                   IN THE COURT OF APPEALS OF TENNESSEE
                              AT KNOXVILLE
                             April 4, 2006 Session

  LORINE GOODWIN HINDMAN v. ALLEN MOORE and wife, JACKIE
                       MOORE

                 Direct Appeal from the Chancery Court for Bradley County
                       No. 02-337    Hon. Jerri S. Bryant, Chancellor



                   No. E2005-01287-COA-R3-CV - FILED MAY 23, 2006



Decedent executed a Power of Attorney document granting her son broad general powers to act on
her behalf. The son executed a Trust Deed and Modification Agreement on Decedent’s property.
Decedent and later her Estate asked the Chancery Court to void these documents. The Court refused.
On appeal, we affirm.


Tenn. R. App. P.3 Appeal as of Right; Judgment of the Chancery Court Affirmed.


HERSCHEL PICKENS FRANKS, P.J., delivered the opinion of the court, in which CHARLES D. SUSANO ,
JR., J., and SHARON G. LEE, J., joined.

Roger E. Jenne, Cleveland, Tennessee, for appellant.

Charles W. Pope, Jr., Athens, Tennessee, for appellees.



                                            OPINION


               On December 11, 2002, decedent filed a Complaint against defendants, Allen Moore
and his wife Jackie Moore, alleging that a purported pledge of the decedent’s real estate to secure
the “98 Note” resulted from forgeries, misrepresentations, and her son’s breach of fiduciary duty,
all of which constituted a fraud. The Complaint requested the Chancery Court to restrain the
defendants from foreclosing on decedent’s interest in her real estate and declare the “98 Note” void
as having been obtained by fraud. Defendants denied all assertions of fraud. The issues were joined
and tried before the Chancellor who dismissed decedent’s case. Decedent filed a timely Notice of
Appeal.1


                                             Background

                The Decedent owned two parcels of real estate, one was her residence and the other
was a rental property. She executed a document appointing her son, Alvin Goodwin as her attorney
in fact on October 16, 1981. This document states:

                          . . . I, LORINE GOODWIN . . . do hereby appoint my son, ALVIN L.
                 GOODWIN, my Attorney, for me and in my name, to act generally as my
                 Attorney or Agent in all matters in which I may be interested or concerned,
                 to buy, sell on my behalf and to execute and deliver all necessary instruments
                 and without limitation to do all such acts and things as fully and effectually
                 in all respects as I myself could do if personally present.

                         This is a general POWER OF ATTORNEY, without limitation, and
                 the fact that I have herein enumerated certain acts is not to be construed as
                 limiting my Attorney to those acts. It is my intention to empower my
                 Attorney to do all things, cash checks, write checks, deposit money, spend
                 money, buy, sell, acknowledge instruments, and to do all things without
                 limitation in all respects as fully and effectually as I myself could do if
                 personally present.

                 ...

                         This POWER OF ATTORNEY shall remain in full force and effect
                 until the same shall have been revoked by written notice duly recorded, or
                 until expiration by operation of law, it being intended that this POWER OF
                 ATTORNEY shall remain effective even in the event of mental or physical
                 debility on my part. 2

The Decedent never revoked this document.

               In the early 1990's Alvin Goodwin’s wife, Reta Goodwin, started an interior design
business called Design Resources, Inc. The owners of this firm were Reta Goodwin, Jimmie Jones,
and Mel Rinehart. They obtained the initial financing used to start this business through a loan from
Cleveland Bank & Trust Co. arranged by Jimmie Jones’ husband, Larry Jones (the “93 Note”). The


       1
      After decedent’s death on December 14, 2005, this Court substituted the Estate of Lorine
Goodwin Hindman as plaintiff-appellant.
       2
           This Power of Attorney was recorded on November 29, 1993 and again on January 5, 1994.

                                                  -2-
decedent volunteered to pledge her rental property as collateral to secure this loan. She also
personally signed the resulting Deed of Trust (the “93 Deed of Trust”). The decedent’s property was
not the only security for this loan. Other collateral included a parcel owned by Larry Jones and
Jimmie Jones, as well as another parcel owned by Larry Jones and his sister, Jackie Moore. The note
and underlying Deed of Trust were paid off and released.

