In re Johnson, 3:92-cv-734.

• Decision Date: 22 April 1994
• Docket Number: No. 3:92-cv-734.,3:92-cv-734.
• Citation: 187 BR 598
• Parties: In re James Hugh JOHNSON, d/b/a Lazy Jim's Grocery, d/b/a Lazy Jim's Liquors, Debtor. Dorothy Virginia Moneymaker Johnson JOYNER, Plaintiff/Appellee, v. James Hugh JOHNSON, Defendant and Third-Party Plaintiff, v. TENNESSEE STATE BANK, Third-Party Defendant/Appellant.
• Court: U.S. District Court — Eastern District of Tennessee

187 B.R. 598 (1994)

In re James Hugh JOHNSON, d/b/a Lazy Jim's Grocery, d/b/a Lazy Jim's Liquors, Debtor.

Dorothy Virginia Moneymaker Johnson JOYNER, Plaintiff/Appellee, v. James Hugh JOHNSON, Defendant and Third-Party Plaintiff, v. TENNESSEE STATE BANK, Third-Party Defendant/Appellant.

No. 3:92-cv-734.

United States District Court, E.D. Tennessee, Northern Division.

April 22, 1994.

John H. Fowler, Sevierville, TN, for Appellant.

John F. Weaver, McCord, Weaver & Troutman, Knoxville, TN, for Appellee.

MEMORANDUM OPINION

JORDAN, District Judge.

This is a bankruptcy appeal brought to this court by Tennessee State Bank under 28 U.S.C. § 158(a). This court has jurisdiction of this adversary proceeding under 28 U.S.C. §§ 158(a) and 1334(a).

This court, sitting as an appellate court, considers de novo issues of law, but the bankruptcy court's "findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Bankr.R. 8013. The court finds that in this case, the findings of fact made by United States Bankruptcy Judge Richard Stair, Jr., are not clearly erroneous.

The procedural history of this adversary proceeding is as follows. The debtor, whom the court will refer to as Mr. Johnson, commenced his case under chapter 11 of the Bankruptcy Code. His former wife, the plaintiff/appellee, whom the court will refer to as Ms. Joyner, commenced this adversary proceeding by filing a complaint to determine the dischargeability of certain obligations. R. 11.¹ The debtor, Mr. Johnson, counterclaimed and commenced a third-party action against Tennessee State Bank, which the court will refer to simply as the bank, seeking judicial determination of the status of a claimed lien in Ms. Joyner's favor against property of the estate. R. 12. Ms. Joyner joined issue with both Mr. Johnson and the bank by counterclaiming back against the former and cross-claiming against the latter, asking the bankruptcy court to determine her claimed lien to be valid and existing and prior to a deed of trust lien in favor of the bank. R. 13. Ms. Joyner also prayed that she be held to be subrogated to certain rights of the bank against Mr. Johnson.

Judge Stair stated his findings in a memorandum opinion dictated from the bench on July 21, 1992, and filed in this adversary proceeding in September 1992. R. 4. The facts found are as follows. Ms. Joyner and Mr. Johnson were married to one another until the dissolution of their marriage by the Sevier County, Tennessee Chancery Court in 1987. In his findings of fact and conclusions of law made after hearing the divorce action, the chancellor awarded Ms. Joyner a divorce on the ground of cruel and inhuman treatment, awarded custody of the parties' minor child to Ms. Joyner, and ordered Mr. Johnson to pay child support in the amount of $300.00 per month.

In distributing marital property, the chancellor awarded to Mr. Johnson the improved real property on Highway 321 on which was located Lazy Jim's Grocery and Liquor Store, awarded to Ms. Joyner several lots referred to as the Moneymaker lots (title to them having come from Ms. Joyner's family, the Moneymakers), and awarded to Ms. Joyner a commercial lot on Highway 321. The chancellor decreed that Ms. Joyner should assume the debt secured by the commercial lot and hold Mr. Johnson harmless against this debt, and that Mr. Johnson should assume the debt secured by the Moneymaker lots and hold his former spouse harmless against this debt. The chancellor ordered Mr. Johnson to pay a mortgage² debt against the Moneymaker lots.

Mr. Johnson was awarded the Lazy Jim's Grocery and Liquor Store business and the real property on which it was located, and ordered to assume the business debt and a mortgage debt against the real property. In order to render the division of marital property equitable, the chancellor ordered Mr. Johnson to pay to Ms. Joyner $45,364.00. The chancellor denied Ms. Joyner's request for rehabilitative alimony, but ordered Mr. Johnson to provide major medical insurance coverage for the parties' child. In the portion of his findings and conclusions most pertinent to the issues before the bankruptcy court, the chancellor held, "A lien is hereby declared upon the real property known as the Lazy Jim's Grocery and Liquor Store located on Highway 321 to secure the payment by the husband of the amounts hereinbefore ordered and directed to be paid to the wife as distribution of marital assets, child support arrearages and income tax refund."

