Andrews v. Fifth Third Bank

• Decision Date: 05 April 2007
• Docket Number: No. M2006-00679-COA-R3-CV.,M2006-00679-COA-R3-CV.
• Citation: 228 S.W.3d 102
• Parties: Gina ANDREWS v. FIFTH THIRD BANK.
• Court: Tennessee Court of Appeals

228 S.W.3d 102

Gina ANDREWS v. FIFTH THIRD BANK.

No. M2006-00679-COA-R3-CV.

Court of Appeals of Tennessee, at Nashville.

February 7, 2007 Session.

April 5, 2007.

Published Pursuant to Rule 11, Tennessee Court of Appeals.

August C. Winter, Brentwood, Tennessee, for the appellant, Gina Andrews.

J. Timothy Street, Franklin, Tennessee, for the appellee, Fifth Third Bank.

OPINION

WILLIAM B. CAIN, J., delivered the opinion of the court, in which WILLIAM C. KOCH, JR., P.J., M.S., and FRANK G. CLEMENT, JR., J., joined.

Ex-wife of debtor, who had a recorded final judgment against debtor's real property, filed action against Bank, who obtained two recorded default judgments against debtor, in order to determine which party was entitled to the excess proceeds resulting from the foreclosure sale of debtor's real property. The trial court determined that (1) Ex-wife's failure to execute on her judgment denied her the right to claim priority pursuant to Tennessee Rule of Civil Procedure 69.07(3); and (2) Ex-wife could not collaterally attack the validity of Bank's judgments. We reverse and remand.

This case consolidates three cases, all of which resulted in encumbrances being placed on the real property of Mr. Michael Covey. Initially, it is important to note that on April 7, 2000, Mr. Covey and Ms. Gina Andrews, the Appellant, were divorced and the trial court ordered Mr. Covey to make child support payments to Ms. Andrews as well as installment payments for Ms. Andrew's share of the family business, Uni-Body Collision Center, Inc. On March 4, 2003, the trial court entered a final order evidencing an arrearage owed to Ms. Andrews for installments on the family business which totaled $55,290.80. The order specifically stated,

That Mr. Covey's last payment to Ms. Andrews for her interest in Unibody Collision Center occurred in July of 2002. That the balance owed to Ms. Andrew's for her interest in said business is in the amount of $55,290.80 . . . That to secure Mr. Covey's payment to her, Ms. Andrew's is granted a lien against Mr. Covey's real property located on Ash Hill Road . . .

. . .

It is further, ORDERED, ADJUDGED AND DECREED if Mr. Covey breaches his obligation to make his property division payments as referenced in paragraph 2 above or if he fails to pay Ms. Andrews the full amount due for her property interest, less the 15% agreed upon by the parties, within one year of the date of this Order, Ms. Andrew's may petition the Court for an attachment sale of said property and upon the sale of said property all amounts due and owing under the terms [of] this Order shall immediately become due and payable and Mr. Covey shall not be entitled to a 15% reduction of the balance due Ms. Andrew's for payment of her property interest in Unibody Collision Center.

A certified copy of the March 4, 2003, order was recorded on May 7, 2003.

Prior to any of the events in issue in this case, on September 29, 1999, Mr. Covey had conveyed his Ash Hill Road property by deed of trust to Danny J. Herron, Trustee, to secure an indebtedness to The Community Bank (TCB). Mr. Covey defaulted on the promissory note, and after proper advertising, a foreclosure sale was held on October 20, 2003, in which Mr. Covey's Ash Hill Road property was sold, resulting in excess proceeds in the amount of $34,231.00.

On June 21, 2001, (Chancery Court case No. 28025) Mr. Keith Taylor sued Mr. Covey and his two partners for back rent and damage to the business property which Mr. Taylor had rented to the defendants. Mr. Taylor obtained a default judgment against Mr. Covey on February 22, 2002. However, Mr. Taylor did not obtain a judgment against Mr. Covey's two partners. The default judgment against Mr. Covey was recorded on March 11, 2003, and assigned to Franklin National Bank ("FNB") on June 26, 2003. On December 9, 2003, Mr. Taylor voluntarily dismissed his claims against Mr. Covey's partners.

Another action was filed against Mr. Covey (Chancery Court case no. 29487) as well as Uni-Body Collision Center, Inc. on March 7, 2003, by FNB for default on a promissory note. Team One Auto Body and Glass was also named as a defendant under the theory that the company was in possession of property which Mr. Covey had pledged as security for the promissory note. The Complaint requested a prejudgment attachment on Mr. Covey's real property. On May 15, 2003, the trial court entered a default judgment against Mr. Covey and Uni-Body Collision Center, in the amount of $53,791.53, which FNB recorded on May 23, 2003. However, the default judgment did not dispose of FNB's claim against Team One Auto Body and Glass.

