                 IN THE COURT OF APPEALS OF TENNESSEE
                            AT KNOXVILLE
                                   October 29, 2007 Session

        DAVID RICHARD HUDDLESTON v. PATRICIA WAGGONER
                         HUDDLESTON

                       Appeal from the Circuit Court for Blount County
                           No. 26112-C     W. Dale Young, Judge




              No. E2007-00392-COA-R3-CV - FILED JANUARY 16, 2008



The plaintiff loaned the defendant $50,000 which was to be repaid in 15 monthly installments of
$800 each with a final balloon payment of $46,600. The parties agreed that the total amount to be
repaid was $58,600, but did not specify an interest rate or make any provision for interest on the
balance in the event the balloon payment was not timely made. The defendant paid the initial 15
monthly installments, but failed to pay the balloon payment, and instead continued to make monthly
payments for approximately 44 more months paying a total of $59,416. The issue presented is what
amount of interest, if any, is owed on the balloon payment that the defendant failed to timely pay
when the contract failed to make a provision for interest in the event of default. The trial court held
that the parties had agreed that the defendant would pay interest at the rate of 14.1 percent per
annum, based upon the $8,600 he agreed to pay in excess of principal, and that the plaintiff was
entitled to have the balance of the loan outstanding at the time of default paid at such rate. Upon
review, we conclude that the parties failed to agree on an interest rate to be paid in the event of
default of the balloon payment, and accordingly, the judgment of the trial court is vacated to the
extent that it awards the plaintiff interest at the rate of 14.1 percent, and the case is remanded with
instructions that the trial court grant the plaintiff an award of prejudgment interest in accord with
Tenn. Code Ann. § 47-14-102. The judgment is affirmed in all other respects.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in Part and
                           Vacated in Part; Cause Remanded

SHARON G. LEE, J., delivered the opinion of the court, in which CHARLES D. SUSANO , JR., J., and D.
MICHAEL SWINEY , J., joined.

Thomas H. Shields III and Chadwick B. Tindell, Knoxville, Tennessee, for the appellant, David
Richard Huddleston.

William A. Reeves and Daniel J. Morse, Knoxville, Tennessee, for the appellee, Patricia Waggoner
Huddleston.
                                              OPINION

                                            I. Background

        In May 1998, Patricia Huddleston loaned $50,000 to her ex-husband, David Huddleston, and
the parties signed a pre-printed retail installment contract (“Contract”). The Contract provided that
the principal sum of $50,000 was to be paid in 15 monthly payments of $800 each, beginning on July
1, 1998, with a final balloon payment of $46,600 to be paid on October 1, 1999. The Contract did
not make any reference to interest payments but did provide that “[t]he amount you will have paid
when you have made all scheduled payments [is] $58,600.” On the same date, the parties also signed
a document entitled “TO WHOM IT MAY CONCERN” which stated as follows:

                 I have borrowed a sum of $58,600.00 . . . from Patricia Waggoner
                 Huddleston. I agree to pay $800.00 per month for 15 months,
                 beginning July 1, 1998, and one final payment of $46,600.00 . . . on
                 October 1, 1999. I will make said payments directly to Patricia
                 Huddleston, no later than the 5th of each month.

                 If for some reason I am unable to repay this loan in full by October 1,
                 1999, I authorize the unpaid balance to be withdrawn from my 401K
                 savings plan, and given to Patricia Huddleston to repay this loan.

       Mr. Huddleston paid 15 monthly $800 payments, but failed to make the final balloon payment
of $46,600. He continued to make monthly payments until either May 30, 2004, or June 2, 2004
when he tendered a final $800 payment and indicated it was his last payment. As of his last payment,
he had paid a total of $59,416. During this post-balloon payment time period, the parties attempted,
unsuccessfully, to agree on an interest rate applicable to the remaining balance.

        After the parties reached a stalemate, Ms. Huddleston filed suit for a determination of the
amount due. Following a nonjury trial, the trial court found that it was the parties’ intent that Mr.
Huddleston was to pay $8,600 interest on the principal amount of $50,000, which was an effective
rate of interest of 14.1 percent per annum; the parties intended the remaining principal balance of
$46,600, to bear interest; and the parties failed to agree on an interest rate different from the initial
agreed upon effective rate of 14.1 percent and therefore, ruled that Mr. Huddleston owed interest at
the rate of 14.1 percent on the principal balance. Mr. Huddleston appealed.

                                               II. Issue

        The sole issue we address is whether the trial court erred in its determination that it was the
intent of the parties that Mr. Huddleston pay interest at the rate of 14.1 percent per annum on the


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unpaid balance of $46,600 after he failed to make the balloon payment of that amount as required by
the contract.

