The opinion
FILED
July 31, 1998
HARTSVILLE HOSPITAL, INC. ) Cecil W. Crowson
Appellate Court Clerk
)
Plaintiff/Appellee, )
) Appeal No.
v. ) 01-A-01-9801-CH-00022
)
THE BAY NATIONAL BANK ) Trousdale Chancery
& TRUST CO., ) No. 6092
)
Defendant/Appellant. )
COURT OF APPEALS OF TENNESSEE
APPEAL FROM THE CHANCERY COURT FOR TROUSDALE COUNTY
AT HARTSVILLE, TENNESSEE
THE HONORABLE C.K. SMITH, CHANCELLOR
DAVID B. FOUTCH
GREGORY S. GILL
Rochelle, McCulloch & Aulds
109 Castle Heights Ave., No.
Lebanon, Tennessee 37087
ATTORNEYS FOR THE PLAINTIFF/APPELLEE
SHARON LINVILLE
203 East Main Street
Hartsville, Tennessee 37074
ATTORNEY FOR THE DEFENDANT/APPELLANT
REVERSED AND REMANDED
WILLIAM B. CAIN, JUDGE
OPINION
This case is before us on appeal from a grant of summary judgment in
favor of the Plaintiff, Hartsville Hospital Inc., regarding its claim to $27,835.81
held by the Defendant, The Bay National Bank & Trust Company. The parties
shall hereinafter be referred to as Hospital and Bank respectively.
I. Factual History:
The following facts are undisputed and are contained in the record on
appeal now properly before this court. The Bank in this case is the Trustee in a
Deed of Trust executed August 1, 1974. The Hospital is a successor in
possessory interest to the original tenant. The Hospital, in an attempt to purchase
the property from the Trustee, was seeking a release by the Trustee of all
interests, secure and otherwise, which it had in the property which was the
subject of the Lease, Indenture and Deed of Trust executed on August 1, 1974.
The Bank was seeking the payment of a sum of money to at least recoup some
of its losses in the original indenture. The original indenture instrument
established a “Bond Fund” which is the subject of the instant dispute.
Section 502. Creation of the Bond Fund. There is hereby
created by the Issuer and ordered established with the
Trustee a trust fund to be designated “the Health and
Educational Facilities Board of the Town of Hartsville,
Tennessee First Mortgage Hospital Revenue Bond Fund -
Hartsville General Hospital Company Project” (which is
sometimes referred to herein as the “Bond Fund”, which
shall be used to pay the principal of, premium if any, and
interest on the Bonds.
In section 508 of the original indenture, the money in the “Bond Fund”
was subjected to the mortgage lien and served as partial collateral for the
payment of the mortgage.
Section 508. Moneys to be Held in Trust. All moneys
required to be deposited with or paid to the Trustee for
account of the Bond Fund or the Construction Fund under
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any provision of this Indenture shall be held by the Trustee
in trust, and except for moneys deposited with or paid to the
Trustee for the redemption of Bonds, notice of the
redemption of which has been duly given, shall, while held
by the Trustee constitute part of the Trust Estate and be
subject to the lien hereof.
According to the documents now included in the record before this
court, the Bond Fund was established as a repository for rents paid by the
predecessors in interest to Hospital. In fact, at no time had Hartsville Hospital,
Inc., paid any of the $27,835.81 that was in the Bond Fund account. Yet,
Hartsville claims it is entitled to that money by way of the release executed by
the parties between January 25, 1994 and February 1, 1994. That release reads,
in pertinent part,
The Trustee, on behalf of the holders of the Bonds, has
now agreed to release its Security Interests and liens in the
real and personal property securing the Bonds according to
the terms agreed upon by the Trustee and Hartsville. In
connection with the release of its Security Interests and liens,
the Trustee has agreed to release and terminate its rights in
all security for the repayment of the Bonds including, but not
limited to, the Deed of Trust, the Assignment of Lease and
the Security Interests. The Trustee shall have no further
interest of any kind in any collateral securing repayment of
the Bonds or any right to rent paid or accrued pursuant to the
terms of the Lease.
1. Obligations of Parties. According to the terms of this
Agreement, Hartsville agrees to deliver to the Trustee funds
(referred to hereinafter as the “Funds”) in the amount of
Seventy-Five Thousand Dollars ($75,000). In consideration
of the receipt of these funds, the Trustee, pursuant to the
written direction furnished by a majority of bondholders will
cancel any promissory note made by Hartsville or the Board
(in principal Amount) [as corrected by Shirley Carrol, Trust
Officer] for the benefit of the Trustee or holders of the Bonds
and release and terminate all liens, security interests and
assignments in all assets granted in the Indenture or by other
instrument to the Trustee by the Board or Hartsville to
secure the repayment of the Bonds, including but not limited
to the assets owned by the Board and leased to Hartsville
under the terms of the Lease, and including but not limited to
the termination and release of the Deed of Trust, the
Assignment of Lease and the Security Interests.
...
9. Completeness and Modification. This Agreement
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constitutes the entire agreement between the parties hereto as
to the transactions contemplated hereby and supersedes all
prior discussions, understandings or agreements between the
parties hereto. (italics supplied)
According to the affidavit of Alexander Buchanan, on or about
February 3, 1994, R. Culver Schmid, counsel for the Hospital, contacted the
Bank to inquire as to the worth of the Bond Fund. At that time Mr. Buchanan
informed Mr Schmid that the Bond Fund balance was not affected by the release
executed by the parties. In his affidavit in response to the motion for summary
judgment below, Mr Buchanan averred,
3. The Bond Fund as established under the terms of
the Indenture was not discussed until on or about February 3,
1994, the day prior to the closing of the transaction between
Hartsville Hospital and Bay Bank. At that time, Mr. Schmid
asked me about the balance in the Bond Fund. I told Mr.
