Hartman v. McInnis

• Decision Date: 29 November 2007
• Docket Number: No. 2006-CA-00641-SCT.,2006-CA-00641-SCT.
• Parties: James C.P. HARTMAN, Deceased v. Ned G. McINNIS, Jr. BancorpSouth v. Ned G. McInnis, Jr., Mary Deane McInnis, Ron Nelson and James C.P. Hartman, Deceased and Ronson Construction Systems, Inc.
• Court: Mississippi Supreme Court

996 So.2d 704

James C.P. HARTMAN, Deceased v. Ned G. McINNIS, Jr.

BancorpSouth v. Ned G. McInnis, Jr., Mary Deane McInnis, Ron Nelson and James C.P. Hartman, Deceased and Ronson Construction Systems, Inc.

No. 2006-CA-00641-SCT.

Supreme Court of Mississippi.

November 29, 2007.

Rehearing Denied April 10, 2008.

Clarence Webster, III, W. Wayne Drinkwater, Jackson, Robin L. Roberts, Hattiesburg, attorneys for appellant/cross-appellee Hartman.

Joe D. Stevens, Jackson, Jack W. Land, Tracy Kay Bowles, Hattiesburg, attorneys for appellant/cross-appellee BancorpSouth.

Ray T. Price, Hattiesburg, attorney for appellees McInnis.

EN BANC.

SMITH, Chief Justice, for the Court.

¶ 1. BancorpSouth and Jim Hartman appeal from a judgment of the Chancery Court of Forrest County, finding that Hartman, Ronson, and Nelson owed Ned G. McInnis, Jr., and Mary Deane McInnis a deficiency judgment. Determination of the deficiency involved a foreclosure sale of the property Ronson purchased from the McInnises by means of tendering to them a promissory note and deed of trust, both of which the McInnises assigned to BancorpSouth. This Court considers two questions: Whether BancorpSouth was entitled to a deficiency judgment and whether the McInnises were entitled to a deficiency judgment. We reverse and remand.

FACTS AND PROCEDURAL HISTORY

¶ 2. Ned and Mary McInnis purchased a number of rental properties through loans secured by deeds of trust (the McInnis deeds of trust) with BancorpSouth. The McInnises entered into a contract on November 6, 2003, to sell eighteen parcels to James Hartman. At closing, on November 14, 2003, Hartman paid cash for a portion of the properties. Additionally, Hartman had Ron Nelson, owner of Ronson Construction Systems, the entity to which Hartman previously had agreed to sell the remaining properties (the Ronson properties), to tender to the McInnises a promissory note (the Ronson note) for the properties. The note was secured by a deed of trust (the Ronson deed of trust) for which Hartman was a guarantor. The parties agreed the McInnis deeds of trust would be senior to the Ronson deed of trust.

¶ 3. Additionally, on November 14, 2003, BancorpSouth, the McInnises, Ronson, and Hartman executed the "Agreement" where, in exchange for satisfaction of certain terms and conditions, BancorpSouth agreed to refrain from exercising the due-on-sale clause applicable against the McInnis deed of trust. The McInnises were to assign to BancorpSouth both the Ronson note and the Ronson deed of trust. Ronson was to make monthly payments on the note to BancorpSouth, and these payments would apply to the outstanding balance on the McInnises' loans. BancorpSouth would issue any excess from the payments to the McInnises.

¶ 4. The McInnises assigned the Ronson note and deed of trust to BancorpSouth on November 14, 2003. Ronson made a number of payments to BancorpSouth, but eventually ceased payments. Consequently, in April 2004, the McInnises filed suit against Ronson, Nelson, and Hartman in the Chancery Court of Forrest County. The complaint raised five claims: (1) breach of contract; (2) bad-faith breach of contract; (3) accounting and specific performance; (4) intentional interference with business relations; and (5) breach of the duty of good faith and fair dealing. BancorpSouth was added as a party defendant.

¶ 5. In November 2004, BancorpSouth filed a cross-claim for judicial foreclosure. Upon the oral stipulation of both parties, the trial court issued an Order authorizing BancorpSouth to initiate foreclosure after December 1, 2004, on the Ronson properties. The trustee sold the properties located in Jones County at a public auction at the Jones County courthouse on May 3, 2005, to BancorpSouth, the sole bidder, for $32,200. Similarly, the properties located in Forrest County were sold at public auction at the Paul B. Johnson, Jr., Chancery Court in Hattiesburg, Mississippi, on May 3, 2005, to BancorpSouth, the sole bidder, for $167,700. BancorpSouth asserted that, with the costs of $920.70 for publication and $2,079 for the trustee, the sales resulted in a deficiency of $259,711.91 from the $456,169.05 owed on the note on the date of sale.

¶ 6. After a trial, the chancery court issued an opinion, finding that Bancorp-South was precluded from obtaining a deficiency judgment against the McInnises, and awarding the McInnises a deficiency judgment with interest against Ronson, Nelson, and Hartman. From this judgment both Hartman and BancorpSouth appeal.

