                  IN THE COURT OF APPEALS OF TENNESSEE
                              AT NASHVILLE
                                   November 7, 2001 Session

                     AMY JO STONE, ET AL. v. REGIONS BANK

               A Direct Appeal from the Chancery Court for Lincoln County
          No. 11, 414   The Honorable Charles Lee, Judge, Sitting by Interchange



                    No. M2001-00856-COA-R3-CV - Filed February 1, 2002


        This is a dispute over life insurance proceeds. Plaintiffs’ mother was indebted to defendant-
bank and entered into a contract with the bank and the plaintiffs to secure past and future
indebtedness by assignment of a life insurance policy on her life. The policy was duly assigned
pursuant to the contract with the bank. Subsequently, plaintiffs’ mother filed a bankruptcy
proceeding, and her liability to the bank on her indebtedness was discharged, but the insurance policy
was not affected. The bank continued paying the annual premiums on the policy, and several years
after the bankruptcy proceeding, the plaintiffs’ mother died. The insurance company, by virtue of
the assignment of the policy, paid the insurance proceeds to the bank which then satisfied its
indebtedness and paid the balance of the proceeds to the plaintiffs pursuant to the contract. Plaintiffs
sue to recover the full amount of the insurance proceeds, contending that there was no existing
indebtedness as specified in the contract. The trial court entered judgment for bank, and plaintiffs
have appealed. We affirm.

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

W. FRANK CRAWFORD , P.J., W.S., delivered the opinion of the court, in which ALAN E. HIGHERS ,
J. and DAVID R. FARMER , J., joined.

Robert S. Peters, Winchester, For Appellants, Amy Jo Watson and William Stone

R. Whitney Stevens, Jr., Fayetteville, For Appellee, Regions Bank

                                              OPINION

        Plaintiffs, Amy Jo Stone Watson and William Stone, are the children of Norma Kay Stone,
a debtor of Lincoln County Bank, whose successor is the defendant, Regions Bank. To provide
additional security for past and future indebtedness to the bank, Ms. Stone entered into a contract
with the bank to make a collateral assignment of a life insurance policy, which is the subject of this
action. The plaintiffs were made parties to the contract which designates Ms. Stone as the borrower,
the bank as the lender, and the plaintiffs as children. The contract assigns a designated policy with
Valley Forge Life Insurance Company to the bank, and pursuant thereto a collateral assignment of
the life insurance policy was duly executed by Ms. Stone. The contract further provides, as pertinent
to the issue before us, as follows:

               3. The Lender shall have the right to liquidate said policy at any
               time that any indebtedness of the Borrower shall be delinquent for a
               period of One Hundred Eighty (180) days, after which, at the
               Lender’s option it shall notify the insurance company at the address
               stated hereinabove, and upon the payment to the Lender of the
               amount due from the insurance company, the Lender shall use the
               proceeds therefrom to satisfy any and all past, present or future
               indebtedness of the Borrower, and, if possible, to clear the
               indebtedness on the home located as stated, hereinabove.

               4. The Lender shall also have the option to demand payment of the
               insurance company upon the demand of the insured, and Borrower,
               Norma Kathaleen Stone, and the proceeds therefrom shall be used as
               stated in “3,” next hereinabove.

               5. In the event that the Borrower should bankrupt . . . , the Lender
               shall have the option of demanding payment of the insurance
               company of any amount due from the policy at that time or to sell the
               policy, if more could be realized therefrom than from the insurance
               company.

               6. The Borrower shall have the option at any time to sell her home,
               business, or insurance policy under proper supervision of the Lender
               for the purpose of liquidating and satisfying her indebtedness to the
               Lender first, and then, at her option, to use the balance as she may see
               fit.

               7. In any event that the policy of insurance should be liquidated in
               any manner, it is the intention of the parties that the proceeds
               therefrom be used to satisfy the indebtedness of the Lender, past,
               present or future, and if there be sufficient proceeds to satisfy the
               indebtedness, and, further, should there be any excess, the children of
               the Borrower shall be entitled to the balance and/or the assets cleared
               thereby, to be taken by them, share and share alike, provided,
               however, should the Borrower be living at the time, the balance of the
               proceeds, and the assets cleared thereby, shall be under the dominion
               and control of the Borrower to do with as she, in her own judgment,
               may see fit.

