                 IN THE COURT OF APPEALS OF TENNESSEE
                            AT KNOXVILLE
                       Assigned on Briefs March 17, 2003 Session

 21st MORTGAGE CORP. , formerly 21st CENTURY MORTGAGE CORP.
                v. CAPITOL HOMES, LLC, ET AL.

                  Appeal from the Chancery Court for Washington County
                       No. 7606    G. Richard Johnson, Chancellor

                                    FILED APRIL 22, 2003

                                No. E2002-02670-COA-R3-CV



Ms. Stella Ford (“Ford”) purchased a manufactured home from Capitol Homes, LLC (“Capitol
Homes”) and contractually agreed to make monthly payments. At the same time, Capitol Homes
assigned its rights under the contract with Ford to 21st Mortgage Corp. (“Plaintiff”) through an
Assignment by Seller (“Assignment”). Capitol Homes made twelve express warranties in the
Assignment. The Assignment further provided it would be with limited recourse for two months.
After the two months expired, Plaintiff sued Capitol Homes and James Hurst (“Hurst”)(collectively
referred to as “Defendants”). Hurst had personally guaranteed the debt of Capitol Homes. Plaintiff
alleged, among other things, that Capitol Homes had breached several of the express warranties.
Defendants filed a motion to dismiss claiming the two month limited recourse provision also applied
to any claim for breach of express warranty. The Trial Court agreed, and dismissed the lawsuit.
Plaintiff appeals, and we reverse.


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


D. MICHAEL SWINEY, J., delivered the opinion of the court, in which HOUSTON M. GODDARD , P.J.,
and HERSCHEL P. FRANKS , J., joined.


Anthony R. Steele, Knoxville, Tennessee, for the Appellant 21st Mortgage Corp., formerly 21st
Century Mortgage Corp.


Gary L. Edwards, Johnson City, Tennessee, for the Appellee Capitol Homes, LLC.
                                              OPINION

                                             Background

                 Plaintiff filed this lawsuit in August of 2001, alleging breach of warranties. Plaintiff
is in the business of “making, buying, selling, and, among other things, servicing lending
transactions….” According to the complaint, Capitol Homes entered into a Retail Installment
Contract-Security Agreement (“Agreement”) with Ford on November 22, 2000, when Ford
purchased a manufactured home. At the same time the Agreement was entered into, Capitol Homes
entered into the Assignment and assigned its rights under the Agreement to Plaintiff. In the
Assignment, Capitol Homes made twelve express warranties to Plaintiff and agreed to repurchase
the Agreement, on demand by Plaintiff, if any of these warranties were “untrue.” Plaintiff claims
it later learned that Ford did not purchase the home for herself, but instead purchased it for her son
because he was otherwise unable to purchase the home due to his credit history, lack of employment
or the like. Plaintiff claimed several of the express warranties made by Capitol Homes in the
Assignment were breached because Ford purchased the home under these circumstances.
Accordingly, Plaintiff made demand upon Capitol Homes to repurchase the Agreement, but Capitol
Homes refused.

               In addition to the Agreement and Assignment referenced above, Plaintiff claims Hurst
also entered into a Personal Guaranty guaranteeing the regular, punctual payment and prompt
performance of all debts of Capitol Homes. Plaintiff, therefore, sued Hurst individually. In the
complaint, Plaintiff sought a judgment against both Capitol Homes and Hurst for the outstanding
balance on that account of $24,823.27, plus interest, attorney fees, and costs per the terms of the
Assignment.

                The Assignment entered into between Plaintiff and Capitol Homes provides as
follows:

                                   ASSIGNMENT BY SELLER

                To 21st CENTURY HOME MORTGAGE CORP. (21 Century):
                For value received, we hereby assign within contract and all our right,
                title and interest in it to 21st Century Home Mortgage Corp.
                (Assignee), and warrant all of the following: 1) that this contract is
                the result of a sale of our own property or services; 2) that we have
                full and perfect title to and right to convey this contract free of any
                encumbrance, lien, or any interest of third parties of any nature
                whatsoever; 3) that this contract accurately and correctly reflects a
                genuine, bona fide sale and the price and terms thereof, and is valid
                and in compliance with any applicable installment sales law or other
                applicable state or federal law or administrative regulation; 4) that at
                the time this contract is sold to the Assignee, the goods and services


