Bank of Mississippi v. Hollingsworth, 90-CA-44

Citation609 So.2d 422
Decision Date08 October 1992
Docket NumberNo. 90-CA-44,90-CA-44
PartiesBANK OF MISSISSIPPI, a Mississippi Banking Corporation v. Wayne HOLLINGSWORTH and Debbie Hollingsworth.
CourtUnited States State Supreme Court of Mississippi

M. Ronald Doleac, Hattiesburg, for appellant.

Dan C. Taylor, Ellisville, for appellee.

Gee Ogletree, Sandra C. Bradshaw, Young Scanlon & Sessums, Jackson, for amicus curiae.

Before HAWKINS, P.J., and SULLIVAN and BANKS, JJ.

BANKS, Justice, for the court:

This case concerns an application of the well-established doctrine that physical presence is an indicia of ownership, which may override record title with respect to subsequent purchasers. Here, application of the doctrine serves to defeat a deed of trust filed prior in time to a deed of conveyance to a third party, where the third party had taken possession in a manner sufficient to put the lender on notice that ownership may not be accurately reflected by the deeds of record.

I

On June 16, 1989, in the Chancery Court of Jones County, First Judicial District, Wayne and Debbie Hollingsworth (Hollingsworths) filed a complaint for Injunction and Partial Cancellation of Deed In Trust against the Bank of Mississippi (Bank). The complaint alleged that on April 11, 1983, Mamie Walters Robinson, now deceased, conveyed by warranty deed a certain parcel consisting of approximately 27 acres to the Hollingsworths. On January 24, 1984, William Robinson, Frances E. Robinson and Mamie Walters Robinson executed a deed of trust to James McKenzie, as trustee for the Bank, and recorded the same in the Jones County Chancery Clerk's Office on January 27, 1984, conveying three parcels, consisting of approximately 60 acres, including 18 of the acres previously conveyed to the Hollingsworths.

The Hollingsworths did not record their deed until April 30, 1985. They alleged in their complaint, however, that at all times after April 1, 1983, they "were in open and obvious actual occupancy and possession" of the 18 acres.

The Hollingsworths moved the court for a temporary restraining order without notice to prevent the bank from foreclosing the deed of trust lien. On June 19, 1989, the Chancellor granted the Hollingsworths a Temporary Restraining Order against the Bank and enjoined them from foreclosing on the property in question.

The Bank answered the Hollingsworths' complaint by moving to dismiss for failure to state a cause of action upon which relief could be granted. Additionally, the Bank answered that they filed their deed of trust lien for record on January 27, 1984, prior to the Hollingsworths' Warranty Deed, thus giving the Hollingsworths constructive notice that the Bank had a deed of trust lien on the subject property. The Bank moved for damages and losses as a result of the Restraining Order granted without notice.

On December 6, 1989, following a trial of the matter on July 18, 1989, the Chancellor entered an order granting a permanent injunction against foreclosure and partial cancellation of the Bank's deed of trust lien as to 18 acres. The Chancellor found that the property had been enclosed by a fence in 1983, prior to the deed of trust being recorded, and that the fence was visible to any one making a physical inspection of the premises. He held that by enclosing the property inside a fence, the Hollingsworths came into possession of the property, prior to the execution of the deed of trust by Mamie Robinson. He further held that had the bank conducted a reasonable inspection of the property, the Bank would have been on notice that someone had the tract of land fenced and enclosed with an adjacent tract. Therefore, a reasonable inquiry into "this act of possession may have revealed the existence of the unrecorded deed, or, at least, put the bank on notice that someone else may be claiming title to the 18-acre tract." The Chancellor held that as a result of the Bank's failure to make a reasonable inspection and inquiry, it is barred from claiming any benefits under the recording statute because possession by someone other than the grantor would constitute actual notice to the lender. The chancellor cancelled the deed of trust lien on the property.

The Bank filed a Motion to Reconsider and/or for Relief from Judgment or Order asserting that the chancellor's ruling denied them access to the remaining contiguous forty acres of land in which the Bank holds a first deed of trust/mortgage lien. The Bank asked for an easement or private right-of-way, as well as an equitable remedy allowing them access to the land.

Finding the Bank's motion meritless, the chancellor overruled said motion on January 2, 1990. In a timely manner, the Bank perfected its appeal to this Court.

II

On January 19, 1984, Bill Robinson applied to the Bank for a loan. Following discussions with the Bank's loan officer and after complying with the usual application process, Mr. Robinson provided the Bank a title certificate from his attorney on 60 acres of land. The title opinion indicated that Mamie Robinson was the record owner of the land pledged as security for repayment of the proposed debt to the Bank and that title was free and clear subject to exceptions including: "3. Any facts which a physical survey of the premises would reveal."

Hugh Garraway, Jr., the loan officer who approved the loan, testified that the Bank did not order a survey and never made a visual inspection of the property to determine if anyone else was claiming the property in question, because the title certificate indicated that the land was free and clear of all liens.

Garaway testified that it was customary for the Bank to inspect the property on a map, locate it and place an approximate value in the property for appraisal purposes. Garaway never met Wayne Hollingsworth until June 1989 and did not receive any written notice from the Hollingsworths as to their claim of ownership of the 18-acre tract in dispute.

Wayne Hollingsworth testified that he bought the property from his wife's grandmother, Mamie, in 1983. He produced two cancelled checks in amounts corresponding to his claim that he paid $750 per acre for the land. He said that he did not record the deed out of ignorance. Prior to 1986, the property in dispute was assessed for tax purposes to Mamie Robinson.

It is undisputed that in 1983 Wayne had a fence placed around the entire 27-acre parcel purchased from Mamie, including the 18 acres in question. The evidence indicated that the fence was distinctive in that all of the posts were painted white at the top. It is also undisputed that there was no fence separating the 18-acre parcel from the 27 acres upon which the Hollingsworths' home is now situated. The home, built in 1985, after the bank's deed of trust had been recorded, is not located on the 18-acre parcel in dispute.

Bill, Francis and Mamie Robinson signed and delivered to the Bank a promissory note and deed of trust covering the 60 acres of land on or about January 23, 1984, securing a loan in the principal sum of $45,000, plus interest. Mr. Robinson received the loan proceeds from the Bank. The loan was renewed several times, but remained secured by the initial deed of trust. The loan ultimately went into default and the Bank attempted to enforce payment by foreclosure of its lien, when the foreclosure sale scheduled for June 20, 1989, was restrained by the chancellor's order in these proceedings.

In this appeal, the bank asks that we find the chancellor erred in fact and law. The Bank's argument is that the chancellor erred in finding that the construction of the fence on the property in question constituted adequate notice to the Bank that someone was in possession of the property and that the court's decision placed upon the bank a duty of inquiry not supported by law.

III

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