Lawman v. Barnett

• Decision Date: 08 January 1944
• Citation: 177 S.W.2d 121,180 Tenn. 546
• Parties: LAWMAN et al. v. BARNETT et al.
• Court: Tennessee Supreme Court

177 S.W.2d 121

180 Tenn. 546

LAWMAN et al. v. BARNETT et al.

Supreme Court of Tennessee.

January 8, 1944

Appeal from Chancery Court, Rhea County; T. L. Stewart, Chancellor.

Suit to foreclose a mortgage by E. H. Lawman and others, receivers against Jackson H. Barnett and others. From a decree of foreclosure, appeal was taken to the Court of Appeals which reversed the decree and dismissed the bill, and the complainants bring certiorari.

Decree of Court of Appeals reversed, and cause remanded, with directions.

J. B. Milligan and C. G. Milligan, both of Chattanooga, and J. Roy Hickerson, of Winchester, for complainants.

Frazier & Roberts, of Chattanooga, for defendants.

CHAMBLISS Justice.

This is a suit to foreclose a mortgage, in trust deed form, securing purchase money, evidenced by three serial notes, with acceleration provisions, two of which had fallen due more than ten years before this suit was brought, and as to which a plea of the statute of limitations was interposed. The question thus presented, and which we first consider, is one of first impression in this State, and not wholly free from difficulty. It involves construction of Code, Section 8590 subhead, ' Liens on realty barred after ten years,' and arises out of the following undisputed facts:

As of March 2nd, 1925, the First National Bank of Chattanooga sold and conveyed to Jackson Barnett and wife a tract of land in Rhea County known as 'Rhea Springs,' for a consideration of $9,000, to secure the payment of which sum the Barnetts executed a mortgage, in deed of trust form, to First Trust and Savings Bank, a corporate subsidiary of the First National Bank, which was the owner of all its stock. This instrument contained the following recital:

'But this conveyance is made in trust for the following purposes, and not otherwise: To secure the payment by the said parties of the first part to The First National Bank of Chattanooga, Tennessee, of the just and full sum of Nine Thousand ($9,000.00) Dollars for purchase money, evidenced by their three (3) several promissory notes of this date payable to the order of The First National Bank of Chattanooga, Tennessee, at its place of business in the City of Chattanooga, Tennessee, and described as follows: Said notes are dated at Chattanooga, Tennessee, March 2nd, 1925, in the principal sum of Three Thousand Dollars each, and mature at Two, Three, and Four Years after date, respectively.

For reasons not necessary for the decision of the question now under consideration to detail, indulgence was shown the Barnetts and no steps were taken to enforce payment of this indebtedness, until January 30th, 1939, when, no part thereof having been paid, the bill in the instant cause was filed seeking a court foreclosure of this mortgage, both the Bank and its subsidiary, the trustee, having become insolvent, and ceased to do business, their assets being in process of liquidation by receivers.

The defendants answered and plead the six-year statute of limitations against personal liability for any portion of the indebtedness, and, further, plead Code, Section 8590, as a bar to the enforcement of the lien of that portion of the mortgage debt represented by the two and three year notes above described, admitting lien liability for the third only of said notes, and offering to pay the same.

Upon the hearing the learned chancellor first overruled this plea, and decreed foreclosure for the entire debt; but upon a rehearing he reversed this holding and held that enforcement of the lien was barred as to that portion of the mortgage debt represented by the two notes which had matured more than ten years before the suit was brought.

The Court of Appeals, opinion by Portrum, J., did not pass on this question, raised by an assignment of complainant below, but reversed the chancellor and dismissed the bill, in so far as it sought a foreclosure of the mortgage as to any part of this purchase money debt, holding the decree 'void' for failure to effectually bring the trustee, in whom the legal title had been vested, before the court. This question we have disposed of in the concluding portion of this opinion. We granted certiorari and argument has been heard.

The Code Section above cited reads as follows:

' Liens on realty barred after ten years.--Liens on realty, equitable or retained in favor of vendor on the face of a deed, also liens of mortgages, deeds of trust, and assignments of realty executed to secure debts, shall be barred, and the liens discharged, unless suits to enforce the same be brought within ten years from the maturity of the debt.'

