Regions Bank v. Thomas D. Thomas

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
December 12, 2012 Session

REGIONS BANK v. THOMAS D. THOMAS, ET AL.

Direct Appeal from the Circuit Court for Shelby County
No. CT-00511307 Robert L. Childers, Judge

No. W2011-02320-COA-R3-CV - Filed March 4, 2013

Plaintiff Bank accelerated a loan secured by an aircraft after Borrower failed to maintain
insurance on the aircraft as required by the loan documents. Bank filed an action to collect
amounts due; took possession of and disposed of the aircraft; and sought a judgment for the
deficiency. The trial court entered judgment in favor of Bank. Defendant Loan Guarantors
appeal. We affirm in part; reverse in part, finding that Bank did not provide sufficient notice
as required by Tennessee Code Annotated § 47-9-611; and remand for further proceedings.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in
part, Reversed in part and Remanded

D AVID R. F AR MER, J., delivered the opinion of the Court, in which A LAN E. H IGHERS, P.J.,
W.S., and J. S TEVEN S TAFFORD, J., joined.

Richard E. Charlton, Memphis, Tennessee, and Kirk L. Clements, Goodlettsville, Tennessee,
for the appellants, Thomas D. Thomas, Helen L. Thomas and The Thomas Family Living
Trust.

David R. Evans, Chattanooga, Tennessee, and Stephen Leffler, Memphis, Tennessee, for the
appellee, Regions Bank.

OPINION

This appeal arises from a judgment entered in favor of Plaintiff/Lender Regions Bank
(Regions) against Defendant Loan Guarantors in an action to collect amounts due on a loan
accelerated by Regions following Borrower’s alleged default for failure to maintain
insurance on an aircraft pledged as collateral. Following a hearing on May 9-11, 2011, the
Circuit Court for Shelby County found that Borrower LGT Aviation, Inc. (“LGT”) had
breached the loan agreement executed with Regions’ predecessor in interest, Union Planter’s
Bank (“Union Planter’s”) by failing to provide insurance coverage on the collateral, a 1981
Hawker HS 125-700A aircraft (“the aircraft”) during the term of the loan as required by the
loan documents; that the failure to provide insurance coverage constituted default; that
Regions had taken possession of and sold the aircraft in a commercially reasonable manner;
and that Regions was entitled to a judgment in the amount of $1,642,771.91, plus interest at
the applicable per diem interest rate in the amount of $945.15 per day for 859 days. The trial
court dismissed LGT’s complaint against Regions and Defendants’ counter-complaint and
third-party complaints. Defendant Loan Guarantors, Thomas D. Thomas, Helen L. Thomas,
and the Thomas Family Living Trust (collectively, “Defendants” or “Appellants”) filed a
timely notice of appeal to this Court. We affirm in part, reverse in part, and remand for
further proceedings.

Issues Presented

Appellants present twelve issues for our review. The issues presented by this
appeal, as we consolidate and re-word them, are:

(1) Whether the trial court erred by finding that a material breach of the
loan agreement had occurred.

(2) Whether the trial court erred by declining to find that Regions’
repossession of the aircraft was not in good faith and fair dealing in
violation of the Uniform Commercial Code.

(3) Whether the trial court erred by failing to find that the alleged default
was not waived or cured by Regions’ conduct.

(4) Whether the trial court erred by awarding Regions a judgment for
deficiency where LGT and Defendants were not given notice of the
sale of the aircraft.

(5) Whether the trial court erred by finding that Regions’ repossession,
repair and sale of the aircraft was commercially reasonable.

(6) Whether, under Tennessee Rules of Civil Procedure 15.02, the trial
court erred by not awarding interest at the contract rate as pled in
Regions’ complaint.

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 Standard of Review

We review the trial court’s findings of fact de novo on the record, with a presumption
of correctness, and will not reverse those findings unless the evidence preponderates against
them. Tenn. R. App. P. 13(d); Berryhill v. Rhodes, 21 S.W.3d 188, 190 (Tenn. 2000). Insofar
as the trial court’s determinations are based on its assessment of witness credibility, we will
not reevaluate that assessment absent clear and convincing evidence to the contrary. Jones
v. Garrett, 92 S.W.3d 835, 838 (Tenn. 2002). Our review of the trial court’s conclusions on
matters of law, however, is de novo with no presumption of correctness. Taylor v. Fezell,
158 S.W.3d 352, 357 (Tenn. 2005). We likewise review the trial court’s application of law
to the facts de novo, with no presumption of correctness. State v. Thacker, 164 S.W.3d 208,
248 (Tenn. 2005).

Background and Procedural History

The background facts relevant to the issues raised on appeal are largely undisputed.
Defendant/Appellant Thomas D. Thomas (Mr. Thomas) is the sole shareholder and President
of LGT, a Delaware corporation. In August 2004, LGT obtained a loan in the amount of
$2,351,700 (“the loan”) from Regions Bank’s predecessor in interest, Union Planter’s Bank
(“Union Planters”).1 The loan documents executed by Mr. Thomas, as president of LGT,
included a business loan agreement; a promissory note in the amount of $2,351,700 secured
by a 1981 Hawker 700-A twin engine aircraft (“the aircraft”); an aircraft security agreement;
an agreement to provide insurance; and a notice of insurance requirements. The loan was
guaranteed jointly and severally by Mr. Thomas, Helen L. Thomas (Ms. Thomas), and the
Thomas Family Living Trust (“the Trust”), all residents of California. Paragraph (k) of the
security agreement required Borrower LGT to “keep the [a]ircraft and the [c]ollateral fully
insured, with a company and under a form of policy acceptable to the Bank, against all risks
and hazzards.” The loan documents recited a maturity date of August 5, 2009. Principal and
interest payments were payable in 59 monthly installments in the amount of $21,200, plus
one irregular final balloon payment in the amount of $1,467,919.03. Interest was calculated
at prime rate less one quarter of one percent; the initial interest on the loan was four percent.

