Ray v. Alabama Cent. Credit Union

• Decision Date: 07 June 1985
• Citation: 472 So.2d 1012
• Parties: James A. RAY and Wanda J. Ray v. ALABAMA CENTRAL CREDIT UNION. 83-1258.
• Court: Alabama Supreme Court

Page 1012

472 So.2d 1012

James A. RAY and Wanda J. Ray v. ALABAMA CENTRAL CREDIT UNION.

83-1258.

Supreme Court of Alabama.

June 7, 1985.

Robert H. McKenzie, Florence, for appellants.

Larry M. Smith, Florence, for appellee.

ADAMS, Justice.

This appeal arises from a judgment entered in the Circuit Court of Lauderdale County, wherein the court determined that the defendants, James Ray and Wanda Ray, owed the Alabama Central Credit Union a balance on two promissory notes. We affirm.

The salient facts in the litigation are as follows.

On January 31, 1979, Alabama Central Credit Union loaned appellant James Ray $64,864.82, plus an advancement of $9,000.00, or a total of $73,864.82. Ray executed a promissory note to the Credit Union for the $73,864.82, plus interest at 12% per annum. The promissory note was secured by a real estate mortgage from Ray to the Credit Union on a 2.5-acre tract of land. ¹

On August 3, 1979, James Ray and Wanda Ray executed a promissory note for $10,152.80, plus 12% interest per annum, to Central Bank of Alabama. This note was secured by a real estate mortgage given by James and Wanda Ray to Central Bank on a 5-acre tract of land. Also, the bank was given a second mortgage on the 2.5-acre tract.

The Rays defaulted on their payments under the Central Bank note, and Central Bank subsequently initiated foreclosure proceedings. It was at this time that the parties learned that the Credit Union had a first mortgage only with respect to the 2.5-acre tract, and that Central Bank had a first mortgage on the 5.0-acre tract, rather than the Credit Union having a first mortgage on all 7.5 acres, as was originally intended by the parties. Once this was discovered, the Credit Union and James Ray discussed the possibilities of correcting the mistake.

During these discussions it was learned that the house which was built on the property sat partially on both parcels of land, with all but approximately ten feet resting on the 5.0-acre tract. Based upon their discussions and discoveries, the Credit Union decided to purchase the note and mortgage held by Central Bank, and the Rays agreed to execute deeds in lieu of foreclosure, with waiver of equity of redemption, to the Credit Union. This they did on August 31, 1981.

On September 1, 1981, the Credit Union executed an agreement to the Rays stating that any sums received from a sale of the subject property in excess of the mortgage debt and lawful charges would be paid over to the Rays. The Credit Union sold the house and two tracts of land as one parcel for $62,000.00, and applied all of the proceeds from the sale to the debt secured by the 2.5-acre tract ($73,864.82), which left intact the entire debt owed by James and Wanda Ray secured by the 5.0-acre tract. The Credit Union then sued the Rays for the balance remaining on each promissory note. The trial court ordered the Rays to pay the amounts owed on each note, plus interest, attorney's fees, and costs. After their motion for a new trial was denied, the Rays filed this appeal.

The appellants raise two issues for our review:

1. Whether, as a matter of law, a deed in lieu of foreclosure with waiver of equity of redemption is an accord and satisfaction or release of the debt secured by a real estate mortgage; and

2. Whether, under the facts of this case, the Credit Union made an improper application of the proceeds of the sale of the subject real property.

The Rays argue that the execution of the deeds in lieu of foreclosure with waiver of equity of redemption, coupled with their acceptance by the Credit Union, establishes, as a matter of law, all the elements necessary for an accord and satisfaction which would extinguish the debts owed by the Rays to the Credit Union, regardless of intention disclosed or undisclosed. The Rays argue further that the Credit Union misapplied the proceeds from the sale of the house and land. According to them, 90% of the house was located on the 5.0-acre tract; thus, they say the proceeds from the sale should have been applied, at least proportionately, to pay the $10,152.80 promissory note that pertained to the 5.0-acre tract. The Rays argue that the Credit Union's failure to apply any of the proceeds to the debt owed on the 5.0-acre tract was inequitable, improper, and illegal. We do not agree with either of these contentions.

First, the Rays' argument that, as a matter of law, there was an accord and satisfaction in this case, is without merit. The Court addressed the issue of what constitutes an accord and satisfaction in the case of Craft v. Standard Acc. Ins. Co., 220 Ala. 6, 123 So. 271 (1929), stating:

The discharge of claims by way of accord and satisfaction is dependent upon contract express or implied; and it follows that the essentials necessary to valid contracts generally must be present in a contract of accord and satisfaction. Therefore there must be (1) a proper subject-matter, (2) competent parties, (3) an assent or meeting of the minds of the parties, and (4) a consideration. 1 R.C.L. 178, § 3; Reliance Life Ins. Co. v. Garth, 192 Ala. 91, 68 So. 871; Dreyfus Bros. v. Corn Products Co., 204 Ala. 593, 86 So. 386. [Emphasis added.]

220 Ala. at 9, 123 So. at 273. We are not persuaded that we should depart from the precedent set in that case. A meeting of the minds, therefore, is an essential element which must be proved in order to establish the defense of accord and satisfaction. This is not...