The chancery court incorporated these findings and conclusions into a judgment entered in the divorce action, and awarded to the parties the marital real property, described by metes and bounds, in each case divesting the other spouse of his or her interest in the property. In the judgment order, the chancellor again stated that a lien was awarded to Ms. Joyner against the Lazy Jim's Grocery and Liquor Store property, described by metes and bounds, "to secure any and all amounts payable by the Husband to the Wife by virtue of the Findings of Fact and Conclusions of Law of this court. . . ." The chancellor ordered "each of the parties to execute and deliver in proper form all deeds, titles, or other documents of title necessary to place into effect the terms of this order."

This order was recorded in the Sevier County land records. It is undisputed, therefore, that after the parties' divorce, examination of the chain of title to the grocery and liquor store property would have shown a conveyance to Mr. Johnson and Ms. Joyner as husband and wife, divestment of Ms. Joyner's title by the divorce order, as if Ms. Joyner had conveyed her interest in the property to Mr. Johnson, and the divorce court's award of a lien against the property in Ms. Joyner's favor, as if Mr. Johnson had conveyed back to her a security interest in the property.

Acrimony between the parties continued after the entry and recordation of the chancery court order. The parties did not meet as scheduled on August 14, 1987, for a planned exchange of quitclaim deeds. On October 19, 1987, the chancery court entered an agreed order which was the product of negotiations concluded before a hearing scheduled on October 9. This order required Mr. Johnson to pay certain amounts to Ms. Joyner, and required the parties to meet at the bank's offices on October 16 "for the purpose of executing any and all documents necessary for the completion of the previous judgment of the Court . . . including but . . . not limited to" the endorsement of motor vehicle title certificates and delivery of the vehicles, the signing of federal income tax returns, and "the signing of deeds and documents necessary to effectuate transfer and any and all other rights, title and interest to real and personal property or any other items set forth in the Final Judgment."

The October 16 meeting at the bank's offices included the closing of a loan from the bank to Mr. Johnson to refinance the Lazy Jim's Grocery and Liquor Store debt, to pay off his and Ms. Joyner's joint debt secured by deeds of trust against the grocery and liquor store property, and to pay to Ms. Joyner the amount which the agreed order required Mr. Johnson to pay to her. At this meeting or closing, Ms. Joyner exchanged with Mr. Johnson quitclaim deeds to the grocery and liquor store property and to the Moneymaker lots. Mr. Johnson also executed and delivered to the bank a deed of trust to the grocery and liquor store property, in which the source of Mr. Johnson's title was recited to be not the quitclaim deed, but the judgment order entered by the chancery court in the divorce action.

Mr. Johnson failed to fulfill his obligation to hold Ms. Joyner harmless against the debt secured by a deed of trust lien against the Moneymaker lots, and so the bank insisted on its rights in this collateral. The bank released its lien against these lots to permit Ms. Joyner to sell them, but required a substitute lien against funds owned by Ms. Joyner. Upon default in the payment of the underlying obligation, the bank foreclosed this substitute lien and took $20,000.00 of Ms. Joyner's money. This litigation resulted.

As stated above, the original issue in this adversary proceeding concerned the dischargeability of certain obligations of the debtor Mr. Johnson. The bankruptcy court below held against Ms. Joyner on the dischargeability issue, held against her to the extent that she sought to be subrogated to the rights of the bank against Mr. Johnson, fixed her claim secured by the lien against the grocery and liquor store property awarded to her by the chancery court at $20,000.00, and, what is most important here, held that "the lien securing the claim of Ms. Joyner, fixed herein at $20,000, constitutes a first lien senior to any interest in the grocery and liquor store property . . . asserted by . . . Tennessee State Bank."

The issues before this court stated by the appellant, the bank, in accordance with Bankr.R. 8006 R. 9 are whether the bankruptcy court erred in not treating Ms. Joyner's quitclaim deed to the grocery and liquor store property as a release of her lien awarded in the divorce action, and whether the bankruptcy court erred in not finding an estoppel by deed against Ms. Joyner on the basis of this quitclaim deed. The appellee, Ms. Joyner, restated these two issues, and added the issue whether the bankruptcy court had erred in admitting parol evidence concerning Ms. Joyner's intention in delivering her quitclaim deed at the closing on October 16, 1987 R. 23. Given the limited scope of this case on appeal, Mr. Johnson has not filed a brief or otherwise appeared in the case.

While this court finds nothing clearly erroneous in the bankruptcy court's findings of fact, upon de novo consideration of the issues of law in the case, the court respectfully...