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               are in the possession of the buyer, have been unconditionally accepted
               by the buyer, and are the identical goods and services described in the
               contract; 5) that the amount due from the buyer is not disputed or
               subject to any set-off, deduction, credit or counterclaim; 6) that the
               down payment is correctly stated in the contract; 7) that no part of the
               down-payment was loaned by us, directly or indirectly, to the Buyers;
               8) that this contract is the entire and sole contract between us and the
               buyer as to the sale of goods or services evidenced herein; 9) that
               there is no undisclosed agreement, concession or litigation of any
               nature affecting this contract; 10) that all the parties to this contract
               were competent at the time it was executed; 11) that there are no valid
               defenses in law or equity to this contract as it exists in the hands of
               the Assignee after this conveyance; and 12) that all signatures on this
               contract are genuine. If any of the foregoing warranties are untrue,
               regardless of Assignee’s knowledge or lack of knowledge or reliance
               thereon, Assignor hereby unconditionally agrees to repurchase the
               documents on demand from Assignee for the balance remaining
               unpaid plus any expense of collection, repossession, foreclosure,
               transportation, storage, attorney fees, and court costs incurred by
               Assignee less any customary refund by Assignee of unearned finance
               charges. FURTHER, if a “With Recourse” assignment is initialed
               below, we engage that the within contract will be paid according to
               its tenor, and that if it is not, we shall pay it to the Assignee or to any
               subsequent assignee, regardless of the order in which the assignments
               are made. If a “With Limited Recourse” assignment is initialed
               below, we engage that the within contract will be paid according to
               is tenor for the period shown below; and that if it is not, we shall pay
               it to the Assignee or to any subsequent assignee, regardless of the
               order in which the assignments are made. If a “Without Recourse”
               assignment is initialed below, this Assignment is without recourse.

Capitol Homes, through its representative, thereafter initialed the portion of the contract indicting
the assignment was “With Limited Recourse for first 2 months of contract.”

                Defendants filed an answer to the complaint generally denying any liability to
Plaintiff. Defendants also filed a Motion to Dismiss alleging, among other things, that the “With
Limited Recourse” provision in the Assignment barred all claims made after two months, including
claims for breach of warranty. More specifically, Defendants claimed the lawsuit was barred
because the underlying contract and Assignment were entered into on November 22, 2000, and
Plaintiff was “suing under the contract and assignment for a time period that began accruing ‘as of
July 31, 2001' … clearly more than two (2) months after the contract was first entered [into].”
Plaintiff responded to the Motion to Dismiss, maintaining the “With Limited Recourse” provision



                                                  -3-
in no way limits Plaintiff’s available remedies under the Assignment if any of the twelve express
“warranties are untrue.”

              After a hearing, Trial Court granted the motion and dismissed the lawsuit against both
Defendants. In so doing, the Trial Court stated:

                       1.      The Court, giving the words of the
               contract/assignment at issue their ordinary meaning, and looking at
               the four corners of the contract/assignment at issue ascertains that at
               the time of contracting between the parties, the parties intended that
               Plaintiff could only seek recourse against the Defendants for the first
               two (2) months of the contract/assignment at issue, as specifically set
               forth in the contract/assignment at issue.

                      2.      Accordingly, the “With Limited Recourse for first 2
               months of contract” applies to the entire contract/assignment at issue,
               including but not limited to any breach of warranty and/or contract
               payment claims by Plaintiff against Defendants.

                        3.     The contract/assignment at issue was entered on
               November 22, 2000. Therefore, Plaintiff had until January 22, [2001]
               to file any claims it had against Defendants, whether such claims be
               for breach of warranties, payments, and/or otherwise.

                       4.     Plaintiff failed to bring this action by January 22,
               [2001], and therefore, its cause of action against Defendants is barred
               by the terms of the contract/assignment at issue.

             Plaintiff appeals, claiming the time limit for Plaintiff to seek recovery from Capitol
Homes for breach of an express warranty was not limited by the language which states “With
Limited Recourse for first 2 months of contract.” We agree, and reverse the judgment of the Trial
Court.

                                            Discussion

             Our standard of review as to the granting of a motion to dismiss is set out in Stein v.
Davidson Hotel Co., 945 S.W.2d 714, 716 (Tenn. 1997). In Stein, our Supreme Court explained:

               A Rule 12.02(6), Tenn. R. Civ. P., motion to dismiss for failure to
               state a claim upon which relief can be granted tests only the legal
               sufficiency of the complaint, not the strength of a plaintiff's proof.
               Such a motion admits the truth of all relevant and material averments
               contained in the complaint, but asserts that such facts do not


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               constitute a cause of action. In considering a motion to dismiss,
               courts should construe the complaint liberally in favor of the plaintiff,
               taking all allegations of fact as true, and deny the motion unless it
               appears that the plaintiff can prove no set of facts in support of her
               claim that would entitle her to relief. Cook v. Spinnaker's of
               Rivergate, Inc., 878 S.W.2d 934, 938 (Tenn. 1994). In considering
               this appeal from the trial court's grant of the defendant's motion to
               dismiss, we take all allegations of fact in the plaintiff's complaint as
               true, and review the lower courts' legal conclusions de novo with no
               presumption of correctness. Tenn. R. App. P. 13(d); Owens v.
               Truckstops of America, 915 S.W.2d 420, 424 (Tenn. 1996); Cook,
               supra.