In August 2006, LGT allowed the insurance policy on the aircraft to lapse. On August
22, 2006, Regions contacted Mr. Thomas by e-mail, informing him that it had received a
notice of cancellation of insurance for non-payment of premium and that the loan documents
required him to maintain insurance in the amount of the outstanding loan balance. Mr.
Thomas responded on August 23, stating that he had been unhappy with the rates and
coverage offered by the insurance carrier, that he was “having coverage placed with another

1
Union Planters and Regions merged in March 2005.

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carrier,” and that the aircraft was in maintenance and would not be moved until insurance
coverage was in place. Mr. Thomas also stated that he hoped to have insurance coverage on
the aircraft by the end of that week. Regions sent Mr. Thomas a verification report to be
completed by Mr. Thomas and on September 2 e-mailed Mr. Thomas requesting return of the
verification report and stating, “[w]e need for you to provide insurance coverage as called
for in the contract for [the aircraft].” Regions e-mailed Mr. Thomas again on September 19,
stating that it had not received confirmation of insurance and advising that insurance “[was]
required in order for [the] loan to continue to be in good standing.” On November 14,
Michael Skillern (Mr. Skillern), Regions’ vice president for equipment finance, e-mailed Mr.
Thomas advising him that he had failed to obtain insurance or to respond to the previous e-
mails of September 2 and 19, despite requesting assistance on another matter on November
6. Mr. Skillern requested that Mr. Thomas forward proof of insurance and information on
the aircraft as previously requested.

On June 11, 2007, Regions’ legal counsel, Ellen Dover (Ms. Dover), sent written
correspondence to Mr. Thomas and LGT advising that Regions had not received information
or confirmation of insurance on the aircraft. Ms. Dover stated that Mr. Thomas had failed
to respond to inquiries from Regions, and that the failure to maintain insurance coverage and
to provide Regions with proof of coverage constituted a default under the loan agreement,
security agreement, and promissory note. Ms. Dover demanded proof of insurance of the
aircraft and information regarding the condition of the aircraft by June 29, 2007. She further
advised that the failure to comply would “force Regions to take other steps to enforce its
rights and protect its remedies under the Agreements, including, without limitation, the
possible acceleration of all obligations due under the Loan Agreements[.]” Ms. Dover again
wrote to Mr. Thomas on August 23, 2007, again informing him that the failure to provide
proof of insurance constituted a default of the loan agreements. Ms. Dover advised Mr.
Thomas that Regions “hereby accelerate[d] all of LGT’s obligations” and demanded
immediate repayment of amounts due, totaling $2,032,044.87, plus $450.87 per diem and
attorney’s fees, by August 30, 2007. Ms. Dover stated, “[f]ailure to pay all amounts owed
by such date will result in Regions pursing all available remedies available to it under the
loan agreements.” Mr. Thomas did not respond to Ms. Dover’s correspondence and LGT did
not repay the loan.

On October 9, 2007, Regions Bank (“Regions”) filed an action against Mr. Thomas,
Ms. Thomas, and the Trust in the Circuit Court for Shelby County. In its complaint, Regions
alleged that LGT had breached its obligation to maintain insurance coverage on the aircraft;
that notice of default had been given by letter dated June 11, 2007; that notice of acceleration
had been given by letter dated August 23, 2007; and that LGT had failed and refused to repay
the loan. Regions prayed for a judgment for the principal sum of $2,021,212.45; accrued
interest in the amount of $10,819.08; interest from and after the date of filing at the

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maximum rate allowed by law; costs and attorney’s fees. However, service was not effected
on Ms. Thomas until January 8, 2008, or on Mr. Thomas or the Trust until April 2008.

On January 9, 2008, Regions legal counsel David Evans (Mr. Evans) sent a memo to
LGT and Appellants. In his memo, Mr. Evans stated that Regions had attempted to elicit a
response to no avail; that the loan had been accelerated to immediate maturity and that
demand for payment in full had been made on LGT and upon Appellants as guarantors; that
litigation had been instituted in Shelby County; and that Regions was “getting ready to move
for a default judgment.” Mr. Evans further stated that, as permitted by the loan documents,
Regions had “also recently moved to place insurance on the aircraft.” Mr. Evans advised
Appellants that the annual cost of insurance was $18,000, and that the cost would be charged
to Appellants. Mr. Evans further stated,

[i]n the meantime, the Bank may also elect to exercise rights as a secured
creditor to take possession of, store and sell the aircraft and its engines which
have been pledged to secure the loan. The costs of those actions are also
chargeable to you, either as the Borrower or as the guarantor of the obligations.

Mr. Evans continued,

[w]e do not know why you continually refused to provide proof of insurance
as required under the loan documents, or then failed to respond to phone calls
and letters regarding notice of default, acceleration of the loan, demand for
payment and ultimately institution of litigation against the three guarantors.
I write one last time in an effort to elicit a response from you prior to moving
for a default judgment in the pending litigation and/or the Bank’s taking
possession of and selling the collateral. Should you wish the Bank to consider
the possibility of alternative pathways forward, you or your counsel need to
promptly contact either myself . . . or the Bank officer with responsibility for
the credit, Brian Hamilton[.]

Mr. Evans received no reply.

It is undisputed that from June 2005 to March 2008, the aircraft was not flown. In
early 2008, Regions hired Jeff Martin (Mr. Martin), President of Martin & Martin
Auctioneers, to locate the aircraft at Van Nuys, California; to determine its condition; and
to remarket the aircraft for sale. The aircraft was located at the Hawker-Beechcraft FBO
(fixed base operator) and was repossessed by Regions in February 2008. Repairs were
undertaken to make the aircraft flight-worthy, and in March 2008 it was flown to South
Carolina for further repairs. Repairs were completed by the late summer of 2008. The

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record indicates that, in June 2008, Mr. Martin was receiving bids on the aircraft, pending
the completion of repairs, and expected to sell the aircraft for $1.8 million to $2.3 million.
Mr. Martin did not sell the aircraft, and on September 30, 2008, Regions engaged Barron
Thomas to sell the aircraft. In December 2008, the aircraft was sold for a purchase price in
the amount of $875,000.

