IN THE COURT OF APPEALS OF TENNESSEE
EASTERN SECTION AT KNOXVILLE FILED
October 30, 1997
Cecil Crowson, Jr.
Appellate C ourt Clerk
FIRST AMERICAN NATIONAL BANK, ) KNOX CHANCERY
)
Plaintiff/Appellee ) NO. 03A01-9704-CH-00131
)
v. )
) HON. FREDERICK D. McDONALD
JAMES FITZGERALD and ) CHANCELLOR
ERIC M. GEORGESON, )
)
Defendants/Appellants )
) AFFIRMED
Neal S. Melnick and Lawrence E. Ault, Knoxville, for Appellants.
Cheryl E. Light, Knoxville, for Appellee.
OPINION
INMAN, Senior Judge
This is a suit on a promissory note executed on January 18, 1994 by the
defendant James Fitzgerald to the plaintiff. The payment of this note was
guaranteed by the defendant Eric M. Georgeson, who executed a separate
document. Each document appears to be facially regular and routine.
The defendants filed a joint answer asserting a failure of consideration in that
the proceeds of the note were never received by either of them. They admitted the
execution and delivery of the promissory note, but denied the execution and delivery
of the guaranty, while later admitting its execution and delivery.
The Chancellor sustained the complaint in all respects and entered a
judgment against both defendants in accordance with the provisions of the
promissory note. The defendants appeal and present for review the following issues:
I. Whether the trial court erred in finding that authorized advances
were made on the subject promissory note.
II. Whether the trial court erred by admitting parol evidence to vary
the terms of the promissory note and obligations of the parties
where the appellee failed to establish any authorized advances
to the appellants under the note.
III. Whether the trial court erred in failing to apply the statute of
frauds in finding the appellants liable for money advances to a
third party, Blakley Management Corporation, when no written
promise to do so exists.
IV. Whether the trial court erred in not barring recovery on the basis
that the appellee was equitably estopped by its conduct and
negligence.
Our review of findings of fact by the trial court is de novo upon the record of
the trial court, accompanied by a presumption of the correctness of the findings,
unless the preponderance of the evidence is otherwise. TENN. R. APP. P., RULE 13(d).
I
In 1989, James Fitzgerald and Eric Georgeson were business partners. The
partnership owned several properties in Chattanooga and Knoxville including
property commonly known as the Blakley Hotel. On December 3, 1989, they entered
into a Management Agreement with Blakley Management Corporation to manage
and oversee the operation of the Blakley Hotel including all of its food and beverage
operations.
The Management Agreement provided that Joseph Parisi (hereinafter
“Parisi”), as major shareholder of Blakley Management Corporation, would be
responsible for hiring staff, maintaining rooms and accurate records, paying taxes,
collecting revenues, paying expenses and maintaining the physical condition of the
hotel. Parisi would receive a 20 percent interest in the profits for his management
services. Blakley Management Corporation would base its operation at the Blakley
Hotel and pay rental for the space. Fifty percent of net profits of Blakley
Management Corporation would be paid to the partnership of Georgeson and
Fitzgerald.
In January, 1990, Parisi approached Dewitt Ingram, (hereinafter “Ingram”) a
loan officer at FANB, requesting a $25,000. loan. Parisi had no credit history nor
assets sufficient to secure the loan. Subsequently, Georgeson and Fitzgerald
discussed the loan with Ingram and the need for funds to equip and operate the
Blakley Hotel.
Ingram had known Georgeson and Fitzgerald for some years, and they had
prior business dealings. Fitzgerald is currently head of the Real Estate Finance
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Department for Credit Lyonnaise, a New York bank, and has worked in banking for
20 years including international finance and investments. Fitzgerald first came to
Knoxville when he worked for the Federal Savings and Loan Insurance Corporation
(FSLIC). Financial statements were required for the loan approval, and those
statements were submitted to Ingram by both Fitzgerald and Georgeson.
The $25,000. loan was made to Fitzgerald on January 18, 1990. Payment of
it was guaranteed by Georgeson. The purpose of the loan was the purchase of
equipment and supplies. Fitzgerald later talked with Ingram by phone requesting that
draws be made on the loan. A phone message from Fitzgerald for Ingram was taken
by Darlene White, a commercial loan secretary, and this message reflected a
request from Fitzgerald to advance $17,000. to the Blakley Management Corporation
account.
