Holiday Hosp. Franchis. v. States Resources
| Decision Date | 14 December 2006 |
| Docket Number | No. W2006-00845-COA-R3-CV.,W2006-00845-COA-R3-CV. |
| Citation | 232 S.W.3d 41 |
| Parties | HOLIDAY HOSPITALITY FRANCHISING, INC., f/k/a Holiday Inns Franchising v. STATES RESOURCES, INC., et al. |
| Court | Tennessee Court of Appeals |
Stephen L. Hughes, Milan, Tennessee, for the appellant, States Resources, Inc.
Robin H. Rasmussen, Memphis, Tennessee, for the appellee, Holiday Hospitality Franchising, Inc.
DAVID R. FARMER, J., delivered the opinion of the court, in which W. FRANK CRAWFORD, P.J., W.S., and ALAN E. HIGHERS, J., joined.
The issue presented in this priority dispute between a first deed of trust holder and a judgment lien creditor involves the legal effect of the inadvertent and erroneous release of the deed of trust. States Resources Corporation (SRC), Defendant/Appellant holds two liens on the same real property: one as successor-in-interest to a judgment creditor and the other as assignee of a promissory note for a construction loan, secured by a deed of trust originally held by Trust One Bank. Plaintiff/Appellee Holiday Hospitality Franchising (Holiday) also holds a judgment lien that, in relation to SRC's filings, was filed last in time. SRC appeals summary judgment entered in favor of Holiday and contends that as assignee of Trust One's note and first-filed deed of trust, it occupies the most senior lien position, notwithstanding the mistaken release of the deed prior to the assignment. Because Trust One's release was inadvertent and unintended, and because restoring the deed of trust to its original priority position would not prejudice the rights of Holiday, an intervening judgment lien creditor, we hold that, as a matter of law, the mistaken release should be cancelled in part and the deed as to Lot 30 should be restored to its position as first deed of trust. Accordingly, we reverse and remand.
This dispute focuses on a secured creditor's mistaken release of a deed of trust for real property securing a construction loan. At issue is the effect of this release upon the order of priority between the security interests of States Resources Corporation (SRC) and Holiday Hospitality Franchising (Holiday). On appeal, SRC claims the first and second positions through, respectively, the deed of trust at issue (acquired from Trust One Bank (Trust One)) and a judgment lien it obtained as a successor-in-interest to a judgment creditor. Conversely, Holiday asserts a second lien position through the judgment lien it filed after the deed of trust had been released.
On April 21, 2000, on behalf of Talley Builders, Inc., Thomas Talley (Mr. Talley) executed two promissory notes and a deed of trust in favor of Trust One Bank (Trust One) to secure a construction loan for improving two lots. The deed of trust encompassed both lots, Lot 13 and Lot 30, located in the Brunswick Farms Subdivision in Shelby County. Trust One promptly recorded the deed of trust in the Register's Office in Shelby County.
The problems began when Mr. Talley sold Lot 13 and used the proceeds to satisfy a portion of his debt to Trust One. In conjunction with the closing of the sale of Lot 13, Trust One recorded a trust deed release purporting to release the "[p]roperty as described in Deed of Trust of record at Instrument Number KD 7805." The property referenced by the release comprised both lots, not just Lot 13, and the deed release further stated, without equivocation, that "[a]ll of the notes described in and secured by said trust deed have been paid in full" and that "as legal owner and holder of the notes secured by said trust deed, [Trust One] releases and discharges the lien of said trust deed, and to this end [quitclaims] and conveys unto [Talley Builders and its assigns] all its right, title, and interest in . . . the [described] real estate." Yet, the following notation appeared in the bottom left corner of the document: "Talley Builders, Inc./Lot 13, Brunswick Farms Subdivision." The deed of conveyance of Lot 13 was filed of record on August 28, 2001, and the trust deed release was filed approximately two weeks thereafter.
On June 17, 2002, Talley Builders, Inc. conveyed Lot 30 by quitclaim deed to Mr. Talley (individually), and Mr. Talley then assumed the balance of the debt owed to Trust One, approximately $213,891. Mr. Talley and Trust One Bank executed a Modification and Assumption Agreement without Release and filed it along with the quitclaim deed on July 11, 2002.