In the meantime, Mr. Evans sent additional correspondence to Appellants on March
5, 2008. In his March 2008 letter, Mr. Evans again stated that repeated efforts to elicit a
response from LGT or Appellants had been unsuccessful. Mr. Evans advised Appellants
that, as permitted by the loan agreements, Regions had placed insurance on the aircraft and
that Appellants would be responsible for the cost of such insurance. He further stated that
Regions was preparing to move for a default judgment, and advised Appellants that Regions
understood that a lien was being asserted against the aircraft in the amount of approximately
$75,000 for storage and maintenance charges. Mr. Evans additionally advised Appellants
that Regions “further underst[ood] that the aircraft [would] require as yet unknown repairs
in order to enable the aircraft to be transported to any place of sale.” Mr. Evans attached a
copy of Regions’ complaint to his correspondence, and again requested that Appellants or
their legal counsel contact him to seek a resolution of the matter. Mr. Evans again received
no response. It does not appear that Appellants or LGT were notified that Regions had taken
possession of the aircraft.

On February 12, 2009, Regions moved for entry of a default judgment and an
assessment of liquidated damages. In its motion, Regions asserted that the loan had been
accelerated to immediate maturity because LGT repeatedly failed to provide evidence of
insurance as required by the loan documents. It further asserted that no responsive pleadings
had been filed by Appellants and that no entry of an appearance had been filed by anyone on
their behalf. It further asserted that, subsequent to the filing of its action, it had learned that
the aircraft had not been maintained, that it was not air-worthy and in need of significant
repairs, that it had made repeated attempts to elicit a response from Appellants, and that its
damages were fully calculable. Regions prayed for total damages, after credits arising from
the liquidation of the collateral, in the amount of $1,654,463.79, including late fees, interest,
and attorney’s fees. Regions’ motion for default judgment was denied by the trial court by
order entered in April 2010.

Appellants filed an answer and counter-complaint on February 27, 2009.2 In their
answer, Appellants denied any wrong-doing and raised several defenses, including improper

2
Appellants also filed third-party complaints against the various facilities and brokers involved in
the storage, repair and selling of the aircraft. These complaints were dismissed by the trial court and the
third-party Defendants are not parties to this appeal.

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service, venue and jurisdiction. In their counter-claim, Appellants asserted, inter alia, that
the aircraft was covered by Hawker Beechcraft’s policy of insurance while it was in their
possession in California; that LGT had advised Regions that the aircraft was in the
possession of Hawker Beechcraft and that it would not be flown until applicable insurance
was procured; that LGT continued to make all payments due on the loan in a timely manner,
and that payments were accepted without objection by Regions; that Regions had purchased
insurance on behalf of LGT in the amount of $2,300,000 and billed LGT for the premiums,
thereby curing any breach; that Regions did not send written notification that it was not
waiving the breach notwithstanding accepting loan payments and billing LGT for the
insurance; and that Regions caused the aircraft to be unlawfully possessed.

As noted above, the trial court heard the matter in May 2011. On June 27, 2011, the
trial court entered its findings of fact and order of judgment in favor of Regions. Appellants
filed a motion to alter or amend the judgment to reflect that Regions be awarded no
deficiency against Appellants; that, in the alternative, that amounts expended by Regions for
storage or work done on the aircraft be deducted from the judgment; that, in the alternative,
the deficiency be reduced by the value of the aircraft, $2,080,000 to $2,600,000; that, in the
alternative, the prejudgement interests be reduced to $139.99 per diem; that, in the
alternative, the trial court amend prejudgment interest to reflect the contract rate of interest
and post-judgment interest be awarded at 10 percent per annum. The trial court entered
amended findings of fact and conclusions of law on September 23, 2011 (hereinafter,
“findings” and “conclusions”). By order entered October 26, 2011, the trial court denied
Appellants motion to alter or amend except as otherwise reflected in its amended order of
September 23. This appeal ensued.

Discussion

We begin our discussion by noting that it is undisputed that LGT made all payments
due on the loan in a timely fashion through December 2008, when the aircraft was sold by
Regions. Regions’ September 30, 2007 “Problem Loan Report” reflects that in May 2004
the aircraft was appraised at $2.6 million; that a May 2004 personal financial statement
indicated that Mr. Thomas had a net worth in the amount of $10 million; and that “a formal
appraisal [was] in progress and the collateral [would] be pursued for possible liquidation.”
The default alleged by Regions was the failure to maintain insurance coverage on the aircraft.
The record reflects that Regions force-placed insurance on the aircraft in September 2007
and charged the premiums to LGT, as permitted by the loan documents. We also note that
it is undisputed that LGT is a closely held corporation, that Mr. Thomas is its sole
shareholder, and that the aircraft was used by Mr. Thomas and his family for personal use.
Further, although the loan executed by the parties is styled a “business loan,” the parties
represent that the loan was “on” or “to obtain” the aircraft. It is undisputed that LGT/Mr.

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Thomas failed to maintain insurance on the aircraft, notwithstanding Mr. Thomas’s
contention that the aircraft was covered under Hawker Beechcraft’s policy of insurance while
it was at the California facility and, ultimately, under a policy obtained by Regions. It also
is not disputed that, after August 2006, Mr. Thomas failed to respond or reply to Regions’
multiple attempts to contact him. The record reflects that Mr. Evan’s January and March
2008 correspondence were in the form of “Memos” and do not indicate how or to what
addresses they were sent. Mr. Thomas does not dispute receiving them, however. Finally,
it is not disputed that Regions took possession of the aircraft and sold it for a purchase price
in the amount $875,000. With these facts in mind, we turn to the issues presented.

