IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
MARCH 2000 Session
HARTSVILLE HOSPITAL, INC. v. THE BAY NATIONAL BANK AND
TRUST COMPANY
Direct Appeal from the Chancery Court for Trousdale County
No. 6092; The Honorable C. K. Smith, Chancellor
No. M1999-01276-COA-R3-CV - Filed August 16, 2000
This appeal arises from a dispute over the ownership of monies held in a bond fund. Hartsville
Hospital Incorporated (“Hartsville”) filed suit against Bay National Bank (“Bank”) seeking the
contents of the fund. The court below entered judgment for Hartsville, holding that Bank had no
claim to the bond fund money pursuant to a release agreement between the parties and that Hartsville
was not estopped from asserting ownership. Bank appeals.
Tenn. R. App. P. 3;Appeal as of Right; Judgment of the Chancery Court Affirmed
ALAN E. HIGHERS , J., delivered the opinion of the court, in which CRAWFORD , P.J., W.S., and
FARMER , J., joined.
David B. Foutch, Lebanon, for Appellant
Sharon Linville, Hartsville, for Appellee
OPINION
On August 1, 1974, the Health and Educational Facilities Board (“Board”) of Hartsville, Tennessee
entered into an Indenture of Mortgage and Deed of Trust in the amount of one million one hundred
and fifty thousand dollars. The money was used to fund the creation and operation of a general
hospital and related facilities. Pursuant to the indenture, a bond fund was created, with Bank serving
as Trustee. The bond fund contained lease rentals and revenues from the hospital. The real and
personal property of the hospital and facilities served as a security interest on the bonds.
At this time, the Board also entered into a lease agreement with Hartsville General Hospital
Company1 (“Company”) under which Company was to repay the indenture. On July 10, 1979, the
1
Neither Hartsville G eneral H ospital Co mpan y, nor H artsville M edical Cen ter, Limited are affiliated w ith
(continu ed...)
lease was modified and Hartsville Medical Center, Limited, became the lessee. Apparently,
Hartsville Medical Center, Limited was the lessee when the lease went into default on July 31,
1989.2
In March 1993, Hartsville began operating the hospital facilities. Over the following year,
Hartsville purchased the hospital, subject to the Indenture. At some point during this process,
Hartsville and Bank began to negotiate a release of the Indenture. The parties eventually reached
a release agreement by which Hartsville would pay a reduced lump sum payment in exchange for
the release of Bank, on behalf of the bondholders, of all security interests and liens in the real and
personal property securing the bonds. A release agreement requiring Hartsville to pay seventy-five
thousand dollars to Bank was executed. 3 The release neither specifically included nor excluded the
1
(...continued)
Hartsville Hospital Incorporated.
2
The bondh olders did not receive any principal paym ents follow ing defau lt. Howe ver, sem i-annua l interest
paym ents continue d to be paid to the bond holders until August 1990. The interest payments to the bond holders during
this period totaled approximately twenty-five thousand dollars. In 1991, Bank as trustee received an additional twenty-
four thousand dollars in rental payment which was held in an interest bearing accoun t. Bank did not make any
additional paym ents to the bond holders.
3
The exact terminology of the release agreement provides as follows: “The T rustee, 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 b y the Tru stee and H artsville. In co nnection with the re lease of its Sec urity
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, th e Assign ment o f Lease an d the Sec urity Intere sts. 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 p ursuant to the term s of the Lease .
1. Obligations of Pa rties. Accord ing to the ter ms of this Agreem ent, Hartsville agrees to deliver to the Trustee
funds (referred to hereinafter as the “Funds”) in the amount of Sev enty-Five Thousand D ollars ($75,000). In
consideration of the rece ipt of these fu nds, the Trustee, pursuant to the written direction furnished by a majority of
bondho lders, will cancel any prom issory note mad e by Hartsville or the B oard for the ben efit of the Trustee or holders
of the Bonds and release and terminate all liens, security interests and assignm ents in all assets granted in the Indenture
or by other in strumen t to the Trustee by the Board or Hartsville to secure the repayment of the Bonds, including but not
limited to assets owned by the Board and leased to Hartsville under the terms of the Lease, and including but not limited
to the termin ation an d release o f the Deed of Trust, the Assignment of Lease and the Security In terests. The forms of
the release to be filed by th e Trustee shall be in the fo rms attached h ereto as Exhibit A .
2. Character of Payment. The funds delivered to the Trustee pursuant to this Agr eemen t shall be applied by
the Trustee to the obligations owed to the holders of the Bonds pursuant to the Indenture. No additional funds will be
required to pay any costs associated with the fees, charges and expenses of the Trustee or such other paying age nts.
