1990). However, the parol evidence rule does not prevent the

introduction and consideration of extraneous evidence to explain an ambiguous

contractual provision. See Faulkner v. Ramsey, 178 Tenn. 370, 374-75, 158 S.W.2d

710, 711-12 (1942); Faithful v. Gardner, 799 S.W.2d 232, 235 (Tenn. Ct. App.

1990). Likewise, the use of parol evidence to explain a vague contractual term does

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not cause an otherwise valid written agreement to run afoul of the Statute of

Limitations in Tenn. Code Ann. § 29-2-101 (Supp. 1998).

The parties disagreed at trial concerning the meaning of the interest rate

provision in the October 14, 1980 note. Mr. Earthman asserted that the note

permitted only simple interest because it did not explicitly state that it bore compound

interest. For his part, Mr. Ingram testified that the parties agreed that Mr. Ingram

would not incur any additional expense if he agreed to make the $1,70,000 loan to

Mr. Earthman. Thus, Mr. Ingram’s version of the meaning of “Prime Rate” was that

Mr. Earthman agreed to reimburse him for any interest expense he incurred as a result

of the $1,700,000 loan. Mr. Ingram also presented evidence that the loans Mr.

Earthman caused to be procured for him at United American Bank and the Banque

d’l Union Europeene bore compound interest which he was eventually required to

pay.

This conflicting evidence created a jury issue with regard to whether the

October 14, 1980 note bore compound or simple interest. Accordingly, the trial court

did not err by submitting this issue to the jury for resolution.

VIII.

In his final issue, Mr. Earthman asserts that the jury’s $5,667,122.84 verdict

is excessive. He argues that Mr. Ingram was entitled, at most, to $2,729,675.95 – the

sum Mr. Ingram paid to the Banque d’l Union Europeene in May 1983 because their

agreement was that Mr. Ingram’s agreement to make the $1,700,000 loan would not

cost Mr. Ingram any money. Thus, he insists that he should not be required to pay

Mr. Ingram an additional $3,937,446.92 which represents the simple interest on the

$2,729,675.95 calculated at the prime rate from May 1983 to May 1995.

We find that Mr. Earthman’s reliance on the parties’ agreement that Mr.

Ingram would incur no additional expense in this transaction is misplaced. At the

time they entered into the original loan transaction in 1980, the parties contemplated

that Mr. Earthman would repay Mr. Ingram’s United American Bank loan plus

interest when it became due in eighteen months. They did not contemplate that Mr.

Earthman would cause the note to be renewed or to be sold to a foreign bank or that

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Mr. Earthman would fail to repay the loan for over twelve years after its original due

date.

Mr. Earthman conceded that he expected to pay Mr. Ingram principal and

interest when he first borrowed the $1,700,000 in October 1980. Tenn. Code Ann.

§ 47-14-123 (1995) permits juries to award prejudgment interest as damages “in

accordance with the principles of equity at any rate not in excess of a maximum

effective rate of ten percent (10%) per annum.” The jury’s decision to award Mr.

Ingram simple interest calculated on his $2,729,675.95 payment to the Banque d’l

Union Europeene is consistent with Tenn. Code Ann. § 47-14-123 and is supported

by the evidence. Accordingly, we find that the jury’s $5,667,122.84 verdict is not

excessive.

IX.

We affirm the judgment22 and remand the case to the trial court for any further

proceedings that may be required. We tax the costs of this appeal to William F.

Earthman and his surety for which execution, if necessary, may issue.

_____________________________

WILLIAM C. KOCH, JR., JUDGE

CONCUR:

_________________________________

SAMUEL L. LEWIS, JUDGE

_________________________________

BEN H. CANTRELL, JUDGE

22

Because we have affirmed the judgment based on Mr. Ingram’s claims arising from the

October 14, 1980 note, we pretermit the three issues raised by Mr. Ingram concerning the trial

court’s summary dismissal of his intentional and negligent misrepresentation claims and the

calculation of interest should the case be remanded for a new trial.

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