The learned chancellor was of opinion that this ten-year lien limitation began to run against each installment of the mortgage debt whenever a 'cause of action accrued' on such installment, or part. He quoted from 41 C.J., p. 871, the following: ' Under a statute conferring the right to foreclose when any installment of a debt secured has matured, limitation against foreclosure runs from the date of maturity of each installment so far as it is sought to enforce the lien of the mortgage therefor.'

The text cites only Nares v. Bell, 66 Neb. 606, 92 N.W. 571, which is the case chiefly relied on by diligent counsel for Barnett. We have italicized in the paragraph above quoted from Corpus Juris the distinguishing language which states the ground on which the opinion in that case is rested, and which the opinion holds, in application of a Nebraska statute, takes it out of the general rule which the opinion recognizes. This general rule is stated in Corpus Juris in a paragraph which immediately follows, for which numerous cases are cited, reading:

' Effect of right to accelerate maturity. If the mortgage gives the creditor a right to declare the entire indebtedness due on default in the payment of any installment of interest or principal, or for nonpayment of taxes, the statute does not begin to run from such partial default, but only from the maturity of the full principal, or of the last installment of the principal, unless the creditor has in some way manifested his election to consider the whole as due.'

We quote from the opinion in Nares v. Bell:

'It is insisted by the defendant in error that, where a mortgage secures a debt payable by installments, the statute does not commence to run against a foreclosure of the mortgage until the last installment has matured; and we are cited to several cases where the debt or the interest reserved upon the debt was payable in installments, and the mortgage contained a clause maturing the whole debt on default in the payment of any installment when due. In the cases cited, it was held that this condition in the mortgage conferred upon the mortgage a mere option, which he might exercise, or not, at his pleasure; but if he failed to exercise it, and to declare the debt due before its maturity, as shown by the face of the contract, that the statute did not commence to run until the debt had fully matured according to the terms of the notes secured by the mortgage. Watts v. Creighton, 85 Iowa 154, 52 N.W. 12; Richards v. Daley, 116 Cal. 336, 48 P. 220; Mason v. Luce, 116 Cal. 232, 48 P. 72; Lowenstein v. Phelan, 17 Neb. 429, 22 N.W. 561. In Wood, Limitations, section 224, it is said: 'When a mortgage is payable by installments, the statute attaches to each installment as it becomes due, but the mortgagor's possession does not become adverse until the last installment has matured.' This, we think, announces the true rule. At common law, the mortgagor having by his mortgage conveyed to the mortgagee the legal title to the premises, his possession, if he remain in possession of the estate, is as tenant of the mortgagee; and such possession cannot become adverse or hostile until the full running of the statute after the maturity of the last installment due upon the mortgage. As long as any part of the mortgage debt remains unpaid and not barred, the mortgagee may assert the legal title conveyed to him by the mortgage.' A marginal note cites Parker v. Banks, 79 N.C. 480, which we hereinafter discuss.

The court then proceeds to note a Nebraska statute which confers the right upon mortgagees holding debts due in installments to foreclose as each installment matures and construes this statute as depriving the holder of the option accorded him under the foregoing general rule to defer foreclosure until maturity of all the installments, and in application of this statute relates the running of the limitation statute to the maturity of each installment. Says the Court:

'It will be seen from the foregoing that the legal right to foreclosure the mortgage accrues as soon as any installment secured thereby matures. This right does not depend upon an election which the mortgagee may exercise, or not, at his pleasure, but is a right given by statute, and, as we believe, sets in operation the statute of limitations as to any amount due upon the mortgage. This was evidently the view taken by the court in Cheney v. Campbell, 28 Neb. 376, 44 N.W. 451, and to our minds is the only conclusion which comports with reason and well-established legal principles.'

The learned chancellor referred to our statute, Code, Section 8037, et seq., which makes provision for enforcement by foreclosure of liens upon the falling due of installment payments. He notes, however, a significant distinction, that this statute by its terms is limited to vendor's liens and does not include mortgages and trust deeds. Counsel for Barnett, however, say that it should be construed to include mortgages and trust deeds, and that so construed the instant case falls within the exception applied in Nares v. Bell.

We are not prepared to so extend our statute by construction....