                                              III. Analysis

                                         A. Standard of Review

         In a non-jury case such as this one, we review the record de novo with a presumption of
correctness as to the trial court’s determination of facts, and we must honor those findings unless the
evidence preponderates to the contrary. Tenn. R. App. P. 13(d); Union Carbide Corp. v. Huddleston,
854 S.W.2d 87, 91 (Tenn. 1993). There is, however, no presumption of correctness with regard to
the trial court's conclusions on matters of law. Taylor v. Fezell, 158 S.W.3d 352, 357 (Tenn. 2005).
The construction of a contract is a matter of law, Barnes v. Barnes, 193 S.W.3d 495, 498 (Tenn.
2006), and thus, our review in this case is de novo.

        The rules governing the construction of a contract are well-settled and require that the courts
ascertain and give effect to the intent of the contracting parties, and in interpreting contractual
language, look to the plain meaning of the words in the document. Allstate Insurance Co. v. Watson,
195 S.W.3d 609 (Tenn. 2006). Further, as we have heretofore stated, “[c]ourts cannot make contracts
for parties but can only enforce the contract which the parties themselves have made.” Bradson
Mercantile, Inc. v. Crabtree, 1 S.W.3d 648, 652 (Tenn. Ct. App. 1999). Thus, a contract must be
enforced as it is written absent fraud or mistake, even if the consequence of doing so would appear
to be harsh or unjust. Heyer-Jordan & Assoc., Inc. v. Jordan, 801 S.W.2d 814, 821 (Tenn. Ct. App.
1990).

                                       B. Interest Upon Default

        The parties’ Contract does not contain any language specifically requiring Mr. Huddleston to
pay interest on the loan of $50,000. While the Contract does require that Mr. Huddleston pay $8,600
in excess of the $50,000, it does not follow from that fact that the parties thereby agreed to an
effective rate of interest in the amount of 14.1 percent per annum until the date the balloon payment
was due and that Mr. Huddleston would continue to pay interest at that rate in the event he defaulted.
The Contract is silent as to what was required of Mr. Huddleston upon default. Neither party testified
that they agreed to an interest rate applicable to the remaining balance if the balloon payment was not
timely made. Unfortunately, it does not appear that either party anticipated such an event occurring.
We do not agree that the mere fact that Mr. Huddleston was required to pay a fixed amount of money
over and above the principal loan evidences an agreement as to what he would pay upon default. As
we have stated, “[c]ourts must avoid rewriting an agreement under the guise of interpreting it.” Pylant
v. Spivey, 174 S.W.3d 143, 152 (Tenn. Ct. App. 2003). A provision for interest due after default is
missing from the contract. It is the role of the parties to create the terms of their contract- not the role
of the court. Under the facts of this case, we decline to infer what the parties may have agreed to had
they considered the possibility of default. Accordingly, we are compelled to vacate the trial court’s
holding that the parties agreed to an effective rate of interest of 14.1 percent per annum and that the
balance of the loan unpaid by Mr. Huddleston at the time of default would bear this rate.

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        While Mr. Huddleston denied an agreement as to the specific rate of interest to be paid upon
default, in his testimony at trial he conceded that Ms. Huddleston was due some amount in addition
to principal after his failure to make the balloon payment in October of 1999:

                Q. So you believe you owe her something in addition to what you
                hadn’t paid on principal that was due on the balloon payment; is that
                true?

                A. Yes. I mean, I definitely believe that I owe, you know, some
                additional amount of money because I wasn’t able to make that
                balloon payment.

                Q. But the question is whether it is 8 percent, or 12 percent, or 14.1
                percent as they have indicated?

                A. Yes . . . .

        Without question, as a matter of equity, Ms. Huddleston was due some amount for the use
of her funds after Mr. Huddleston breached the terms of their contract. We believe the proper means
of insuring that Ms. Huddleston is appropriately compensated under the circumstances is by a grant
of prejudgment interest. Addressing the matter of prejudgment interest, the Tennessee Supreme
Court stated as follows:

                The allowance of prejudgment interest, like attorney’s fees, is
                discretionary with the trial court, Ulhorn v. Keltner, 723 S.W.2d 131,
                138 (Tenn. Ct. App. 1987), but, “[t]he general rule is to allow interest
                in all cases where the amount of the debt is certain and not disputed
                on reasonable grounds.” Textile Workers Union v. Brookside Mills,
                Inc., 205 Tenn.394, 402, 326 S.W.2d 671, 675 ([Tenn.] 1959). . . . .
                Loss of use of funds due is the necessary result of the failure to pay
                an obligation according to its terms. The usual means of
                compensating for this necessary result is the allowance of interest.
                Interest recovered in order to make the obligee whole is the relief
                usually sought, and the allowance of prejudgment interest is “familiar
                and almost commonplace.” See Deas v. Deas, 774 S.W.2d [167,] 170
                (Tenn. 1989). Consequently, the recovery of prejudgment interest
                under such circumstances does not require that the plaintiff plead
                specially.

