Shutze v. Credithrift of America, Inc.

Citation607 So.2d 55
Decision Date29 July 1992
Docket NumberNo. 89-CA-0591,89-CA-0591
PartiesThomas E. SHUTZE v. CREDITHRIFT OF AMERICA, INC., a Corporation.
CourtUnited States State Supreme Court of Mississippi

J.B. Van Slyke, Jr., Hattiesburg, for appellant.

F. Marvin Morris, III, Morris & Sakalarios, Hattiesburg, for appellee.

En Banc.

ROBERTSON, Justice, for the Court:

I.

This is a lien priority case. The holder of a second deed of trust securing future advances made such an advance after a junior creditor had enrolled his judgment and perfected his lien. The Chancery Court enforced the future advance clause and assigned its lien a priority relating back to the recording of the original deed of trust, priming the judgment lien.

We affirm on this issue, although we remand for further proceedings on another.

II.

In the early 1980s, Hobart W. Gentry, Jr., and Georgia C. Gentry owned Lot 53 of Rosewood Heights Subdivision to the City of Hattiesburg, Mississippi, commonly known by street number as the residence at 1105 North 34th Avenue. At all times relevant hereto, this property has been subject to the lien of a deed of trust, the beneficiary of which was Deposit Guaranty Mortgage Company and its predecessors in interest. The Deposit Guaranty lien was a conventional, residential first mortgage.

The first of today's combatants is Credithrift of America, Inc. On April 8, 1981, the Gentrys negotiated a second mortgage, home equity loan with Credithrift, borrowing the sum of $23,679.36. The Gentrys executed and delivered a second deed of trust conveying a security interest in the 34th Avenue property to Ben Hendrix, trustee for the benefit of Credithrift, and this deed of trust was duly recorded in the land records of Forrest County, Mississippi. Of considerable consequence, this deed of trust contains a future advance clause, in legal colloquia sometimes a "dragnet clause," which reads as follows:

In addition to the indebtedness specifically mentioned above and any and all extensions or renewals of the same or any part thereof, this conveyance shall also cover such future and additional advances as may be made to the Grantor, or either of them, by the beneficiary....

The clause went on to provide that the conveyance in trust secured

any and all debts, obligations, or liabilities, direct or contingent, of the grantor herein, or either of them, to the beneficiary, whether now existing or hereafter arising at any time before actual cancellation of this instrument on the public records of mortgages and deeds of trust, whether the same be evidenced by note, open account, overdraft, endorsement, guaranty or otherwise.

Nothing in any of the papers obligated Credithrift to make any future advances.

Over the next two years or so, the Gentrys made intermittent payments to Credithrift, reducing their indebtedness, and on July 12, 1983, refinanced the balance, giving a new note in the principal amount of $14,150.26, and a new (arguably superfluous) deed of trust. The original April 8, 1981, deed of trust, however, was not cancelled of record and, indeed, it is apparent Enter Thomas E. Shutze, our other combatant. Shutze resides in Lamar County, Mississippi, and apparently had business dealings with the Gentrys, the nature of which is not disclosed in the record, nor is it important, except that on September 20, 1984, the County Court of Forrest County entered a judgment in favor of Shutze and against Hobart W. Gentry, Jr., in the original principal sum of $4,541.78. This judgment was duly enrolled in Forrest County on October 23, 1984, and its lien thereupon acquired the powers our law provides.

Credithrift regarded the refinancing of July, 1983, as a "renewal of the ... [original indebtedness]" pursuant to the dragnet clause of the April 8, 1981, deed of trust.

Re-enter Credithrift--eleven months later. By this time, the Gentrys had reduced their indebtedness to Credithrift to $11,215.13. On August 23, 1985, the Gentrys again refinanced--"renewed"--their loan with Credithrift and executed a new note in the principal sum of $14,150.26, repayable in installments at interest. The future advance--"the new money"--the Gentrys received was $2,784.13. Credithrift again regarded the renewal and advance as within the dragnet clause of the 1981 deed of trust which it in no way cancelled or released, although it did take the precaution of a new deed of trust.

Over the next several years, the Gentrys struggled financially. It appears they made their payments to Credithrift through the Spring of 1988. At some point thereafter, they abandoned all and left for the West Coast and are believed in Reseda, California. Their creditors immediately resorted to the 34th Avenue residence to satisfy their respective debts.