                               *               *               *

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               9. The Children - Amy Jo Stone Watson and William Emmett Stone
               - do hereby enter into this agreement to bind any interest which they
               presently have or may have in and to the policy of insurance or any
               of the assets being used as security for the loans contemplated
               thereby.

        Ms. Stone defaulted on the indebtedness, and in 1994 she filed a Chapter 13 bankruptcy
petition which was later converted to a Chapter 7 liquidation in 1995. The bank then filed a claim
in the amount of $179,072.06 which was designated as secured by the assigned life insurance policy.
No objection was made to this claim, and the court made no disposition of the life insurance policy.
In the bankruptcy case, Ms. Stone was discharged from her liability on the debt owed to the bank,
but the debt was never satisfied. For the years 1995, 1996, 1997 and 1998, the bank paid the
premiums on the policy totaling $5,000.00 per year to keep the policy in force. Ms. Stone died on
June 2, 1999, and the bank’s claim to the insurance company pursuant to the assignment was
honored, with the bank receiving the policy proceeds in the amount of $336,930.76. The bank
applied $333,982.38 to the existing debt, and remitted the balance of $2,948.38 to the plaintiffs.

        Plaintiffs did not accept the amount remitted and contend that Ms. Stone had no indebtedness
to the bank at the time of her death, since the debt to the bank had been discharged in bankruptcy.
Plaintiffs thereupon filed this action to recover the entire proceeds of the Valley Forge Life Insurance
Company policy. Both plaintiffs and defendant filed motions for summary judgment. The trial court
denied plaintiffs’ motion and granted defendant’s motion. Plaintiffs have appealed, and the only
issue for review is as stated in plaintiffs’ brief:

               Whether, in this case involving the interpretation of a contract entered
               into among the plaintiffs, their deceased mother, and the defendant
               bank, which contract provided that the plaintiffs would receive the
               proceeds of a policy of life insurance on the life of their mother after
               satisfaction of the indebtedness to the bank, when, at the time of the
               death of the plaintiffs’ mother, the debt to the bank had been
               discharged in bankruptcy, thereby eliminating the indebtedness, and
               where the wording of the contract unambiguously asserted the
               plaintiffs’ rights to the insurance proceeds.

        Plaintiffs assert that this case is controlled by the interpretation of the contract between and
among Ms. Stone, the bank, and the plaintiffs, and that the assignment of the Valley Forge insurance
policy is subject to the terms and provisions of the contract providing for the assignment. The facts
are not in dispute, and we agree that this case is controlled by the terms of the contract between Ms.
Stone and the bank. Interpretation of written contracts involves legal issues, and when the facts are
not in dispute, the issues can be resolved by summary judgment. See Standard Fire Ins. Co. v.
Chester O’Donley & Associates, Inc., 972 S.W.2d 1 (Tenn. Ct. App. 1998).
        In Bradson Mercantile, Inc. v. Crabtree, 1 S.W.3d 648 (Tenn. Ct. App. 1999), this Court
discussed the rules for the interpretation of contracts:


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               The cardinal rule in the construction of contracts is to ascertain the
               intent of the parties. West v. Laminite Plastics Mfg. Co., 674 S.W.2d
               310 (Tenn. App. 1984). If the contract is plain and unambiguous, the
               meaning thereof is a question of law, and it is the Court’s function to
               interpret the contract as written according to its plain terms. Petty v.
               Sloan, 197 Tenn. 630, 277 S.W.2d 355 (1955). The language used
               in a contract must be taken and understood in its plain, ordinary, and
               popular sense. Bob Pearsall Motors, Inc. v. Regal Chrysler-
               Plymouth, Inc., 521 S.W.2d 578 (Tenn. 1975). In construing
               contracts, the words expressing the parties’ intentions should be given
               the usual, natural, and ordinary meaning. Ballard v. North American
               Life & Cas. Co., 667 S.W.2d 79 (Tenn. App. 1983). If the language
               of a written instrument is unambiguous, the Court must interpret it as
               written rather than according to the unexpressed intention of one of
               the parties. Sutton v. First Nat. Bank of Crossville, 620 S.W.2d 526
               (Tenn. App. 1981). Courts cannot make contracts for parties but can
               only enforce the contract which the parties themselves have made.
               McKee v. Continental Ins. Co., 191 Tenn. 413, 234 S.W.2d 830, 22
               ALR2d 980 (1951).