The Breach and the Obligation of Good Faith

Appellants appear to acknowledge that the loan agreement required them to maintain
insurance on the aircraft. Their argument, as we understand it, is that the trial court erred by
finding that the breach was material. Appellants assert the breach was not material under the
criteria established by the Restatement (Second) of Contracts adopted by the Tennessee
Courts. Appellants also assert that the breach was not sufficiently material so as to justify
Regions’ actions when considered against the obligation of good faith required by Tennessee
law and the Uniform Commercial Code (“UCC”). Appellants assert that Regions did not act
in good faith by considering the loan to be in default where all payments were made on time;
where Regions had the option of placing insurance on the aircraft and charging the premiums
to LGT; where Regions ultimately placed insurance on the aircraft after waiting over six
months to do so; where the aircraft was covered under Regions’ Financial Institutions
Policies; and where Regions reasonably could expect the loan and insurance premiums to be
repaid. Appellants rely on Tennessee Code Annotated § 47-1-309; Lane v. John Deere
Company, 767 S.W.2d 138 (Tenn. 1989); and Glazer v. First American National Bank, 930
S.W.2d 546 (Tenn. 1996), in support of their assertion that Regions acted in bad faith by
declaring the loan to be in default when all loan payments were made on time.

Tennessee Code Annotated § 47-1-309 provides:

A term providing that one (1) party or that party’s successor in interest may
accelerate payment or performance or require collateral or additional collateral
“at will” or when the party “deems itself insecure”, or words of similar import,
means that the party has power to do so only if that party in good faith believes
that the prospect of payment or performance is impaired. The burden of
establishing lack of good faith is on the party against which the power has
been exercised.

Tenn. Code Ann. § 47-1-309 (Supp 2012). Under the Code, therefore, Appellants carried the

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burden to demonstrate that Regions did not act in good faith by accelerating the loan.

Notwithstanding Appellants’ assertion that they had made all payments as required
by the loan agreement, we note that Regions received notice that the policy of insurance that
initially covered the aircraft was cancelled for nonpayment; that Mr. Thomas assured
Regions that he was “having coverage placed with another carrier” in August 2006; and that
Mr. Thomas simply did not respond to any further inquiries or communication from Regions.
We additionally note that, although all scheduled payments had been made, the last payment
of a balloon payment of approximately $1.5 million was due in August 2009. It is clear from
the record that Regions attempted to resolve matters before accelerating the loan, that it
advised Mr. Thomas that the loan would be accelerated if he failed to respond, and that it
demanded payment of the accelerated loan before it took possession of the aircraft. Mr.
Thomas made no attempt to resolve the matter; indeed, he simply ignored Regions’ attempt
to contact him.

The issue addressed by the supreme court in Lane v. John Deere Company was the
obligation of good faith imposed on the acceleration of a debt under an “insecurity clause”
where the debt is not otherwise “in default for the non-performance of some contractual
duty.” Lane v. John Deere Co., 767 S.W.2d 138, 140 (Tenn. 1989). The court held:

the acceleration of a debt pursuant to an insecurity clause, the party exercising
that option must act out of an honest belief the other party’s ability to perform
has deteriorated since the time of contracting and must not use it as an
instrument of abuse. Any evidence that the belief was not rational or that the
party accelerating the debt took unconscientious advantage of the other or
resorted to this severe remedy for other reasons is material.

Id. at 142.

Although the case before us is distinguishable from Lane, which addressed
acceleration under an “insecurity clause” and not for the failure to perform a contractual
obligation, the court’s analysis of the evidence relevant to good faith is instructive here. The
Lane court cited numerous material factors relevant to the question of good faith, including
the creditor’s

knowledge of the insecure circumstances at the time of contracting, e.g.,
Clayton v. Crossroads Equipment Co., 655 P.2d 1125 (Utah 1982); his
knowledge of facts that contradict the negative information acquired, e.g.,
Eglin Federal Credit Union v. Curfman, 386 So.2d 860 (Fla.App.1980); the
nature and value of the collateral, e.g., Jack M. Finley, Inc. v. Longview Bank

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 & Trust, 705 S.W.2d 206 (Tex.App.1985); his position—whether secured or
unsecured, e.g., McKay v. Farmers & Stockmens Bank of Clayton, 92 N.M.
181, 585 P.2d 325 (1978); any deceit or outrageous conduct in the course of
the whole transaction, including repossession, e.g., Farmers & Merchant Bank
of Centre v. Hancock, 506 So.2d 305 (Ala.1987); Mitchell v. Ford Motor
Credit Co., 688 P.2d 42 (Okla.1984); an abrupt departure from an established
course of dealing, e.g., Reid v. Key Bank of Southern Maine, 821 F.2d 9 (1st
Cir.1987); such circumstances relating only to the creditor as audits or
personnel conflicts, e.g., Farmers & Merchant Bank of Centre, supra;
erroneous assertion of default on some other ground, e.g., Kupka v. Morey, 541
P.2d 740 (Alaska 1975); the course of dealing between the parties, e.g.,
Farmers & Merchant Bank of Centre, supra; Reid v. Key Bank, supra; any
oppressive use of his superior position, e.g., Reid v. Key Bank, supra; Libby v.
Twombley, 213 Mont. 66, 689 P.2d 1226 (1984); any commercial advantage
unrelated to the security of the debt, e.g., State National Bank of El Paso v.
Farah Mfg., 678 S.W.2d 661 (Tex.App.1984); gross negligence in record
keeping, e.g., Mitchell v. Ford Motor Credit, supra; see also McConnico v.
Third National Bank, 499 S.W.2d 874, 881 (Tenn.1973); prior assurances
causing the other party to change position, e.g., Libby v. Twombley, supra; and
a creditor's own conduct that contributes to the insecurity, e.g., Kupka v.
Morey, supra.

Id. at 140-141. The Lane court upheld the jury’s verdict in favor of plaintiff debtor, but
remanded on the issue of damages, finding the proof inadequate. Id. at 142.