               Later, Design Resources executed a second note secured by the Decedent’s property.
The necessary Deed of Trust was executed by Alvin Goodwin without the Decedent’s knowledge.
Although he signed as the Decedent’s attorney in fact, he admits that he exceeded his authority. This
Note and Deed of Trust was eventually paid off and released.

                On June 27, 1995, Design Resources obtained another loan (the “95 Note”) from
Capital Bank. The Deed of Trust securing this loan pledged not only the property pledged in the 93
Deed of Trust, but also the Decedent’s personal residence.3 Although the decedent’s name is signed
on this Deed of Trust, neither the decedent nor Alvin Goodwin knew of this transaction at the time
of its execution. Reta Goodwin admitted that she signed the name Lorine Goodwin to the Deed of
Trust without the decedent’s knowledge or permission. This Note was later modified in July 1996.

                The 95 Note was refinanced through a second Capital Bank note dated June 5, 1998
(the “98 Note”) signed by Reta Goodwin, Jimmie Jones, Melvin Rinehart, and Larry Jones. Another
Deed of Trust secured this loan. This Deed of Trust was signed by Jackie Moore, Allen Moore,
Larry Jones, Jimmie Jones, and Alvin Goodwin as attorney in fact for the decedent. It pledged the
same property as the 95 Deed of Trust; thus, the Decedent’s rental property and her personal
residence were included. Goodwin testified that at the time he signed this Deed of Trust he thought
it was a continuation of the 93 Deed of Trust and did not include decedent’s personal residence. The
decedent had no knowledge of this transaction.

               On December 23, 1999, a Modification Agreement amended the 98 Note and Deed
of Trust. The amendment reduced the principle amount and released the lien on the real estate
owned by Larry and Jimmie Jones. The description of the land pledged to secure the 98 Note still
included the Decedent’s rental property and personal residence. The Modification Agreement was
signed by Reta Goodwin, Melvin Rhinehart, Jimmie Jones, Larry Jones, Jackie Moore, Allen Moore,
and Alvin Goodwin as attorney in fact for the decedent. The decedent had no knowledge of this
transaction. When Design Resources later began to fail and Capital Bank was on the verge of
foreclosing on all the collateral, Allen and Jackie Moore purchased the modified 98 Note and Deed
of Trust on September 22, 2000 to protect their property rights. This assignment of Capital Bank’s
rights was recorded on September 25, 2000. The Moores eventually started foreclosure proceedings
against the decedent’s property. Alvin Goodwin testified that he first learned that decedent’s
personal residence was listed in the 98 Deed of Trust when he saw the foreclosure notice.



       3
        This Deed of Trust also pledged the two parcels owned by Larry Jones, one being owned
with Jimmie Jones and one being owned with Jackie Moore. (Exhibits 2 & 9).

                                                -3-
                The Trial Court made the following findings of fact: (1) “Alvin Goodwin executed
the deed of trust in question for the benefit of himself and the benefit of his wife without the
knowledge, information or consent of the [Decedent],” (2) “the funds received from the promissory
note were not used for the monetary benefit of the [Decedent],” (3) Mr. Goodwin breached his
fiduciary duty to the Decedent by pledging the her real estate, (4) Capital Bank had no notice that
Mr. Goodwin breached this duty, (5) Neither Capital Bank nor the Defendants assisted Mr. Goodwin
in violating his fiduciary duty, and (6) the Defendants are bona fide purchasers for value and have
not been unjustly enriched. Based on these findings, the Chancery Court dismissed the decedent’s
case, and this appeal resulted.

                                           Discussion

               The Estate raises these issues for consideration:

               1.     Whether the modified 98 Deed of Trust is void because Alvin Goodwin
                      exceeded his authority as the Decedent’s attorney in fact.