All fees, charges and expenses of the Trustee shall be paid from the Funds delivered to the Trustee by Hartsville so that
no other am ounts are owed to the Trustee as of the da te of this Agr eemen t. The pay ment of th e Fund s by Ha rstville shall
constitute paymen t in full by Hartsville of all amou nts necessary to ob tain the Trustee’s release of a ll liens, security
interests, and assignments and the Trustee’s agreement not to pursue litigation against Hartsville or the assets securing
the repaym ent of the B onds. No other payment of rent or other charges or obligations is or will be owed by Hartsville.
The Trustee agrees to cancel any Bonds submitted for payment from the Funds. The Trustee waives the obligation of
the Board of Hartsville to provide notice hereof under the Indenture if any is required. (emphasis added)
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money held in the bond fund.4 Pursuant to the release agreement, Bank released its lien on the real
and personal property securing the bonds. Bank did not, however, turn over the money in the bond
fund to Hartsville.5 Despite Hartsville’s demands, Bank refused to tender this money, claiming that
Hartsville was not entitled because the money was the sole property of the bondholders.
Hartsville filed suit in the Trousdale County Chancery Court, seeking a judgment against
Bank for the amount held in the bond fund. Hartsville claimed the bond fund was an asset of the
hospital, and Bank relinquished any claim to the bond fund by signing the release agreement. Bank
answered, denying Hartsville had any right to the bond fund money. Thereafter, both parties filed
a motion for summary judgment. The trial court granted Hartsville’s motion on March 6, 1997,
holding that Hartsville was entitled to judgment as a matter of law. Following appeal by Bank, the
Court of Appeals reversed and remanded the case, holding material issues of fact remained.
On remand, the case was heard on June 28, 1999. Following a bench trial, the Chancellor
entered an judgment in favor of Hartsville. In delivering his opinion, the Chancellor classified the
money held in the bond fund as “rent paid.” Further, the trial court found, by virtue of the release
agreement, the Bank released any right to the money held in the bond fund. Bank appeals.
On appeal, Bank claims that the court erred in holding that Hartsville was entitled to the
money held in the bond fund. In the alternative, Bank asserts that Hartsville is estopped from
claiming an interest in the bond fund money.
ANALYSIS
The standard of review for a non-jury case is de novo upon the record. Wright v. City of
Knoxville, 898 S.W.2d 177, 181 (Tenn. 1995). There is a presumption of correctness as to the trial
court’s factual findings, unless the “preponderance of the evidence is otherwise.” TENN . R. APP . P.
Rule 13(d). For issues of law, the standard of review is de novo, with no presumption of correctness.
Ridings v. Ralph M. Parsons Co., 914 S.W.2d 79, 80 (Tenn. 1996). In the case at bar, the only
issue involves the interpretation of certain provisions of the release agreement entered into by the
parties. The interpretation of a written agreement is a matter of law and not of fact, therefore, our
review is de novo on the record with no presumption of the correctness of the trial court's
conclusions of law. Union Planters Nat'l Bank v. American Home Assurance Co., 865 S.W.2d 907,
912 (Tenn. App.1993).
4
Although the bond fund money was not specifically disposed of in the written release, Bank claims that the
parties discussed the status of the remain ing mo ney in the bond fu nd on F ebruary 3, 1994 , prior to executing the release.
According to Bank, Hartsville was aware that Bank considered the bond fund money property of th e bondho lders.
However, the release agreement was actually signed by Hartsville on January 25, 1994, and by Bank on February 1,
1994. Therefore, the discussion on February 3, 1994, took place after the execution of the release.
5
At the time th is dispute arose, approximately twenty seven thousand and eight hun dred do llars remain ed in
the bond fund.
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A. Ownership of Bond Fund Pursuant to Contract Terms
The primary rule in interpreting contracts is to ascertain the intention of the parties from the
contract as a whole and to give effect to that intention consistent with legal principles. Winfree v.
Educators Credit Union, 900 S.W.2d 285, 289 (Tenn. Ct. App.1995); Rainey v. Stansell, 836
S.W.2d 117, 118 (Tenn. Ct. App.1992). In construing contracts, the words expressing the parties'
intentions should be given their usual, natural, and ordinary meaning. Taylor v. White Stores, Inc.,
707 S.W.2d 514, 516 (Tenn. Ct. App.1985). In the absence of fraud or mistake, a contract must be
interpreted and enforced as written, even though it contains terms which may seem harsh or unjust.