                 In resolving a dispute concerning contract interpretation, our task is to ascertain the
intention of the parties based upon the usual, natural, and ordinary meaning of the contract language.
Planters Gin Co. v. Federal Compress & Warehouse Co., Inc., 78 S.W.3d 885, 889-90 (Tenn.
2002)(citing Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999)). A determination of the
intention of the parties “is generally treated as a question of law because the words of the contract
are definite and undisputed, and in deciding the legal effect of the words, there is no genuine factual
issue left for a jury to decide.” Planters Gin Co., 78 S.W.3d at 890 (citing 5 Joseph M. Perillo,
Corbin on Contracts, § 24.30 (rev. ed. 1998); Doe v. HCA Health Services of Tenn., Inc., 46 S.W.3d
191, 196 (Tenn. 2001)). The central tenet of contract construction is that the intent of the contracting
parties at the time of executing the agreement should govern. Planters Gin Co., 78 S.W.3d at 890.
The parties’ intent is presumed to be that specifically expressed in the body of the contract. "In other
words, the object to be attained in construing a contract is to ascertain the meaning and intent of the
parties as expressed in the language used and to give effect to such intent if it does not conflict with
any rule of law, good morals, or public policy." Id. (quoting 17 Am. Jur. 2d, Contracts, § 245).

                This Court's initial task in construing the contract at issue, here the Assignment, is
to determine whether the language of the contract is ambiguous. Planters Gin Co., 78 S.W.3d at 890.
If the language is clear and unambiguous, the literal meaning of the language controls the outcome
of the dispute. Id. A contract is ambiguous only when its meaning is uncertain and may fairly be
understood in more than one way. Id. (emphasis added). If the contract is found to be ambiguous,
we then apply established rules of construction to determine the intent of the parties. Id. Only if
ambiguity remains after applying the pertinent rules of construction does the legal meaning of the
contract become a question of fact. Id.

                On appeal, Plaintiff argues Capitol Homes warranted the twelve underlying
conditions in connection with the Assignment and then entered into an additional agreement with
Plaintiff regarding what would transpire if the contract was not paid by the obligor during the first
two months. Plaintiff argues:




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                 [I]t cannot be reasonably concluded that this additional agreement
                 relating to non-payment recourse operates to cancel or limit
                 [Plaintiff’s] remedy for any breach of the separate warranties made by
                 [Capitol Homes] to induce [Plaintiff] to purchase and take assignment
                 of the subject contract.

               Capitol Homes argues the Trial Court was correct when it concluded the effect of the
provision “With Limited Recourse for first 2 months of contract,” in the context of the entire
contract, “clearly indicated that said term applied to all the remedies set forth in the Contract,”
including any claimed breach of the twelve express warranties.

                This Court was confronted with a somewhat similar situation in Advantage Funding
Corp. v. Mid-Tennessee Mfg. Co., Inc., No. M1997-00133-COA-R3-CV, 2000 Tenn. App. LEXIS
38 (Tenn. Ct. App. Jan. 27, 2000), no appl. perm appeal filed. In that case, the plaintiff, Advantage
Funding Corp., purchased an accounts receivable from the defendant, Mid-Tennessee Manufacturing
Co., Inc. (“Company”). The relevant documents provided: (1) the sale of the account receivable
would be without recourse; (2) the Company warranted the amount of the receivable was not and
would not be in dispute, and the account was not and would not be subject to defenses, set-offs, or
counterclaims, and (3) the Company’s president, Mr. Hall, would provide his individual guarantee
securing these warranties. Advantage Funding, 2000 Tenn. App. LEXIS 38, at * 3. Thereafter, the
underlying debtor, John Farmer and Associates, Inc., refused to pay the receivable because some of
the purchased items were allegedly defective, thereby disputing the amount of the receivable. Once
this happened, Advantage Funding sued both the Company and Mr. Hall (“Hall”). Following a
bench trial, the Trial Court awarded a judgment against the Company for $21,377.87, plus pre-
judgment interest and attorney fees.1 The Trial Court, however, dismissed the claim against Hall,
concluding, among other things, that there was insufficient evidence of a breach of warranty. 2000
Tenn. App. LEXIS 38, at * 7.

               On appeal, this Court discussed the nature of the factoring agreement at issue in that
case as follows:

                         A nonrecourse factor, like [plaintiff] Advantage Funding,
                 takes the risk for collecting the assigned receivable with no right back
                 against the assignor as long as the assignor, if the seller of the goods,
                 has delivered the goods and the buyer has accepted them without
                 dispute. See Takisada Co. v. Ambassador Factors Corp., 556
                 N.Y.S.2d 788, 789 (N.Y. Sup. Ct. 1989). The factoring agreement in
                 this case reflects this arrangement in that it provides that if Farmer did
                 not pay the assigned account, Mid-Tennessee Manufacturing would
                 not be obligated to repay Advantage Funding. Thus, the assignment
                 of the account to Advantage Funding generally shifted the risk of


       1
           The Company apparently did not contest the lawsuit. 2000 Tenn. App. LEXIS 38, at *6.

                                                      -6-
               collection from Mid-Tennessee Manufacturing to Advantage
               Funding.