No one questions that Deposit Guaranty Mortgage Company held a good, valid and perfected first lien and security interest by virtue of its 1978 deed of trust. Second mortgage holder Credithrift and judgment lien creditor Shutze, however, litigated below regarding their respective rights, and particularly the priority thereof with regard to Credithrift's future advance of $2,784.13 made after Shutze perfected his judgment lien. It appears in the Summer of 1988, Credithrift appointed a substituted trustee under the original April 1, 1981, deed of trust and that on July 12, 1988, the trustee foreclosed on the Gentrys' property and sold it to Credithrift, the sole bidder, for the sum of $10,739.65, the amount of the Gentrys' indebtedness to Credithrift as of that day. The foreclosure, of course, was subject to Deposit Guaranty Mortgage's prior rights. Credithrift has since made its peace with the first mortgage holder, paying off its indebtedness and acquiring its rights.

The Chancery Court of Forrest County resolved the remaining controversy in favor of Credithrift. The Court first held that Credithrift's 1981 deed of trust contained a valid and enforceable dragnet clause securing all refinancing, renewals, and future advances and that this included the sums Credithrift advanced to the Gentrys on August 23, 1985. The Court acknowledged that Shutze had obtained a judgment against Hobart W. Gentry, Jr., on September 23, 1984, and that he had enrolled that judgment on October 23, 1984. The Court found, however, that at the time of the August, 1985, refinancing and advance to the Gentrys, Credithrift "had no actual notice of the plaintiff's [Shutze] judgment." On this basis, the Chancery Court held that Shutze's judgment lien was wholly junior and subordinate to the lien of Credithrift's 1981 deed of trust and, further, that Credithrift's foreclosure on July 12, 1988, extinguished Shutze's judgment lien vis-a-vis the 34th Avenue property. The Court in effect confirmed Credithrift's foreclosure and adjudged that Shutze take nothing.

Shutze now appeals to this Court.

III.

Future advance clauses are enforceable according to their tenor. Accepting their creative and constructive role in a credit economy and, as well, freedom of contract, we have upheld such clauses for more than a century. See Coleman v. Galbreath, Stewart, & Co., 53 Miss. 303, 306 (1876). The point has been repeatedly litigated since, and we have repeatedly We noted the practical rationale for such clauses in Newton County Bank v. Jones, 299 So.2d 215 (Miss.1974).

ruled, incident to a secured transaction, the debtor and secured party may contract that the lien or security interest created thereby shall secure other and future debts which the debtor may come to owe the secured party. Such clauses are treated like any other provisions in a contract and will be enforced at law subject only to conventional contract defenses, e.g., fraud, duress, and the like, none of which are present here.

When inserted in a deed of trust, such a clause operates as a convenience and an accommodation to ... [borrowers]. It makes available additional funds without ... [their] having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.

Newton County Bank, 299 So.2d at 218. And so Whiteway Finance Co., Inc. v. Green, 434 So.2d 1351 (Miss.1983) but repeats the obvious when it says matter-of-factly, as between the parties, " 'dragnet clauses' are valid and enforceable in Mississippi." 1 Whiteway Finance, 434 So.2d at 1353. See also, Kelso v. McGowan, 604 So.2d 726, 729 (Miss.1992); Merchants National Bank v. Stewart, 608 So.2d 1120, 1125 (Miss.1992); Cochran v. Deposit Guaranty National Bank, 509 So.2d 1045, 1047 (Miss.1987); Trapp for Use and Benefit, etc. v. Tidwell, 418 So.2d 786, 792 (Miss.1982); Newton County Bank v. Jones, 299 So.2d 215, 217 (Miss.1974); Holland v. Bank of Lucedale, 204 So.2d 875 (Miss.1967); Walters v. M & M Bank of Ellisville, 218 Miss. 777, 784-85, 67 So.2d 714, 717-18 (1953); In Re Oswalt, 41 B.R. 868 (N.D.Miss.1983); see generally, G. Nelson & D. Whitman, Real Estate Finance Law Sec. 12.8 (2d Ed.1985); Restatement of the Law (Third), Property-Security (Mortgages) Sec. 2.1 (Tent.Dr. No. 1, March 22, 1991).

There can be no question but that, vis-a-vis the Gentrys, the lien or security interest 2 Credithrift held in the 34th Avenue residence secured all sums the Gentrys owed Credithrift through and including the 1985 refinancing, renewal and new advance.

IV.

A.

Shutze accepts all of this but argues, instead, it proves little regarding the conflicting priorities issue he tenders. More specifically, Shutze concedes the 1981 deed of trust established Credithrift's priority the moment it was recorded, regarding of like priority the 1983 renewal and refinancing and any other indebtedness within the dragnet's reach, up until October of 1984. Shutze's point is that on October 23, 1984, he enrolled his judgment to the tune of some $4,541.78 plus interest and that, from and after that date, he held by law a lien on all of Gentry's property in the county. Miss.Code Ann. Sec. 11-7-197 (1972). He argues further that his...

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