Facts: Husband and Wife divorced after five years of marriage. During the marriage, Wife loaned Husband $200,000, and Husband paid about half of this loan back to Wife during the marriage.

The trial court approved their marital dissolution agreement (MDA), which contained this paragraph:

9.         DEBTS. Husband acknowledges he owes Wife the sum of $100,000 for a personal loan Wife made to Husband during the marriage. Husband shall be responsible for paying back said loan in monthly installments in the amount of $2500 per month beginning May 1, 2019 and on the 1^st of each month thereafter until such time as the loan is paid off. Husband shall set up payment of said monthly payment by auto-withdrawal from his Bank of Tennessee account to Wife’s Merrill Lynch account. Wife agrees to waive the previously agreed upon 10% interest rate.

Two months after the first payment was due, and having received no payment, Wife petitioned to hold Husband in civil contempt.

Husband first argued he could not make the monthly payments because of a “significant decline in business income.”

Husband later argued that, through payments made mostly before signing the MDA, he overpaid Wife for the loan such that she owed him money.

The trial court held that the MDA was ambiguous because the MDA used the singular form of the word “loan” instead of referencing various loans between the parties. The trial court found the MDA “should have stated the existence of multiple loans rather than a singular loan, and as such, it lacks clarity.”

After considering parol evidence, the trial court found that the balance Husband owed Wife when the MDA was executed was only $15,000. Because his monthly income renders him unable to make the required payments, Husband was not found to be in civil contempt. Wife’s request for attorney’s fees was also denied.

Wife appealed.

On Appeal: The Court of Appeals reversed the trial court.

Marital dissolution agreements are contracts that become legally binding obligations once approved by the trial court.

When resolving a dispute about contract interpretation, Tennessee courts must figure out the intention of the parties based on the usual, natural, and ordinary meaning of the contract.

The central tenet of contract construction is that the parties’ intent at the time of executing the agreement should govern. The parties’ intent is presumed to be that specifically expressed in the body of the contract.

To find the parties’ intent, courts must first determine whether the contract language is ambiguous. Contractual language is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than one.

If this contract language is unambiguous, then the literal meaning controls the outcome of the dispute.

When contractual language is ambiguous, the parol evidence rule allows pre-contract negotiations or actions to give meaning to the ambiguous language.

The Court found no ambiguity in the MDA:

Respectfully, the trial court erred in allowing Husband to introduce parol evidence in the form of payments he allegedly made prior to the execution of the MDA. Only if contractual language is determined to be ambiguous may parol evidence, or pre-contract negotiations, be used to guide the court in construing and enforcing the contract. . . . Here, the MDA is clear. Husband acknowledged a debt of $100,000 when he signed the MDA, and he agreed to pay “back said loan in monthly installments in the amount of $2500 per month . . . .” There is nothing in the MDA to suggest that Husband owed anything less than $100,000 at the time of its execution or that he had made any payments toward this amount prior to [signing the MDA]. So, not only did the trial court err in allowing parol evidence concerning any payments made prior to [signing the MDA], but it also erred in inferring that Husband owed less than $100,000 when the parties executed the MDA.

The record shows that Wife, in fact, loaned Husband approximately $200,000 during the marriage. The evidence further shows that the $90,400 in payments Husband made prior to the execution of the MDA went toward paying off the $200,000 debt such that the $100,000 amount stated in the MDA represents the remaining amount Husband owed on the initial $200,000 debt at the time the parties executed the MDA. . . . By erroneously allowing parol evidence of payments Husband made prior to [signing the MDA], the trial court credited Husband with payments on a debt that ostensibly had not yet been created. The trial court’s reading not only a ignores the plain language of [Paragraph] 9, but it also ignores [Paragraph] 13(l) of the MDA, which states that, “This Agreement constitutes the entire understanding of the parties, and it supersedes any and all prior agreements between them.” Under the plain language of the MDA, regardless of any payments or agreements made prior to the execution of the MDA, Husband owed wife $100,000 as of the date of the execution of the MDA. The parties agreed that Husband would pay this debt in monthly installments of $2500 commencing on May 1, 2019. These terms are not ambiguous, and Husband is entitled to reduction of the $100,000 debt only for payments made on or after May 1, 2019.

The case was remanded to the trial court to enter judgment and $82,000 judgment for Wife with postjudgment interest plus recovery of her attorney’s fees before the trial court and on appeal.

Regarding contempt, the Court found the trial court’s conclusion that Husband’s failure to pay was not willful was flawed because the trial court focused solely on Husband’s monthly income without considering any of his other assets. That issue was remanded with instructions to reconsider Husband’s “income and assets.” (Emphasis in original.)

Lockett v. Runyan (Tennessee Court of Appeals, Eastern Section, May 17, 2021). If you found this helpful, please share it using the buttons below.