               2.     Whether the modified 98 Deed of Trust is void due to a flawed
                      acknowledgment.

               3.     Whether the modified 98 Deed of Trust is void due to fraud.

               The Chancellor’s decision is subject to de novo review based upon the record of the
proceedings below. Keaton v. Hancock County Bd. of Educ., 119 S.W.3d 218, 222 (Tenn. Ct. App.
2003). We presume that the Trial Court’s findings of fact are correct, unless the evidence
preponderates to the contrary. Tenn. R. App. P. 13(d); Walker v. Moore, 745 S.W.2d 292 (Tenn. Ct.
App. 1987). This presumption of correctness, however, does not apply to the Trial Court’s
conclusions of law. Keaton, 119 S.W.3d at 222.

                The Plaintiff argues that the 98 Deed of Trust is void because Mr. Goodwin exceeded
his authority under the power of attorney. Mr. Goodwin testified that the decedent had no
knowledge of his use of the power of attorney in the transactions following the 93 Note. Regarding
the 1999 modification of the 98 Deed of Trust, Mr. Goodwin testified that the decedent had no
knowledge of the transaction and would not have approved it. Defendants argue that they enjoy the
immunities of a holder in due course and, alternatively, that Mr. Goodwin acted within his apparent
authority; and the Deed of Trust is valid.

              Assuming arguendo that defendants’ enjoy the immunities of a holder in due course,
such immunities would apply to both the 98 Note and the 98 Deed of Trust.4 See Nashville Trust

       4
         A deed of trust securing payment of a negotiable instrument is considered an accessory or
incident of the negotiable instrument. Neely v. Clarence Saunders Co., 81 S.W.2d 390, 392 (Tenn.
1935); W.C. Early Co. v. Williams, 186 S.W. 102, 103-04 (Tenn. 1916).

                                                -4-
Co. v. Smythe, 29 S.W. 903, 904-06 (Tenn. 1895). Their immunity would not be absolute, however,
as they would still be exposed to the so called “real defenses.” Tenn. Code Ann. § 47-3-305(a)-(b)
(2005). One of these real defenses is “lack of legal capacity.” § 47-3-305(a)(1)(ii). The comments
to this section state, “If under the state law the effect [of such incapacity] is to render the obligation
of the instrument entirely null and void, the defense may be asserted against a holder in due course.”
§ 47-3-305 cmt. 1. A deed of trust executed by an attorney in fact is null and void to the extent that
it exceeds the attorney in fact’s authority. Gimell, Simicker, Storms & Co. v. Adams, 30 Tenn. (11
Hum.) 283, 286, 1850 WL 2108, at *2 (1850). The plaintiff’s argument in this case is the equivalent
of a real defense.

                An attorney in fact’s authority is governed by the laws of agency. Eaton ex rel.
Johnson v. Eaton, 83 S.W.3d 131, 134 (Tenn. Ct. App. 2001). This authority consists of not only
actual authority, but also apparent or ostensible authority. Milliken Group, Inc. v. Hays Nissan, Inc.,
86 S.W.3d 564, 567 (Tenn. Ct. App. 2001); Intersparex Leddin KG v. Al-Haddad, 852 S.W.2d 245,
247 (Tenn. Ct. App. 1992). Apparent authority exists when a principal’s conduct clothes the agent
with the appearance of authority. Southern Ry. Co. v. Pickle, 197 S.W. 675, 677 (Tenn. 1917);
Milliken Group, Inc., 86 S.W.3d at 569. The principal’s conduct establishes apparent authority if
“(1) the principal actually or negligently acquiesced in another party’s exercise of authority; (2) the
third person had knowledge of the facts and a good faith belief that the apparent agent possessed
such authority; and (3) the third person relied on this apparent authority to his or her detriment.”
White v. Methodist Hosp. South, 844 S.W.2d 642, 646 (Tenn. Ct. App. 1992). When the principal
has clothed the agent with apparent authority and the agent exercises this authority, the principal is
bound. Milliken Group, Inc., at 570.