Little more than a month had elapsed after the filing of these instruments when Mr. Talley conveyed Lot 30 to his wife, Martha Reed Talley (Ms. Talley); he then recorded the quitclaim deed approximately two and a half months after the conveyance. Tragically, Ms. Talley was killed in an automobile accident on August 2, 2003. Ms. Talley devised Lot 30 to Mr. Talley in her will, which was admitted to probate in Shelby County on September 2, 2003.1
After the conveyance of Lot 30 to Ms. Talley, SRC, as successor-in-interest to the Bank of Alamo, obtained a judgment against Mr. Talley in the Crockett County Chancery Court on June 24, 2003, in the amount of $132,062.44 plus court costs.2 SRC learned of Mr. Talley's conveyance of Lot 30 to his wife and, shortly after Ms. Talley's death, filed suit against the Talleys in Shelby County Chancery Court, averring fraudulent conveyance and seeking a writ of attachment. SRC then filed a number of records with the Shelby County Register of Deeds. First, it filed a certified copy of the Crockett County judgment on August 27, 2003. It later filed a notice of lien lis pendens in connection with its fraudulent conveyance action, as well as an abstract of the Crockett County judgment.
Meanwhile, Holiday obtained a judgment for $92,648.27 against Mr. Talley in the State Court of DeKalb County, Georgia on February 3, 2004. Holiday then registered its foreign judgment and obtained an order of judgment from the Shelby County Circuit Court on December 14, 2004. It perfected its interest by filing a synopsis of its judgment lien on Lot 30 on January 4, 2005.
After Holiday filed its judgment lien in January 2005, Trust One assigned the unpaid note and deed of trust to SRC. The parties executed the absolute assignment on April 12, 2005, and, one month later, Trust One executed two documents: one purporting to cancel the release and reinstate the deed of trust, and another releasing the deed of trust as to Lot 13.3 Both documents were then filed with the Shelby County Register of Deeds on May 17, 2005.
Holiday filed a complaint on June 16, 2005, seeking a declaratory judgment establishing the superiority of Holiday's lien and resulting entitlement to payment in full from SRC. The complaint also prayed for a declaration that Trust One's cancellation of release was void and that, after the assignment to SRC, Trust One lacked authority to make the filing. Additionally, Holiday sought a temporary restraining order enjoining the disbursement of foreclosure sale proceeds4 as well as an order requiring payment of the funds into the court pending the resolution of the case.
SRC denied Hospitality's assertion of lien priority and instead charged that SRC occupied the first and second positions, leaving Holiday in a third priority position. It counterclaimed for a declaration that, notwithstanding the released deed of trust, it retained its superior priority position. As Counter-Plaintiff, SRC averred that the release was not a full release; that, alternatively, the erroneous release had been executed and filed because of mutual mistake; that after the release, Trust One continued to demand, and Mr. Talley continued to remit, payment on the remaining indebtedness; that Holiday had not relied upon recorded title information in asserting its judgment lien; and that equitable principles justified a reformation of the release to reinstate the original deed of trust. It prayed for a declaration of the validity of Trust One's corrective filings or, alternatively, for reformation of the release to reflect the intended partial release.
SRC submitted, among various documents, three affidavits in support of its motion for summary judgment. By sworn affidavit, Thomas E. Willingham, a Senior Vice President at Trust One Bank, stated that Trust One had intended to effect a partial release as to Lot 13, as only that portion of the debt had been satisfied; that to the extent Trust One fully released the deed of trust, its filing constituted a mistake; and that, subsequent to this filing, Trust One continued to collect Mr. Talley's payments on the remaining debt. Mr. Talley corroborated these points in his affidavit and confirmed his continued payments, remitted under the belief that Lot 30 still secured his debt to Trust One. Finally, Cory Butler, an employee of SRC, confirmed by affidavit SRC's ownership of the note and deed of trust by way of an absolute assignment from Trust One.
Both parties moved for summary judgment. Notably, Holiday sought a declaration that it occupied the second lien position, junior only to SRC's judgment lien. After a hearing on the motions, the chancellor granted Holiday's motion for summary judgment and made the following findings:
A) That Trust One, as the Predecessor in interest to SRC, created a public record releasing its security interest in Lot 30.
B) That Holiday is entitled to take advantage of every legal opportunity to collect its judgment.
C) That T.C.A. § 66-26-103, et seq. must be construed strictly to give the intent of the legislature that the statute . . . be read according to its ordinary and plain meaning of the words.
D) That the cancellation of the Trust Deed Release did not operate to reestablish Trust One's (now SRC) priority lien...
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