Glazer v. First American National Bank involved a claim for conversion arising from
the embezzlement of funds from plaintiff’s account by plaintiff’s employee. Glazer v. First
Am. Nat’l Bank, 930 S.W.2d 546, 547 (Tenn. 1996). Plaintiff sought defendant’s assistance
in obtaining copies of insurance checks cashed by plaintiff’s employee, and defendant
refused. Plaintiff sued defendant bank, asserting defendant paid insurance checks that were
fraudulently endorsed, and converted his property. Plaintiff also asserted defendant breached
its duty as provided in the depository agreement by failing to cooperate. He asserted a claim
for consequential damages. Id. at 549. Defendant bank contended that, because its
employees were honest, the bank did not act in bad faith so as to support an award of
consequential damages under the UCC. Id. at 548. Plaintiff asserted that, because the bank
did not cooperate after learning of the fraudulent scheme, it acted in bad faith. Id. at 549.
The Glazer court opined that “bad faith can be defined as a knowing or reckless disregard
of a customer’s rights[,]” but that plaintiff had failed to demonstrate that the bank violated
his rights by virtue of some duty to assist him. Id. at 550.

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 Although the interpretation of a contract is a question of law which we review de
novo, with no presumption of correctness for the conclusions of the trial court, State ex rel.
Pope v. U.S. Fire Insurance Co., 145 S.W.3d 529, 533 (Tenn. 2004), the determination of
whether a breach has occurred is a question of fact for the trier of fact. Carolyn B. Beasley
Cotton Co. v. Ralph, 59 S.W.3d 110, 115 (Tenn. Ct. App. 2000). As noted above, the
documents executed by the parties clearly impose an obligation on LGT to maintain
insurance on the aircraft. The promissory note defines default as, inter alia, “any ‘Default’
or Event of Default’ [that] occurs under or with respect to any of the Security Documents or
any other instrument or document executed in connection with this Note.” The aircraft
security agreement defines default as, inter alia, the “[f]ailure to maintain insurance against
any of the hazards required to be insured against pursuant hereto, or cancellation of any
policy providing for such insurance prior to payment of the [i]ndebtedness.” The security
agreement further provides that, upon the occurrence of any event of default that is not cured
within 15 days of receipt of written notice of default, Regions shall have the right to, inter
alia, declare the indebtedness due and payable in full and to take possession of the collateral
and move, relocate, store, re-condition and sell the collateral. The evidence does not
preponderate against the trial court’s finding that Appellants breached the parties’ agreement
by failing to maintain a policy of insurance on the aircraft. The loan documents
unambiguously imposed on Appellants an obligation to obtain and maintain insurance on the
collateral, and provided that the failure to do so was an event of default. The failure to insure
collateral as required by a loan agreement has been considered a default for which
repossession may be a proper remedy. McCall v. Owens, 820 S.W.2d 748, 751 (Tenn. Ct.
App. 1991). We affirm the trial court’s finding that Appellants materially breached the loan
agreement by failing to maintain insurance on the aircraft.

It is well-settled in Tennessee that “‘the common law imposes a duty of good faith in
the performance of contracts.’” Dick Broadcasting Co., Inc. of Tenn. v. Oak Ridge FM, Inc.,
No. E2010–01685–SC–R11–CV, --- S.W.3d ---, 2013 WL 175491, at *4 (Tenn. Jan. 17,
2013)(quoting Wallace v. Nat’l Bank of Commerce, 938 S.W.2d 684, 686 (Tenn. 1996)). The
supreme court has reiterated that “‘[i]t is true that there is implied in every contract a duty
of good faith and fair dealing in its performance and enforcement, and a person is presumed
to know the law.’” Id. (quoting id. (emphasis added) (quoting TSC Indus., Inc. v. Tomlin,
743 S.W.2d 169, 173 (Tenn. Ct. App.1987) (citing Restatement (Second) of Contracts § 205
(1979)))). The duty of good faith, however, does not extend beyond the terms of the contract
and the reasonable expectations of the parties under the contract. Id. at *9 (citation omitted).
The obligation of good faith and fair dealing does not create additional contractual rights or
obligations, and it cannot be used to avoid or alter the terms of an agreement. Id. (citations
omitted). The question of whether a party acted in good faith is a question of fact. Id. at *14.

Under the facts of this case, the evidence does not preponderate against the trial

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court’s determination that Appellants failed to carry their burden to demonstrate that Regions
acted in bad faith. The evidence contained in the record supports the trial court’s finding that
Regions made numerous attempts to contact Mr. Thomas prior to accelerating the loan, and
Mr. Thomas’s testimony confirms that he did not reply to Regions communications. Regions
advised Mr. Thomas that the loan had been accelerated and of Regions’ right to take
possession of the aircraft, and still Mr. Thomas did not respond. Mr. Thomas acknowledges
that he received correspondence sent by Regions and its legal counsel, and concedes that he
did not respond or take action to obtain insurance as required by the loan documents. We
affirm on this issue.

Waiver or Cure

We next turn to Appellants’ assertion that Regions waived breach of the obligation
to maintain insurance where Regions accepted payments on the loan without objection, and
that the breach was cured by Regions procurement of insurance. We begin our discussion
of this issue by noting that Appellants did not specifically raise the defense of waiver in their
answer or in their motion to alter or amend the judgment. Rather, the issue is tied to
Appellants’ assertion that Regions acted in bad faith by accepting installment payments while
continuing to take actions to accelerate the loan and repossess the aircraft. We have long
held that

waiver is an intentional relinquishment of a known right and is a doctrine of
very broad and general application. It concedes a right, but assumes a
voluntary relinquishment of it. Our courts have held that there must be clear,
unequivocal and decisive acts of the party of an act which shows determination
not to have the benefit intended in order to constitute a waiver.

Collins v. Summers Hardware and Supply Co., 88 S.W.3d 192, 201-202 (Tenn. Ct. App.
2002)(quoting Gitter v. Tennessee Farmers Mut. Ins. Co., 60 Tenn.App. 698, 450 S.W.2d
780, 784 (1969)).