Heyer-Jordan & Assocs. v. Jordan, 801 S.W.2d 814, 821 (Tenn.App.1990).
An ambiguity in a contract is characterized as doubt or uncertainty arising from the
possibility of the same language being fairly understood in more ways than one. Hillis v. Powers,
875 S.W.2d 273, 276 (Tenn. App.1993). However, the parties to a contract cannot create an
ambiguity where none exists. Edwards v. Travelers Indemnity Co., 201 Tenn. 435, 300 S.W.2d 615,
617-618 (1957). "Where there is no ambiguity, it is the duty of the court to apply to the words used
their ordinary meaning and neither party is to be favored in their construction." Heyer-Jordan &
Assoc. v. Jordan, 801 S.W.2d 814, 821 (Tenn. App.1990). We now turn to the contract terms at
issue in this case.
Three different phrases contained within the release agreement pertain to the bond fund. In
the general language of the release agreement, the Bank agrees it will 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.” Under the section titled Obligations of Parties, the Bank agreed
to “..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 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.” Under the Character of Payment section,
the parties agree Hartsville’s payment of seventy-five thousand dollars to Bank is full payment, “...of
all amounts necessary to obtain the Trustee’s release of all liens, security interests, and assignments
and the Trustee’s agreement not to pursue litigation against Hartsville or the assets securing the
repayment of the Bonds. No other payment of rent or other charges or obligations is or will be owed
by Hartsville.”
We find no ambiguity in these provisions. Each provision is consistent with the other, as
well as the purpose of the release agreement as a whole. The parties negotiated for a complete
release of all liens, security interests, collateral, and assignments held by Bank. By its very nature,
the contents of the bond fund falls within these categories. The bond fund consists of rent payments,
revenues, and receipts collected under the lease agreement.6 We also find it appropriate to note that
6
The contents of the bond fund is described in Section 503 of the original Indenture of Mortgage and Deed of
Trust agr eemen t.
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while the bond fund is not specifically mentioned in the release agreement, the agreement, by its
terms, is not limited to named assets. Therefore, under the usual, natural and ordinary meaning of
the contract terms, the Bank relinquished any claim to the bond fund when it entered into the release
agreement with Hartsville. Accordingly, the trial court did not err on this issue.
B. Estoppel
As an alternative, Bank claims that Hartsville is estopped from asserting ownership of the
money held in the bond fund. In support of this argument, Bank relies on the conversation between
Bank’s attorney and Hartsville’s attorney on February 3, 1994. Bank claims it relied on this
conversation when making and performing the release agreement. Based upon the following, we
find that estoppel is not appropriate in this case.
The doctrine of estoppel is not favored under Tennessee law. The party seeking to invoke
estoppel has the burden of proving each and every element. Robinson v. Tennessee Farmers Mut.
Ins. Co., 857 S.W.2d 559, at 563 (Tenn.App. 1993) citing Bokor v. Holder, 722 S.W.2d 676
(Tenn.App.1986). This Court addressed the doctrine of equitable estoppel in Consumer Credit
Union v. Hite, which held:
The essential elements of an equitable estoppel as related to the party estopped are
said to be (1) Conduct which amounts to a false representation or concealment of
material facts, or, at least, which is calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (2) Intention, or at least expectation that such conduct shall be
acted upon by the other party; (3) Knowledge, actual or constructive of the real facts.
As related to the party claiming the estoppel they are (1) Lack of knowledge and of
the means of knowledge of the truth as to the facts in question; (2) Reliance upon the
conduct of the party estopped; and (3) Action based thereon of such a character as
to change his position prejudicially, 19 Am.Jur.Estoppel Sec. 42, pp. 642-643.
Hite, 801 S.W.2d 822 at 825 (Tenn. Ct. App.1990), citing Callahan v. Town of Middleton,
41 Tenn.App. 21, 292 S.W.2d 501 (1954).
We find it necessary to address only one of the factors listed above: the alleged reliance of
Bank on Hartsville’s conduct. The conversation on which Bank claims it relied took place after both
parties had reviewed and signed the agreement. Accordingly, since both parties were already bound
under the agreement at the time of the conversation, Bank did not rely on the conversation to its
detriment when making the agreement. At the time of the conversation, Bank was already obligated
to perform. We find that Bank did not meet its burden of proof on this element. Therefore, the trial
court did not err on this issue.
CONCLUSION
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For the foregoing reasons, the decision of the trial court is hereby affirmed. Costs of appeal
are taxed to Appellant, Bay National Bank & Trust Company, for which execution may issue, if
necessary.
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ALAN E. HIGHERS, JUDGE
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