                Plaintiff argues the power of attorney did not authorize Mr. Goodwin to pledge real
property; therefore, no third party could believe that Goodwin was authorized to execute deeds of
trust. We do not agree, the power of attorney uses broad language to describe Mr. Goodwin’s
authority as the decedent’s attorney in fact. The document establishing the Power of Attorney clearly
states:

                       . . . I, LORINE GOODWIN . . . do hereby appoint my son, ALVIN L.
                GOODWIN, my Attorney, for me and in my name, to act generally as my Attorney
                or Agent in all matters in which I may be interested or concerned, to buy, sell
                on my behalf and to execute and deliver all necessary instruments and without
                limitation to do all such acts and things as fully and effectually in all respects as I
                myself could do if personally present.

                        This is a general POWER OF ATTORNEY, without limitation, and the
                fact that I have herein enumerated certain acts is not to be construed as limiting
                my Attorney to those acts. It is my intention to empower my Attorney to do all
                things, cash checks, write checks, deposit money, spend money, buy, sell,
                acknowledge instruments, and to do all things without limitation in all respects as
                fully and effectually as I myself could do if personally present.


                                                   -5-
(emphasis added). This power of attorney was recorded on two separate occasions, and decedent
held Mr. Goodwin out to the public as possessing broad authority to act on her behalf.

                Moreover, the first instance that Mr. Goodwin exercised authority, pursuant to the
power of attorney, to pledge the decedent’s real property was his execution of the 93 Deed of Trust.
Both the decedent and Mr. Goodwin signed the 93 Deed of Trust, but only Mr. Goodwin’s signature
was formally acknowledged. An innocent third party reading this recorded document could reason
that if the power of attorney did not grant Mr. Goodwin the authority to pledge the decedent’s real
property, Mr. Goodwin’s signature would serve no purpose and the decedent’s signature would need
formal acknowledgment. This could lead to the conclusion that the decedent’s signature was not
necessary to execute the Deed of Trust, but was only intended as an affirmation of Mr. Goodwin’s
authority to pledge real property pursuant to the power of attorney. The decedent, by providing her
personal signature in addition to that of her attorney in fact, acquiesced in this exercise of authority
and held Mr. Goodwin out to the public as having authority to pledge the decedent’s real property
as security for loans made to Mrs. Goodwin and her business partners.

                 The Chancery Court found that Capital Bank and the Defendants were innocent third
parties, and the evidence does not preponderate against this finding. Tenn. R. App. P. 13(d). As we
have observed, the power of attorney did not provide constructive knowledge of Mr Goodwin’s lack
of authority. In addition, the record indicates that neither Capital Bank nor the defendants had actual
knowledge of Mr. Goodwin’s lack of authority. Mr. Goodwin testified that he held himself out to
others as being authorized to pledge the decedent’s property.5 In this case, Capital Bank would not
likely issue a loan in excess of $300,000.00 if it had any doubts as to Mr. Goodwin’s authority, as
half the collateral securing the loan was pledged pursuant to his authority as the decedent’s attorney
in fact. Nor would a skeptical Capital Bank execute the 99 Modification Agreement which released
the lien on the Jones’ real estate and increased the bank’s reliance on the decedent’s property for
security. Additionally, one of the defendants, Mrs. Moore, testified that Mr. Goodwin did not admit
his lack of authority until after the defendants purchased the 98 Note and Deed of Trust from Capital
Bank.

                Based upon the verbiage of the Power of Attorney in conjunction with the 93 Deed
of Trust, Mr. Goodwin had apparent authority to execute the 98 Deed of Trust and the 99
Modification Agreement. The decedent acquiesced in Mr. Goodwin’s exercise of authority to pledge
her property when she signed the 93 Deed of Trust. The recorded power of attorney and 93 Deed
of Trust could lead an innocent third party, such as Capital Bank or the defendants, to develop a good
faith belief that Mr. Goodwin had the authority to sign the 98 Deed of Trust and 99 Modification

       5
        Mr. Goodwin’s representations are only relevant in determining whether the defendants and
Capital Bank were innocent third parties. It is irrelevant in determining whether Goodwin had
apparent authority because apparent authority is “determined by the acts of the principal.”
Intersparex Leddin KG, 852 S.W.2d at 248.



                                                  -6-
Agreement on the decedent’s behalf. Because Mr. Goodwin acted within the scope of his apparent
authority when he signed the 98 Note and Deed of Trust and the 99 Modification Agreement, the
Estate is bound.