FNB apparently anticipated that excess proceeds from the foreclosure sale would exist and five days before the foreclosure sale, in case No. 29487 issued garnishments to be served upon The Community Bank in order to recover those excess proceeds, in an effort to recoup the amount of FNB's default judgments. On October 20, 2003, FNB filed conditional judgments against The Community Bank. At this point the chronology of events becomes somewhat confused. A hearing was held on November 4, 2003, before Honorable R.E. Lee Davies, Chancellor in case No. 29487, which resulted in the order entered November 20, 2003, wherein the clerk and master was ordered to pay the excess funds to FNB. It was the day before this hearing of November 4, 2003, when the action at bar was filed by Ms. Andrews against The Community Bank, Glenn B. Rose, successor trustee, and FNB. All of these proceedings continued parallel to each other until a hearing of November 15, 2004, before the Honorable Timothy Easter, Judge, resulted in the December 3, 2004, order consolidating case Nos. 28025 and 29487 with the case at bar, that being case No. 30105 and then, pursuant to Tennessee Rule of Civil Procedure 53, the appointment a special master and reference of the combined cases to the special master for findings of fact and conclusions of law.

On April 7, 2005, the master concluded that Ms. Andrews was entitled to the garnished funds because (1) FNB's interlocutory default judgments were insufficient to create valid judgment liens since they were not final judgments; (2) FNB's pre-judgment attachment in the action against Uni-Body Collision Center was ineffective against third parties.

On June 15, 2005, the trial court rejected the Master's report and set the case for trial. On February 7, 2006, the trial court entered a memorandum opinion finding that (1) Ms. Andrews' failure to issue execution on her judgment lien denied her the right to claim priority pursuant to Tennessee Rule of Civil Procedure 69.07(3); and (2) Ms. Andrews could not collaterally attack the validity of FNB's judgments and thus, FNB was entitled to the excess proceeds resulting from the foreclosure sale. Ms. Andrews appeals.

The sole question Ms. Andrews presents for review is whether the trial court properly found that FNB was entitled to the excess proceeds from the sale of Mr. Covey's Ash Hill Road property. A determination of the priority of rights among lien holders is solely a question of law when the parties do not dispute the facts. Bankers Trust Co. v. Collins, 124 S.W.3d 576, 578 (Tenn.Ct.App.2003). When addressing a question of law, this Court reviews the trial court's decision de novo upon the record with no presumption of correctness. ATS, Inc. v. Kent, 27 S.W.3d 923, 924 (Tenn.Ct.App.1998).

"The priority of any lien depends on the `time it attached to the property in question and became choate.'" Adamsville Lumber Co., Inc. v. Rainey, 348 F.Supp. 373, 376-77 (W.D.Tenn.1972) (quoting United States v. City of New Britain, 347 U.S. 81, 86, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1954)).

The "first in time, first in right" rule is of ancient origin, and in the absence of legislation to the contrary is apparently universal.

We believe that priority of these statutory liens is determined by another principle of law, namely, "the first in time is the first in right." As stated by Chief Justice Marshall in Rankin v. Scott (US) supra:

The principle is believed to be universal, "that a prior lien gives a prior claim, which is entitled to prior satisfaction out of the subject it binds, unless the lien be intrinsically defective, or be displaced by some act of the party holding it, which shall postpone him in a Court of law or equity to a subsequent claimant." 25 U.S. 177, 12 Wheat., at 179, 6 L.Ed. 592.

This principle is widely accepted and applied, in the absence of legislation to the contrary. 33 AmJur, Liens * § 33; 53 CJS, Liens § 10b. We think that Congress had this cardinal rule in mind when it enacted § 3670, a schedule of priority not being set forth therein. Thus, the priority of each statutory lien contested here must depend on the time it attached to the property in question and became choate.

United States v. City of New Britain, Conn., 347 U.S. 81, 85-86, 74 S.Ct. 367, 98 L.Ed. 520 (U.S.1954).

A lien becomes choate or perfected "when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." U.S. v. Pioneer Am. Ins. Co., 374 U.S. 84, 89, 83 S.Ct. 1651, 10 L.Ed.2d 770 (U.S.1963). In order for a lien to be perfected, the statutory requirements must also be met. 53 C.J.S. Liens § 44 (2005). Tennessee Code Annotated section 25-5-101(b)(1) states that:

Except as provided in subdivision (b)(2), judgments and decrees obtained from and after July 1, 1967, in any court of record and judgments in excess of five hundred dollars ($500) obtained from and after July 1, 1969, in any court of general sessions of this state shall be liens upon the debtor's land from the time a certified copy of the judgment or decree shall be registered in the lien book in the register's office of the county where the land is located . . .

Therefore, pursuant to Tennessee Code Annotated section 25-5-101(b)(1), a lien on a debtor's real property is perfected by recording the...