The promissory note executed by the parties in this case provides: “No waiver of any
right or remedy by the Bank shall be effective unless made in writing and signed by the
Bank.” The loan agreement and security agreement contain similar provisions. The loan
agreement further provides that “[n]o prior waiver by Lender, nor any course of dealing . .
. . shall constitute a waiver.” The security agreement also provides that “[a]ny delay on the
part of Bank in exercising any power, privilege or right shall not preclude other or further
exercise thereof . . .”

It is well-settled in Tennessee that, in general, acceleration clauses are valid and will

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be enforced by the courts according to their terms. Lively v. Drake, 629 S.W.2d 900, 902
(Tenn. 1982). In this case, the event of default was not the failure to pay amounts due, but
the failure to maintain insurance on the aircraft. Regions accelerated the loan after Mr.
Thomas repeatedly failed to respond to its inquires and demands, and did not waive any right
in writing. The payment of monthly installments by LGT did not result in a cure of the event
of default in this case, nor did Regions accept payments without objection. Rather, Regions
continually advised Mr. Thomas that the loan was in default for failure to maintain insurance.
The evidence contained in the record demonstrates that Regions did not waive its rights
under the contract, but repeatedly asserted that the loan was in default.

To demonstrate waiver by conduct, the proof must evidence some “absolute action or
inaction inconsistent with the claim or right” waived. Jenkins Subway, Inc. v. Jones, 990
S.W.2d 713, 722 -23 (Tenn. Ct. App. 1998) (quoting Koontz v. Flemming, 65 S.W.2d at 821,
825 (Tenn. App. 1933)). Nothing in the record indicates that Regions took any action to
waive the contractual obligation of insurance, nor that its subsequent steps to secure
insurance cured the default.

Notice

We next turn to Appellants’ assertion that Regions failed to provide notice of the
disposition of the aircraft as required by Article 9 of the UCC as adopted in Tennessee and
codified at Tennessee Code Annotated §§ 47–9–101 through 47–9–709. The comprehensive
framework established in Article 9 governs the entire secured transaction process. Auto
Credit of Nashville v. Wimmer, 231 S.W.3d 896, 899 (Tenn. 2007). Where a borrower has
defaulted, the “secured party may take possession of the collateral and may sell or otherwise
dispose of it.” Id. (citing Tenn. Code Ann. § 47–9–610(a) (2001)). However, “[e]very aspect
of [the] disposition of collateral, including the method, manner, time, place, and other terms,
must be commercially reasonable.” Id. at 899-900 (quoting Tenn. Code Ann. § 47–9–610(b)
(2001)). Additionally, “[a] debtor may recover damages against a creditor who fails to
comply with the provisions of Article 9 governing repossession and disposition of collateral.
Id. (citing Tenn. Code Ann. § 47–9–625(c)(2) (2001)).

Tennessee Code Annotated § 47-9-610 permits a secured party to dispose of collateral
in a commercially reasonable manner. Subject to limitations not asserted here, section 47-9-
611 requires a secured party to notify a debtor before the disposition of collateral. Section
47-6-612 provides that whether notification is sent within a reasonable time is a question of
fact, and further provides that a notification of disposition after default ten days or more
before the earliest time of disposition set forth in the notification is reasonable. Section 47-9-
624 provides that a debtor may waive the right to notification of the disposition of collateral
required by section 47-9-611 only by an agreement to that effect which is entered into and

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authenticated after default.

The mandatory notification requirement set forth in section 47-9-611 requires that
“[t]he notification must be reasonable as to the manner in which it is sent, its timeliness . .
. and its content.” Auto Credit, 231 S.W.3d at 900 (quoting Tenn. Code Ann. § 47-9-611,
cmt. 2 (2001)). Section 47-9-613 governs the contents and form of the notification required
before a secured party may dispose of collateral. The section provides:

Except in a consumer-goods transaction, the following rules apply:

(1) The contents of a notification of disposition are sufficient if the
notification:
(A) describes the debtor and the secured party;
(B) describes the collateral that is the subject of the
intended disposition;
(C) states the method of intended disposition;
(D) states that the debtor is entitled to an accounting of
the unpaid indebtedness and states the charge, if any, for an
accounting; and
(E) states the time and place of a public disposition or the
time after which any other disposition is to be made.
(2) Whether the contents of a notification that lacks any of the information
specified in paragraph (1) are nevertheless sufficient is a question of fact.
(3) The contents of a notification providing substantially the information
specified in paragraph (1) are sufficient, even if the notification includes:
(A) information not specified by that paragraph; or
(B) minor errors that are not seriously misleading.
(4) A particular phrasing of the notification is not required.
(5) The following form of notification and the form appearing in § 47-9-
614(3), when completed, each provides sufficient information:

_______________________________________________________________

NOTIFICATION OF DISPOSITION OF COLLATERAL

To: [Name of debtor, obligor, or other person to which the notification is sent]

From: [Name, address, and telephone number of secured party]

Name of Debtor(s): [Include only if debtor(s) are not an addressee]

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 [For a public disposition:]

We will sell [or lease or license, as applicable] the [describe collateral] [to the highest
qualified bidder] in public as follows:

Day and Date:

Time:

Place:

[For a private disposition:]

We will sell [or lease or license, as applicable] the [describe collateral] privately
sometime after [day and date].

You are entitled to an accounting of the unpaid indebtedness secured by the property
that we intend to sell [or lease or license, as applicable] [for a charge of $ ]. You may
request an accounting by calling us at [telephone number]

In this case, the trial court found that Regions sent notices of its intent to declare a
default and pursue “all available remedies available to it” under the loan documents, and that,
in its March 2008 correspondence, Regions stated that it reserved all rights and remedies
provided by the loan documents notwithstanding the purchase of insurance by Regions. The
trial court found that Regions’ notice of its rights to dispose of the collateral was sufficient,
and that the sale of the aircraft was commercially reasonable.

The contents of Regions’ correspondence are not in dispute. Appellants assert that
the correspondence is not sufficient to provide notice as required by the Code. Regions, on
the other hand, asserts that its numerous attempts to contact Mr. Thomas to resolve the
situation through March 2008 satisfied the notice requirements.