FANB records reflect that the loan proceeds were advanced as follows:
$17,000. was deposited on January 24, 1990 to the Blakley Management
Corporation account; a cashier’s check in the amount of $2,393. was issued to
Watkins Motor Lines per instructions on February 5, 1990; and the balance of
$5,156.74 was deposited to the Blakley Management Corporation account on
February 5, 1990. The Corporate Resolution on file at FANB for the Blakley
Management Corporation also dated January 24, 1990 authorized the establishment
of a checking account with Fitzgerald and Parisi as allowed signers. Accordingly, the
signature card dated the same date had two signatures, those of Fitzgerald and
Parisi.
Interest payments were made on the note by Blakley Management
Corporation, but Ingram contacted Fitzgerald and Georgeson to advise them if
payments were not made timely. When interest payments ceased, Ingram
discussed with the Appellants the possibility of FANB collateralizing the loan or
working out the loan in some other way. The loan remained in default and past due,
resulting in a formal demand letter being sent to Fitzgerald from Ingram on February
10, 1992.
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II
All contracts in writing and signed by the party to be bound are prima facie
evidence of consideration, TENN. CODE ANN . § 47-50-103, and the burden of
overcoming the presumption of consideration is upon the Appellants. Atkins v.
Kirkpatrick, 82 S.W.2d 547, 552 (Tenn. App. 1991), citing Pinney v. Tarpley, 686
S.W.2d 574 (Tenn. App. 1984). The Appellants claim advances were not authorized
and deny that they received any consideration because funds were advanced directly
to suppliers for the Blakley Hotel or to the account of Blakley Management
Corporation.
The Chancellor found:
The evidence is very clear that the money that was being borrowed
was to go to Mr. Parisi and his company and that, in fact, it did go there.
There is evidence tending to show that Mr. Fitzgerald had some part in
some of the advances, but that really is not a matter making much
difference here inasmuch as the loan moneys went where they were
intended and were used as intended in Mr. Parisi’s business.
The Appellants’ argument focuses on the way advances were made and who
requested advances, with little or no attention to the evidence concerning the
purpose and need for the promissory note and guaranty. What was contemplated
and intended by the parties respecting the use of the proceeds when they entered
into the contract is relevant to the question of whether the Appellants received the
consideration they now deny.
The Chancellor found that the method of advancing money was not
determinative of whether consideration was given. Consideration is defined as
“either a benefit to the party promising or a prejudice or trouble to the party to whom
the promise is made.” Dixon v. Manier, 545 S.W.2d 948, 950 (Tenn. App. 1976),
citing Johnson v. Central National Insurance Co., 356 S.W.2d 277 (Tenn. App.
1976). Consideration may pass to a third party and consist of detriment to the payee
for the benefit to a third party. Third National Bank in Nashville v. Lyons, No. 01A01-
9210-CH-00387, 1993 Tenn. App. LEXIS 192, (Middle Section, March 17, 1993). It
is not necessary that all or any of the consideration of a note pass directly to the
maker.
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In Walker v. First State Bank, 849 S.W.2d 337, 342 (Tenn. App. 1992), citing
Palmer v. Dehn, 198 S.W.2d 827, 828 (Tenn. App. 1946), this Court held and
reiterated the following principle:
For there to be a consideration in a contract between parties to the
contract it is not necessary that something concrete and tangible move
from one to the other. Any benefit to one and detriment to the other may
be a sufficient consideration.”
The plaintiff in Walker contended that there was an absence or lack of
consideration for her note and trust deed, but she testified that she realized that the
pledging of her interest in farm property was necessary as additional collateral to
secure the debt of her brother. The Court found the additional collateral was a
benefit to the bank, and an extension of time to pay the debt through renewal notes
constituted sufficient consideration to the plaintiff. The benefit to the plaintiff was the
extension of time given to her brother to pay the debt.
The consideration to the Appellants in the present case is even more direct.
Appellants Fitzgerald and Georgeson were the owners of the Blakley Hotel in
Knoxville. As owners of this property, they contracted with the Blakley Management
Corporation and its major stockholder, Joe Parisi, to manage and oversee the
operation of the property as a hotel including its food and beverage operations.