Id. at 652. The primary objective in the construction of a contract is to discover the intention of the
parties from a consideration of the whole contract. See Mckay v. Louisville & N.R. Co., 133 Tenn.
590, 182 S.W. 874, 875 (1916).

        In this case, the contract was for the purpose of providing additional security to the bank for
a rather substantial sum owed by Ms. Stone to the bank. Plaintiffs assert that because Ms. Stone’s
indebtedness was discharged in the bankruptcy proceeding, there was no indebtedness to the bank
in existence at the time of her death which would precipitate payment of the proceeds to the bank.
They state in their brief: “Under the clear wording of that contract, where there had to be an
indebtedness to the bank at the time the policy of life insurance was liquidated for the plaintiffs to
be deprived of the policy proceeds.” In support of this argument, plaintiffs refer to the definition
of indebtedness in Black’s Law Dictionary 7th Edition: “1. The condition or state of owing money.
2. Something owed; a debt.” They assert in their brief that once the indebtedness was discharged
in bankruptcy, it ceased to exist. We must respectfully disagree. the debt can exist even though
collection is unenforceable.

       11 U.S.C.A. § 524 (1993) provides in pertinent part:

               Effect of discharge

               (a) A discharge in a case under this title –

                               *               *               *


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               (2) operates as an injunction against the commencement or
               continuation of an action, the employment of process, or an act, to
               collect, recover or offset any such debt as a personal liability of the
               debtor, whether or not discharge of such debt is waived; and

                               *               *               *

               (e) Except as provided in subsection (a)(3) of this section, discharge
               of a debt of the debtor does not affect the liability of any other entity
               on, or the property of any other entity for, such debt.

      In In re Edgeworth, 993 F.2d 51 (U.S. App.1993), the Court, in construing § 524 of the
bankruptcy code, said:

               In general, section 524 protects a debtor from any subsequent action
               by a creditor whose claim has been discharged in a bankruptcy case.
               To ensure that a discharge will be completely effective, it operates as
               an injunction against enforcement of a judgment or the
               commencement or continuation of an action in other courts to collect
               or recover a debt as a personal liability of the debtor. 3 Collier on
               Bankruptcy P 524.01, at 524-4 (15th ed.). A discharge in bankruptcy
               does not extinguish the debt itself, but merely releases the debtor
               from personal liability for the debt. Section 524(e) specifies that the
               debt still exists and can be collected from any other entity that might
               be liable.

Id. at 53.

        The primary, and in fact, the only objective of the contract is to provide additional security
to the bank for Ms. Stone’s indebtedness. The contract provides the bank several options in the use
of the insurance policy for this purpose. Paragraph 3 allows the bank to liquidate the policy at its
option should the borrower be delinquent for the period of 180 days. In paragraph 4, the bank has
the option to demand payment of the cash value of the policy upon demand of the insured. In
paragraph 5, the bank has the option to obtain the cash value of the policy should Ms. Stone
bankrupt. Under all of these provisions, the bank is not required to do any of the acts referred to but
is granted the right to select any or none of the options. As the trial court noted in its opinion: “It
is equally obvious that whether and when to liquidate was at the option of the bank.”

        The bank protected its interest by paying the premiums on the policy of insurance both prior
to Ms. Stone’s bankruptcy and thereafter until her death. After Ms. Stone went into bankruptcy, the
policy remained assigned to the bank as security for the indebtedness, and there is nothing in the
record to indicate that Ms. Stone objected to the bank’s retention of the assignment and its
continuous payment of the premiums. Thus, both Ms. Stone and the bank continued in their


                                                   -5-
interpretation of the contract that there was an existing indebtedness to the bank after the discharge
in bankruptcy. If the definition of indebtedness could be considered an ambiguity in the contract,
then the doctrine of practical construction could apply. “It is well settled that the interpretation of
a contract by the parties themselves will be adopted by the court.” Fidelity Phenix Fire Ins. Co. of
New York v. Jackson, 181 S.W.2d 625, 631 (Tenn. 1944) (citations omitted).

        Accordingly, the order of the trial court granting summary judgment is affirmed, and this case
is remanded to the trial court for such further proceedings as may be necessary. Costs of the appeal
are assessed against the appellants, Amy Jo Stone Watson and William Stone, and their surety.



                                               __________________________________________
                                               W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.




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