When considering the question of sufficiency of notice in the context of a public sale,
we observed:

The purpose of this notice, without doubt, is to enable the debtor to protect his interest
in the property by paying the debt, finding a buyer or being present at the sale to bid
on the property or have others do so, to the end that it be not sacrificed by a sale at
less than its true value.

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Mallicoat v. Volunteer Finance & Loan Corp., 415 S.W.2d 347, 350 (Tenn. Ct. App. 1966).
The notice requirement is for the protection and benefit of the debtor. Id. Additionally,
“[n]otice which is a mere gesture is not notice. The means employed must be such as one
desirous of actually informing the absent party might reasonably adopt.” Id. at 351 (quoting
Burden v. Burden, 313 S.W.2d 566 (Tenn. Ct. App. 1957) (citing Mullane v. Central
Hanover Bank & Trust Co., 339 U.S. 306 (1950))); see also, International Harvester Credit
Crop. v. Ingram, 619 S.W.2d 134,137 (Tenn. Ct. App. 1981)(partially abrogated by statute
on other grounds). Succinctly stated, the underlying purpose of the notice requirement is to
allow the debtor “to see that the collateral brings a fair price.” Trimble v. Sonitrol of
Memphis, Inc., 723 S.W.2d 633, 640 (Tenn. Ct. App. 1986)(quoting International Harvester
Credit Corp. v. Ingram, 619 S.W.2d 134, 137 (Tenn. Ct. App.1981)).

In Brunswick Acceptance Co., appellant debtor asserted that notice was not sufficient
where, inter alia, it did not include a time after which disposition of the collateral - boats -
would be made and did not provide debtor with the opportunity to find an alternative buyer.
Brunswick Acceptance Co. v. MEJ, LLC, 292 S.W.3d 638, 643-44 (Tenn. Ct. App. 2008).
We affirmed the trial court’s finding that notice was sufficient where debtor had actual notice
of the sale through email notifications; had the opportunity to seek competitive offers; had
an opportunity to review the materials sent to dealers prior to a private sale; and where debtor
did not object to potential immediate remarketing of the collateral. Id. at 645.

Whether a notification that lacks any of the information specified in section 47-6-
613(1) is nevertheless reasonably sufficient is a question of fact for the trier of fact. Id. at
644 (quoting Tennessee Code Annotated § 47-9-613 and official comments). Upon review
of the record in this case, however we find that the evidence preponderates against the trial
court’s finding that Regions’ correspondence to Appellants provided sufficient notice of its
intent to dispose of the aircraft under section 47-9-611. In its January 9, 2008,
correspondence to Appellants, Regions advised Appellants that, in addition to obtaining
insurance and charging the premiums to Appellants, it “may also elect to exercise its rights
as a secured creditor to take possession of, store and sell the aircraft and its engines[.]”
Regions further stated that it was writing “one last time in an effort to elicit a response from
you prior to moving for a default judgment in the pending litigation and/or the Bank’s taking
possession of and selling the collateral.” As noted above, service of process was not
perfected on Mr. Thomas until January 8, 2008, or on Ms. Thomas or the Trust until April
2008. In its March 2008 correspondence, Regions’ only reference to a possible sale of the
aircraft was:

The Bank further understands that the aircraft will require as yet unknown
repairs in order to enable the aircraft to be transported to any place of sale.

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Notwithstanding Mr. Thomas’s failure to respond to multiple communications by Regions,
and the failure of Ms. Thomas and the Trust to respond to Mr. Evans’ 2008 correspondence,
Tennessee Code Annotated § 47-9-611 requires “proper notification” and the statute requires
a secured party to “provid[e] reasonable notification to the debtor of the sale of the
collateral.” Auto Credit v. Wimmer, 231 S.W.3d 896, 901-903 (Tenn. 2007)(emphasis
added). In the case of sale of collateral, notice that does not afford the debtor an opportunity
“to see that the collateral brings a fair price . . . is not reasonable notification and a sale under
it is not commercially reasonable.” Brunswick Acceptance, 292 S.W.3d at 643 (citing see
Mallicoat v. Volunteer Fin. & Loan Corp., 57 Tenn. App. 106, 415 S.W.2d 347 (1966)).

In this case, the correspondence sent by Regions contained in the record reiterated to
Appellants that Regions had an option under the loan documents to take possession of and
sell the aircraft, and that it might exercise its right to do so. It did not notify Appellants of
a settled intent to dispose of the aircraft, of whether the aircraft would be sold by public or
private sale, or on or after what date the sale would occur. Additionally, it is undisputed that
Regions took possession of the aircraft in February 2008, and Regions does not dispute
Appellants’ assertions that they did not know that the aircraft had been taken into possession
by Regions until December 2008, when it had been sold. There is nothing in the record to
suggest that Appellants had actual knowledge of Regions’ attempts to sell the aircraft; that
Appellants had an opportunity to review marketing materials; or that Appellants had an
opportunity see that the sale brought a fair price. Additionally, although Regions clearly
declared a default by reason of the failure to maintain insurance, demanded accelerated
payment of the balance of the loan, and suggested that it might take possession of and sell
the aircraft, there is nothing in the record to demonstrate that Regions notified Appellants
that it had, in fact, taken possession of the aircraft so as to provide Appellants with a
reasonable opportunity to redeem the aircraft before it was sold at private sale.

We accordingly reverse the trial court’s finding that Regions provided sufficient
notice of the sale to Appellants. Notwithstanding Regions asserts in its brief that Appellants
“were clearly given multiple opportunities to payoff the [l]oan and protect their collateral
prior to the sale of the [a]ircraft,” Regions’ correspondence to Appellants was at best
ambiguous with respect to whether, when, and by what means Regions intended to dispose
of the aircraft. In its 2008 correspondence, Regions merely reiterated that it had the right to
take possession of the collateral, that it “[might]” exercise its right, and that costs would be
incurred were it to relocate the aircraft to a place of sale. Additionally, Regions references
nothing in the record to suggest that, prior to Mr. Evans’ January 2008 correspondence, Ms.
Thomas or the Trust were notified that the loan was in default.