Parisi was responsible for hiring staff, paying expenses and maintaining the physical
condition of the hotel owned by the Appellants. Fifty percent of net profits of Blakley
Management Corporation were to be paid to the Appellants. Blakley Management
Corporation operated the Blakley Hotel property as an ongoing business concern for
approximately two years.
In his testimony about the loan, Fitzgerald testified:
Q: You were aware from your conversations with Mr. Ingram that Joe
Parisi didn’t have the credit to get this loan, weren’t you?
A: He told me that Mr. Parisi on his own would not be able to secure this
loan, correct.
Q: Did you have conversations with Dewitt Ingram about this loan and
about the situation and how funds could be attained to operate the
hotel and restaurant?
A: We only had a very short conversation. I had other business dealings
with him, as I’ve already testified, at Third National Bank. He
specifically asked me if Rick Georgeson and myself would co-sign for a
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$25,000. loan for Joe Parisi. We didn’t talk about what it would be
used for. I said, Yes.
Q: You did not talk about what it was going to be used for?
A: No, I simply assumed --I trusted Joe Parisi. I assumed it would go into
Blakley Management Corp.
Q: And it did, didn’t it?
A: I couldn’t testify to that. I have no knowledge of that.
Q: Well, if you heard testimony today that deposits were made into the
Blakley Management Corporation account, that’s what you understood
would be done with the money; is that correct?
A: Correct.
Ingram, the loan officer, testified regarding the purpose of the loan and
how it was to be advanced:
Q: What were your discussions with either Mr. Fitzgerald or Mr.
Georgeson regarding what was to be done with the proceeds of this
loan?
A: It was a $25,000. loan, and it was to be there. And when they called
me, it was to be made a draw on or Joey could draw on it too. I think
there was an emergency for this. They had some bakery items coming
on a truck or something. I don’t remember strictly, but it was some kind
of -- something coming in by a trucking company, and they did not have
the money to pay for it, and they had to pay for some type of
equipment.
Q: Did Jim Fitzgerald ever tell you that Joe Parisi was authorized to make
draws on this note?
A: They understood that this money was to be used, and Joey had the
discretion to draw on it and put it in -- I don’t know what account it was
deposited in. It was some restaurant or the Blakley House Restaurant.
I don’t have that in front of me.
Q: Did you ever talk to Jim Fitzgerald by phone after this loan was made
about advances under the loan, under the note?
A: My secretary did, and I did too. There were several different draw
requests made, and I got phone calls from Jim to advance money.
Ingram also testified regarding his course of dealings with the Appellants
when payments were to be made:
Q: Okay. Do you know who made the interest payments on this note?
A: I know that several times I had to call Joe, and he couldn’t make them.
And finally it got down to the end, and I called Jim and talked to him,
and they offered me collateral from the hotel and different things to try
to work the loan out.
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I’m sure--I don’t have those checks in front of me, but I’m sure I talked
to Rick and Joe several times about the interest payments. And I don’t
have the checks in front of me, and it’s hard for me to answer. But I
talked to them several times on the loan, and they helped me either get
it paid or seen that it was paid.
Q: So if interest payments weren’t made, did you contact Rick Georgeson
and Jim Fitzgerald?
A: I definitely contacted Jim and Rick both. I called Jim several times
before I left the bank, at the end, about these, and they told me what
they would do to work it out, give me collateral and stuff.
There was additional testimony from Darlene White, secretary to Ingram, who
recalled taking a phone message from Appellant Fitzgerald who asked that $17,000.
be advanced to the checking account for Blakley Management Corporation. This
phone message was part of the Bank’s business record.
The finding of the Chancellor that advances were authorized is fully supported
by the preponderance of the evidence.
III
Turning to the issue of whether the Chancellor erred in admitting parol
evidence respecting the intended use of the borrowed funds and the nature of the
consideration, it is well established in this jurisdiction that while parol evidence is not
admissible to contradict a written instrument, nevertheless parol evidence is
admissible as to collateral matters not varying the terms of the writing . . . or when
representations and statements are made as inducements to the contract, and form
the basis or consideration of it. Hines v. Wilcox, 33 S.W. 914 (Tenn. 1896).
Appellants argue that “terms” were added which were not in the note,
including that no purpose is given for the note, advancements were not addressed
and Fitzgerald gave no written authority to anyone to request draws. These items or
questions were not specifically mentioned in the note. The Rule allows the
admission of parol evidence in this circumstance, since the matters addressed are
not inconsistent with the written document. See, McGannon v. Farrell, 214 S.W.