                       We use the term "generally" with regard to shifting the risk of
               collection because the agreement also contains provisions designed
               to protect Advantage Funding in the event of a disputed account.
               These protections are in the form of express warranties stating that

                      Seller [Mid-Tennessee Manufacturing] represents and
                      warrants that: ....

                              (c) The Account is currently due and owing to Seller
                      and the amount thereof is not and will not be in dispute or
                      subject to any defenses, and the payment of the Account is not
                      and will not be contingent upon the fulfillment of any past,
                      existing or future contract(s).

                            (d) There are no set-offs or counterclaims against the
                      Account....

Advantage Funding, 2000 Tenn. App. LEXIS 38, at **17, 18. In addition, this Court noted that Hall
had signed a personal guarantee which stated "[t]he undersigned hereby personally guarantee(s) and
shall be jointly and severally liable for the warranties, representations and covenants made by
Mid-Tennessee...." Id., at **18, 19.

              In resolving the issue on appeal in Advantage Funding, we concluded once the debtor
disputed the account, regardless of whether the dispute was meritorious, the warranty in the
agreement was breached, and the plaintiff had the right to seek damages. Id., at * 19. We then
concluded as follows:

                       When we construe the factoring agreement and Mr. Hall's
               guarantee together, as we must, see Oman Constr. Co. v. Tennessee
               Cent. Ry. Co., 212 Tenn. 556, 573, 370 S.W.2d 563, 570 (1963);
               Hardeman County Bank v. Stallings, 917 S.W.2d 695, 698 (Tenn. Ct.
               App. 1995), the legal conclusion becomes inescapable.
               Mid-Tennessee Manufacturing's breach of the "no-dispute" warranties
               as to the Farmer account brought into play Mr. Hall's guarantee of
               those warranties. Because those warranties had been breached, Mr.
               Hall became personally liable, jointly and severally with
               Mid-Tennessee Manufacturing, under the guarantee's terms.
               Accordingly, the trial court improperly dismissed Advantage
               Funding's case against Mr. Hall personally.



                                                -7-
Advantage Funding, 2000 Tenn. App. LEXIS 38, at *20.

                We acknowledge Advantage Funding is not squarely on point since the effect of the
nonrecourse provision on the express warranties was not directly at issue. Nevertheless, Advantage
Funding is helpful with its discussion of how the factoring agreement in that case generally operated.
In Advantage Funding, even though the agreement was without recourse, this Court noted Advantage
Funding nevertheless was protected by the express warranties if the account became disputed. When
the account in fact became disputed, a breach of warranty occurred, notwithstanding the fact that the
agreement was without recourse. We believe the same result is proper in the present case based on
the natural and ordinary meaning of the language used in the Assignment. In our opinion, the
provision in the Assignment which states it is “With Limited Recourse for first 2 months of contract”
means only that if Ford had defaulted on her contractual payments in the first two months, Plaintiff
could have recovered the outstanding balance of the contract from Capitol Homes. After that two
month period, Plaintiff would have no recourse against Capitol Homes if Ford defaulted on her
payments.2 However, this language cannot fairly or reasonably be construed to limit to two months
the time period in which Plaintiff could make a claim against Capitol Homes for breach of one of
the twelve express warranties.

                 The Trial Court concluded the relevant language limited the time period in which
Plaintiff could sue for breach of an express warranty to two months. If that were the case, and taking
it to the next logical step, if the Assignment had been “Without Recourse,” then Plaintiff would have
had absolutely no time in which to bring suit against Capitol Homes for breaching one or more of
the twelve express warranties it made to Plaintiff. This result would make the express warranties
meaningless. We conclude the contractual language at issue can fairly be understood in only one
way, and it is not ambiguous. We hold the two month period provided for in the limited recourse
provision does not apply to or limit Plaintiff’s claim for alleged breaches of the express warranties.
The judgment of the Trial Court is, therefore, reversed.


                                                      Conclusion

                The judgment of the Trial Court is reversed and this cause is remanded to the Trial
Court for further proceedings consistent with this Opinion. The costs on appeal are assessed against
the Appellee, Capitol Homes, LLC.




                                                                  ___________________________________
                                                                  D. MICHAEL SWINEY, JUDGE


         2
            Of co urse, Ford is subject to being sued by Plaintiff if she defaults on her payments regardless of whether or
not P laintiff had re course aga inst Cap itol Ho mes.

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