We find that Regions’ correspondence to Appellants did not provide reasonably
sufficient notice of disposition where it did not evidence a settled intent to sell the aircraft;

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where it did not indicate whether the aircraft would be sold at public or by private sale; and
where it did not set forth a disposition date on or after which the aircraft would be sold.
Regions does not contend that it subsequently sent notice that was not received by
Appellants. Thus, Regions acted “in clear violation of the notification statute.” See Auto
Credit of Nashville v. Wimmer, 231 S.W.3d 896, 901 (Tenn. 2007)(citing see Tenn. Code
Ann. § 47-9-611(b)(Supp. 2006)).

Judgment for Deficiency

As noted above, Regions did not provide sufficient notice of the disposition of the
aircraft as required by Tennessee Code Annotated § 47-6-611. Accordingly, the sale of the
aircraft was not commercially reasonable. See Brunswick Acceptance Co. v. MEJ, LLC, 292
S.W.3d 638, 643 (Tenn. Ct. App. 2008); Mallicoat v. Volunteer Fin. & Loan Corp., 415
S.W.2d 347 ( Tenn. Ct. App.1966). “A debtor may recover damages against a creditor who
fails to comply with the provisions of Article 9 governing repossession and disposition of
collateral.” Auto Credit, 231 S.W.3d at 900 (citing Tenn. Code Ann. § 47-9-
625(c)(2)(2001)). “A debtor whose deficiency is eliminated under § 47-9-626 may recover
damages for the loss of any surplus. However, a debtor or secondary obligor whose
deficiency is eliminated or reduced under § 47-9-626 may not otherwise recover under
subsection (b) for noncompliance with the provisions of this part relating to collection,
enforcement, disposition, or acceptance.” Tenn. Code Ann. § 47-9-625(d).

In an action arising from a transaction in which the amount of a deficiency or surplus
is in issue, if a debtor places a secured party’s compliance with provisions relating to
collection, enforcement, disposition, or acceptance in issue, the secured party carries the
burden of establishing that the collection, enforcement, disposition, or acceptance was
conducted in accordance with the statutory provisions. Tenn. Code Ann. § 47-9-626(2). As
stated above, Regions failed to demonstrate that it complied with the notice requirements set
forth in §§ 47-9-611 & 613. Section 47-9-626(3) provides:

Except as otherwise provided in § 47-9-628, if a secured party fails to prove
that the collection, enforcement, disposition, or acceptance was conducted in
accordance with the provisions of this part relating to collection, enforcement,
disposition, or acceptance, the liability of a debtor or a secondary obligor for
a deficiency is limited to an amount by which the sum of the secured
obligation, expenses, and attorney’s fees exceeds the greater of:
(A) the proceeds of the collection, enforcement, disposition, or
acceptance; or
(B) the amount of proceeds that would have been realized had the
noncomplying secured party proceeded in accordance with the provisions of

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 this part relating to collection, enforcement, disposition, or acceptance.
(4) For purposes of paragraph (3)(B), the amount of proceeds that
would have been realized is equal to the sum of the secured obligation,
expenses, and attorney’s fees unless the secured party proves that the amount
is less than that sum.
(5) If a deficiency or surplus is calculated under § 47-9-615(f), the
debtor or obligor has the burden of establishing that the amount of proceeds
of the disposition is significantly below the range of prices that a complying
disposition to a person other than the secured party, a person related to the
secured party, or a secondary obligor would have brought.

The Uniform Commercial Code Comments to the section states:

In the event the secured party is unable to meet this burden (of demonstrating
that the collection, enforcement, disposition, or acceptance of collateral
complied with part 6), then paragraph (3) explains how to calculate the
deficiency. Under this rebuttable presumption rule, the debtor or obligor is to
be credited with the greater of the actual proceeds of the disposition or the
proceeds that would have been realized had the secured party complied with
the relevant provisions. If a deficiency remains, then the secured party is
entitled to recover it. The references to “the secured obligation, expenses, and
attorney’s fees” in paragraphs (3) and (4) embrace the application rules in
Sections 9-608(a) and 9-615(a).

Unless the secured party proves that compliance with the relevant provisions
would have yielded a smaller amount, under paragraph (4) the amount that a
complying collection, enforcement, or disposition would have yielded is
deemed to be equal to the amount of the secured obligation, together with
expenses and attorney’s fees. Thus, the secured party may not recover any
deficiency unless it meets this burden.

In their brief, Appellants assert that Regions “did not attempt to” carry their burden
to demonstrate that they were entitled to a deficiency under this section. The trial court made
no findings with respect to this issue. In light of our reversal of the trial court’s finding on
the issue of notice, we remand this matter for further proceedings on the issue of the amount
of the deficiency, if any, to which Regions is entitled under Tennessee Code Annotated § 47-
9-626.

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 Holding

We affirm the trial court’s conclusions that the failure to maintain insurance on the
aircraft constituted a breach of the loan documents and an event of default under the terms
of the documents; that Regions did not waive nor cure the breach; and that Regions did not
act in bad faith. We reverse the trial court’s finding that Regions sufficiently complied with
the notice requirements set forth in Tennessee Code Annotated §§ 47-9-611 & 613. We
accordingly hold that Regions’ disposition of the collateral in this case was not commercially
reasonable. We vacate the award of deficiency and remand this matter to the trial court for
further proceedings, including additional discovery in the discretion of the trial court,
consistent with this Opinion. Remaining issues are pretermitted in light of this holding.
Costs of this appeal are taxed one-half, to the Appellee, Regions Bank, and one-half to
Appellants, Thomas D. Thomas, Helen L. Thomas, and the Thomas Family Living Trust, and
their surety, for which execution may issue if necessary.

_________________________________
DAVID R. FARMER, JUDGE

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