DISCUSSION

¶ 7. This Court will not disturb the findings of a chancellor unless the chancellor was clearly erroneous or an erroneous legal standard was applied. Bell v. Parker, 563 So.2d 594, 596-97 (Miss. 1990). In other words, this Court must respect the chancellor's findings of fact where supported by credible evidence and not manifestly wrong. Newsom v. Newsom, 557 So.2d 511, 514 (Miss.1990).

I. Whether BancorpSouth Was Entitled to a Deficiency Judgment.

A. Whether the Trial Court Erred in Finding That BancorpSouth Owed and Breached a Fiduciary Duty to the McInnises.

¶ 8. The trial court held that BancorpSouth was precluded from obtaining a deficiency judgment because it breached its fiduciary duty to the McInnises. The trial court found that BancorpSouth's agreement to tender to the McInnises the excess from the payments on the Ronson note, which was assigned to BancorpSouth, created a fiduciary relationship. The trial court further found that BancorpSouth acted in derogation of its fiduciary duty when it refused the McInnises' request to collect rent. The McInnises made the request due to their discovery of Ronson's failure to collect rent and consequent inability to make the loan payments.

¶ 9. The McInnises assert that a fiduciary-duty relationship was created when BancorpSouth imposed as conditions of the sale the wraparound mortgage and assignment of the Ronson note. BancorpSouth argues that it had no fiduciary duty to the McInnises since the relationship was simply an arms-length business transaction involving a normal debtor-creditor relationship.

¶ 10. This Court has stated:

"[O]rdinarily a bank does not owe a fiduciary duty to its debtors and obligors under the UCC." Peoples Bank & Trust Co. v. Cermack, 658 So.2d 1352, 1358 (Miss.1995), overruled on other grounds by Adams v. U.S. Homecrafters Inc., 744 So.2d 736 (Miss.1999). "This Court has never held that the relationship between a mortgagor and mortgagee is a fiduciary one." Hopewell Enters., Inc. v. Trustmark Nat'l Bank, 680 So.2d 812, 816 (Miss.1996). An arms length business transaction involving a normal debtor-creditor relationship does not establish a fiduciary relationship. Id. This Court "has repeatedly held that the power to foreclose on a security interest does not, without more, create a fiduciary relationship." Gen. Motors Acceptance Corp. v. Baymon, 732 So.2d 262, 270 (Miss.1999). Simply put, "a mortgagee-mortgagor relationship is not a fiduciary one as a matter of law." Hopewell Enters., 680 So.2d at 816.

Burgess v. Bankplus, 830 So.2d 1223, 1227-28 (Miss.2002). Also, the party asserting the existence of a fiduciary relationship bears the burden of proving its existence by clear and convincing evidence. AmSouth Bank v. Gupta, 838 So.2d 205, 216 (Miss.2002) (citing Smith v. Franklin Custodian Funds, Inc., 726 So.2d 144, 150 (Miss.1998)).

¶ 11. This Court considers a number of factors in determining whether a fiduciary relationship exists in a commercial transaction, including: whether (1) the parties have shared goals in each other's commercial activities, (2) one of the parties places justifiable confidence or trust in the other party's fidelity, and (3) the trusted party exercises effective control over the other party. Id. (citing Smith, 726 So.2d at 151). The mere fact of dealings with a lender does not meet these criteria. Id. These factors must exist beyond those features common to every free-market transaction, such as the hope by both parties that the transaction is profitable, trust of the lender in handling the loan, and the lender's greater familiarity with the loan process. Id.

¶ 12. As BancorpSouth contends, the burden lies with the McInnises to establish, by clear and convincing evidence, the existence of a fiduciary relationship. AmSouth Bank v. Gupta, 838 So.2d at 216. The McInnises contend the test is met. They state:

On the first prong, both the McInnises and the Bank had a shared goal in entering the agreement that the loans of the McInnises to Bancorp would be paid. On the second, the McInnises clearly relied on Bancorp to enforce all of the rights they had under the note and deed of trust when they assigned it to Bancorp, giving up their own rights to do so in favor of the presumably more able bank. On the third, Bancorp had not just effective, but total control over the McInnises' rights under the assignment which it requires as part of the November 14th (sic), 2003 agreement.

¶ 13. The McInnises describe features common to every free-market assignment between a creditor and debtor—mutual hope that the loan would be paid, trust of BancorpSouth in handling the loan, and the tender of collateral, including control of that collateral, in exchange for the loan. This Court has issued no precedent which establishes that an assignee/assignor relationship, as a matter of law, is a fiduciary one. As in AmSouth v. Gupta, we find the merely common features presented in the case at bar to be insufficient to create a fiduciary relationship.

¶ 14. In the present case, the record is devoid of facts which would take the relationship between BancorpSouth and the McInnises out of the scope of the generally non-fiduciary mortgagor/mortgagee relationship. No evidence was presented or precedent provided to support a finding that the relationship was anything other than an arms-length business transaction involving a normal debtor-creditor relationship where, as is common,...