Mitchell v. Mitchell, 876 S.W.2d 830, 831 (Tenn. 1994).

      Tennessee statutory law further allows the payment of prejudgment interest pursuant to Tenn.
Code Ann. § 47-14-123 which provides as follows:



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                    Prejudgment interest, i.e., interest as an element of, or in the nature
                    of damages, as permitted by the statutory and common laws of the
                    state as of April 1, 1979, may be awarded by courts or juries in
                    accordance with the principles of equity at any rate not in excess of
                    a maximum effective rate of ten percent (10%) per annum; provided,
                    that with respect to contracts subject to § 47-14-103, the maximum
                    effective rates of prejudgment interest so awarded shall be the same
                    as set by that section for the particular category of transaction
                    involved. In addition, contracts may expressly provide for the
                    imposition of the same or a different rate of interest to be paid after
                    breach or default within the limits set by § 47-14-103.

       The case sub judice involves a contract subject to Tenn. Code Ann. § 47-14-103 which sets
forth maximum allowable interest rates as follows:

                    Except as otherwise expressly provided by this chapter or by other
                    statutes, the maximum effective rates of interest are as follows:

                    (1) For all transactions in which provisions of other statutes fix a
                    maximum affective rate of interest for particular categories of
                    creditors, lenders, or transactions, the rate so fixed;

                    (2) For all written contracts, including obligations issued by or on
                    behalf of the state of Tennessee, any county, municipality, or district
                    in the state, or any agency, authority, branch, bureau, commission,
                    corporation, department, or instrumentality thereof, signed by the
                    party to be charged, and not subject to subdivision (1), the applicable
                    formula rate; and

                    (3) For all other written transactions, ten percent (10%) per annum.

(Emphasis added).

        The italicized language, pertinent to this case, references “the applicable formula rate” which
is defined at Tenn. Code Ann. § 47-14-102(3) as follows:

                    (3) “Applicable formula rate” at any time is the greater of:
                    (A) The “formula rate” in effect at such time; or
                    (B) The “formula rate” last published in the Tennessee
                    Administrative Register prior to such time, pursuant to § 47-14-1051;

          1
           Tenn. Code Ann. § 47-14-105 (2001) states, in relevant part, as follows:
(a) Upon the publication by the board of governors of the Federal Reserve System of the average prime loan rate, as described in §
47-14-102, the commissioner of financial institutions shall:
 (1) Promptly make an official announcement of the formula rate;

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Further, subsection (7) of Tenn. Code Ann. § 47-14-102 defines “formula rate” in pertinent part as
follows:

                    (7) “Formula rate” means an annual rate of interest four (4)
                    percentage points above the average prime loan rate (or the average
                    short-term business loan rate, however denominated) for the most
                    recent week for which such an average rate has been published by the
                    board of governors of the Federal Reserve System, or twenty-four
                    percent (24%) per annum, whichever is less;

Tenn. Code Ann. § 47-14-102(7) (Supp. 2007). Having determined that the trial court erred in ruling
that the parties agreed to a contractual interest rate of 14.1 percent per annum, we vacate the trial
court’s judgment setting interest in that amount. Furthermore, we remand with instructions,
consistent with Tenn. Code Ann. § 47-14-102(2),(7), that the trial court calculate a proper rate of
prejudgment interest to be paid by Mr. Huddleston and total amount consequently due on the
$46,600 principal balance from the time of his default on October 1, 1999.

                                                       IV. Conclusion

       For the foregoing reasons, the judgment of the trial court is vacated to the extent that it
awards interest at the rate of 14.1 percent per annum and affirmed in all other respects. This case
is remanded to the trial court for further action consistent with the instructions stated herein. Costs
of appeal are assessed to the appellee, Patricia Waggoner Huddleston.



                                                             _________________________________________
                                                             SHARON G. LEE, JUDGE




 (2) Cause the dissemination of such announcement to the news media in such manner as the commissioner deems appropriate; and
 (3) Cause to be published in the Tennessee Administrative Register the formula rate as determined by the average prime loan rate
first published each calendar month.
(b) In contracting for interest pursuant to the provisions of § 47-14-103(2), any person shall entitled to rely upon the formula rate
thus announced or published by the commissioner; provided, that a formula rate shall not be deemed to have been published until
seven (7) days have elapsed following the publication date stated in the issue of the Tennessee Administrative Register containing
the announcement of such formula rate.

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