Schmid that I found it surprising that he was inquiring about
such fund since no mention had been made of the fund at any
time during the negotiations between the parties and that it
was our intention that any monies in the Bond Fund would
not be paid over to the Hospital. Mr. Schmid was informed
that it was Bay Bank’s position that such monies were not
part of the transaction and Hartsville Hospital had no claim
to such monies. Additionally Mr. Schmid was informed that
unless Bay Bank received payment by Hartsville Hospital of
the sum of Seventy Five Thousand ($75,000) dollars
(without offset), there would be no release of Bay Bank’s
lien on the real property and the furniture, fixtures, and
equipment used in the operation of the hospital. Finally Mr.
Schmid was informed that if his client was willing to close
upon those terms, the Seventy Five Thousand ($75,000)
Dollars should be paid to Bay Bank and the Release
Agreement signed, but that if those terms were not
acceptable, the transaction should not be closed.
According to the Buchanan affidavit no other mention was made of the
Bond Fund until after the closing. The Hospital demanded payment of the Bond
Fund monies and filed suit. Both parties moved for summary judgment at trial.
The court below refused to consider two affidavits, one of which is referenced
above. The court apparently considered these affidavits to be parol evidence and
thus barred from consideration. For reasons set out below, this court finds
summary judgment inappropriate at this point in the proceedings.
II. Issues for Review
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The appellant Bank presents the following issues for review:
1. Whether the Appellee had any right to receive monies
held by the Appellant in the Bond Fund?
2. Whether the trial court erred in refusing to consider the
affidavits of Shirley I. Carroll and Alexander B. Buchanan,
offered to explain ambiguous terms of the Release
Agreement as it applied (or, more accurately, does not apply)
to the Bond Fund?
3. Whether the trial court erred in refusing to consider the
Appellee is estopped from claiming an interest in the Bond
Fund?
Since issue No. 2 is dispositive on appeal from summary judgment, it
is not necessary to address the other issues. The Hospital argues, relying on the
rule set out in Faithful v. Gardener, 799 S.W. 2d 232 (Tenn. Ct. App. 1990), that
these affidavits represent prior or contemporaneous conversations presented for
the purpose of varying or contradicting a clear and unambiguous writing.
If, however, the affidavits are offered to explain a latent ambiguity in
the release agreement they are properly offered in evidence to counter a
summary judgment motion. A latent ambiguity exists; " . . . where the
equivocality or obscurity of intention does not arise from the words themselves,
but from the ambiguous state of extrinsic circumstances to which the words of
the instrument refer . . . " Teague v. Souder, 114 S.W.2d 484, 488 (Tenn. 1908).
The $27,835.81 balance in the bond fund at the time of the release
represented money not paid by Hartsville but rather by predecessors in interest
of Hartsville. When applying the language of the written release to the
extraneous circumstances, the status of the remaining monies in the bond fund
are not unambiguously "further interest" in collateral securing repayment of the
bonds but may just as well be previous payments on the bonds. This is
particularly true when one considers that admittedly none of these funds were
ever paid into the bond fund by Hartsville.
Parol evidence is thus admissible to explain a latent ambiguity and the
issue of the balance in the bond fund cannot be resolved on summary judgment
motion.
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Additionally, the affidavits present an oral exchange between the
parties subsequent to the writing which warrants examination by the court. A
movant is only entitled to summary judgment where, taking the view of the
evidence most favorable to the non-movant, there is no genuine issue as to any
material fact and the movant is entitled to judgment as a matter of law. Evco
Corp v. Ross, 528 S.W. 2D 20 (Tenn. 1975). These affidavits present a factual
question as to what the words of the release actually mean.
It was held in Hibernia Bank & Trust Co. v. Boyd, 164 Tenn.
376, 48 S.W.2d 1084 (1932) that in the construction of a
written contract evidence offered for the purpose of proving
the intention of the parties in its execution, the motives
which induced it, and the object and purpose designed to be
effected by it, is competent.
Travelers Ins. Co. v. Sides, 184 Tenn. 663 at 669, 202 S.W.2d 815
(1947).
Certainly these affidavits go to explain the terms of the agreements or
at least their motives or intentions with regard to that agreement.
This Release concerned funds that had not been paid by the Hospital.
Giving effect to this release without considering the affidavits in this case would
allow a unique result in that the parties involved would be exchanging cash for
cash.
In this case we have a release in which the bank releases all liens it
holds on the encumbered property in exchange for a one-time payment of money.
Funds held by the bank in the bond fund that had been paid in prior to Hartsville
Hospital ever assuming duties and obligations as to the hospital is no where
mentioned in the release agreement. No discussion occurred between the parties
until after the signatures of both parties appear on the release agreement. The
conversation referenced in the Buchanan affidavit occurred subsequent to the
execution of the contract, but it is not barred by the parol evidence rule and
should be considered along with all other evidence surrounding the meaning of
the words in the release as same are applied to the circumstances surrounding the
funds remaining in the bond fund.
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There are still material issues of fact to be resolved in this case. The
action of the trial court in granting summary judgment to Hartsville is reversed
and the case is remanded for further proceedings. Byrd v. Hall, 847 S.W.2d 208,
214 (Tenn. 1993).
Costs of the appeal are taxed against the appellee.
_____________________________
WILLIAM B. CAIN, JUDGE
CONCUR:
__________________________________
HENRY F. TODD, PRESIDING JUDGE
__________________________________
BEN H. CANTRELL, JUDGE
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