                Plaintiff argues the 98 Deed of Trust is void because it contains a flawed
acknowledgment. The signature page of the 98 Deed of Trust includes both Mr. Goodwin’s
signature as decedent’s attorney in fact and the decedent’s name signed “by her attorney in fact.”
The Decedent had no knowledge of this transaction, but the acknowledgment on the Deed of Trust,
however, states that the decedent “personally appeared” before the notary. Plaintiff relies on In re
Crim v. EMC Mortgage Corp., 81 S.W.3d 764 (Tenn. 2002) for the proposition that this flaw is
sufficient to render the 98 Deed of Trust void.

                 In re Crim does not stand for the proposition that a flawed acknowledgment will
render a deed of trust null and void. Rather, it holds that a deed of trust with a flawed
acknowledgment is not legally registered; therefore, the deed of trust is void as to “subsequent
creditors or bona fide purchasers without notice under Tenn. Code Ann. § 66-26-103.” Id. at 767-70.
Such a deed of trust would still be valid as to “parties to the same, and their heirs and
representatives.” Tenn. Code Ann. § 66-26-101 (2005). A flawed acknowledgment does not affect
the rights of an original party to the 98 Note and Deed of Trust, such as Capital Bank. The same is
true as to defendants. As Capital Bank’s assignees, they stepped into Capital Bank’s position with
regard to its rights under the 98 Note and Deed of Trust. SunTrust Bank, Nashville v. Johnson, 46
S.W.3d 216, 226 (Tenn. Ct. App. 2000). Accordingly, a flawed acknowledgment would not void
the 98 Deed of Trust nor affect the defendants’ rights.

               Finally, plaintiff argues that the 98 Deed of Trust is void due to Mr. and Mrs.
Goodwin’s acts of fraud. The 95 Deed of Trust was the first to pledge the decedent’s personal
residence as collateral. However, neither the decedent nor Mr. Goodwin signed this Deed of Trust.
Reta Goodwin signed the decedent’s name to the 95 Deed of Trust without the knowledge or
permission of either the decedent or Mr. Goodwin. When Mr. Goodwin later signed the 98 Deed
of Trust and the 99 Modification Agreement he did so without the decedent’s knowledge. Mr.
Goodwin testified that, although he held himself out to others as being authorized to pledge the
decedent’s real property, he did not believe that he had such authority. The Estate argues that the
misrepresentations are sufficient to void the 98 Deed of Trust.

               A forged deed of trust is “null and void upon its execution.” Beazley v. Turgeon, 772
S.W.2d 53, 59 (Tenn. Ct. App. 1988) (citing Lowe v. Wright, 292 S.W.2d 413, 417 (Tenn. Ct. App.
1956)). Thus, Mrs. Goodwin’s forgery with respect to the 95 Deed of Trust is sufficient to void it
as to the decedent’s property. Defendants, however, did not purchase Capital Bank’s rights under
the 95 Deed of Trust. They purchased the rights under the 98 Note and Deed of Trust as modified
by the 99 Modification Agreement. Mr. Goodwin signed both the 98 Deed of Trust and the 99




                                                -7-
Modification Agreement as the decedent’s attorney in fact.6 While Mr. Goodwin may have exceeded
his actual authority when he signed these documents, this does not constitute forgery. Mallory v.
State, 168 S.W.2d 787, 788 (Tenn. 1943). As we have noted, despite Mr. Goodwin’s lack of actual
authority, he acted within his apparent authority. Thus, the decedent was bound by Mr. Goodwin’s
conduct and the 98 Deed of Trust and 99 Modification Agreement are not void.

               For the foregoing reasons, we affirm the Judgment of the Chancery Court and remand,
with the cost of the appeal assessed to the Estate of Lorine Goodwin Hindman.




                                                     ______________________________
                                                     HERSCHEL PICKENS FRANKS, P.J.




       6
         Both of these documents list the Decedent’s personal residence and rental property as
collateral for the loan, and both documents include legal descriptions of these tracts.

                                               -8-