432, 434 (Tenn. 1919).
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As to this, the Chancellor found:
The terms of the note and continuing guaranty cannot be varied by
oral testimony as to that some other understanding or agreement at the
time of execution of the document might have been. The law is extremely
clear on that point and leaves us, so that we must really disregard
contentions about who else was supposed to sign the note, or who else
was supposed to be obligated on it.
We agree with this finding.
The Appellant Fitzgerald is a New York banker currently serving as head of
Real Estate for Credit Lyonnaise with 20 years of experience in the banking industry
including international finance and investments. He is a graduate of St. John’s
University and came to Knoxville to liquidate various properties for the FSLIC. He
then purchased several properties in the Knoxville area and went into business with
Appellant Georgeson. He now asserts that the note he signed did not contain the
provisions he negotiated and agreed to including the fact that there were to be other
makers. While he admits the execution of the note for $25,000. his argument that he
did not follow-up with the Bank about the proceeds of the note and that he knew
nothing of the advances under the note is unavailing.
The Chancellor found ample evidence that the understanding of the parties
with regard to these documents was not inconsistent with the written terms and that
the contemplated and acknowledged consideration was given. We agree with this
finding. The Chancellor did not vary the terms of the documents.
IV
There is no evidence that the plaintiff loaned money to anyone other than
Appellant Fitzgerald, and the fact that he directed those funds be utilized for the
operation of the Blakley Hotel through its manager does not change his obligation.
Consideration can flow to a third party if that is what the obligor directs it to do.
Walker, supra.
The Statute of Frauds has no application. The Chancellor found:
Mr. Fitzgerald contends that Mr. Parisi was supposed to be a co-
signor on the note and that Mr. Fitzgerald would not have signed had he
known that Mr. Parisi was not signing. Essentially that defense requires
a disregard of the note itself, the note that shows the name typed in of Mr.
Fitzgerald and below that is his signature. Below that further is the typed
indication that Defendant Georgeson guarantees the note.
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There is no indication on either the note or continuing guaranty that
Mr. Parisi or his corporation were in any way directly obligated on the
note.
We agree with this finding.
V
Lastly, the appellants argue that the Chancellor should have applied the
doctrine of equitable estoppel to bar the plaintiff’s recovery because the Bank
allegedly did not honor its promise to advance the proceeds to him and thereby
prejudiced him, as he relied on that promise in the signing of the promissory note.
Estoppels are not favored, and the burden is upon the party seeking to invoke
the estoppel to prove each and every element thereof. Third National Bank v.
Capital Records, 445 S.W.2d 476 (Tenn. App. 1969). Estoppel requires, at a
minimum: (1) reliance upon the statement or action of another without the
opportunity to know the truth, and (2) action based on that reliance which results in
detriment to the actor. W. F. Holt Co. v. A & E Electric Co., Inc., 665 S.W.2d 722,
735 (Tenn. App. 1983), citing Warren Brothers Co. v. Metropolitan Government, 540
S.W.2d 243, 247 (Tenn. App. 1976). For equitable estoppel, the party must have
taken actions “calculated to convey the impression that the facts are otherwise than,
and inconsistent with, those which the party subsequently attempts to assert.” Id.,
citing McClure v. Wade, 235 S.W.2d 835, 842 (Tenn. App. 1950).
As found by the Chancellor, and as heretofore noted, the loan at issue was
made to Fitzgerald. The testimony was clear that the Bank and Fitzgerald intended
the proceeds to be utilized for the operation of the Blakley Hotel. Equitable estoppel
is not available as a defense to the Appellants when there have been no subsequent
inconsistent assertions made by the Bank. The evidence is clear that the Bank
honored its obligation and representations to Fitzgerald by making the advances he
bargained for when he obtained the loan.
We agree with the Chancellor that the evidence reveals no reason why the
plaintiff should be equitably estopped from enforcing the promissory note.
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The judgment is affirmed and the case is remanded for all appropriate
purposes. Costs are assessed to the appellants and their sureties for which
execution may issue if necessary.
___________________________________
William H. Inman, Senior Judge
CONCUR:
______________________________
Herschel P. Franks, Judge
______________________________
Don T. McMurray, Judge
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