Hartman v. McInnis
| Docket Number: | 2006-CA-00641-SCT Linked Case(s): 2006-CA-00641-SCT |
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| Supreme Court: | Opinion Link Opinion Date: 11-29-2007 Opinion Author: Smith, C.J. Holding: On Direct Appeal: Reversed and Remanded. On Cross-Appeal: Reversed and Remanded. Ned G. McInnis, Jr., and Mary Deane McInnis taxed with costs of appeal. |
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| Additional Case Information: |
Topic: Contract - Deficiency judgment - Fiduciary duty - Fair market value - Standing - Assignment Judge(s) Concurring: WALLER AND DIAZ, P.JJ., AND LAMAR, J.; Carlson, J., Concurs in Part Without Separate Written Opinion. Judge(s) Concurring Separately: DICKINSON, J Non Participating Judge(s): EASLEY AND RANDOLPH, JJ. Dissenting Author : DICKINSON, J. Dissent Joined By : CARLSON, J. Concur in Part, Dissent in Part 1: Dickinson, J., With Separate Written Opinion Concur in Part, Dissent in Part Joined By 1: Carlson, J. Concurs in Result Only: GRAVES, J. Procedural History: Bench Trial Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 01-28-2006 Appealed from: Forrest County Chancery Court Judge: Sebe Dale, Jr. Disposition: Chancellor found that Hartman, Ronson, and Nelson owed Ned G. McInnis, Jr.and Mary Deane McInnis a deficiency judgment. Determination of the deficiency involved a foreclosure sale of the property Ronson purchased from the McInnises by means of tendering to them a promissory note and deed of trust, both of which the McInnises assigned to BancorpSouth. Case Number: 04-0212-GN-D |
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| Party Name: | Attorney Name: | Brief(s) Available: | ||
| Appellant: | JAMES C. P. HARTMAN, DECEASED
BANCORPSOUTH |
FOR CROSS-APPELLEE HARTMAN: CLARENCE WEBSTER, III,
W. WAYNE DRINKWATER,
ROBIN L. ROBERTS |
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| Appellee: | NED G. McINNIS, JR. NED G. McINNIS, JR., MARY DEANE McINNIS, RON NELSON AND JAMES C.P. HARTMAN, DECEASED AND RONSON CONSTRUCTION SYSTEMS, INC. | FOR APPELLANT/ CROSS-APPELLEE BANCORP SOUTH: JOE D. STEVENS, JACK W. LAND, TRACY KAY BOWLES; FOR APPELLEES MCINNIS: RAY T. PRICE | ||
| Appellee #2: | ||||
Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Contract - Deficiency judgment - Fiduciary duty - Fair market value - Standing - Assignment |
| Summary of the Facts: | Ned and Mary McInnis purchased a number of rental properties through loans secured by deeds of trust (the McInnis deeds of trust) with BancorpSouth. The McInnises entered into a contract on November 6, 2003, to sell eighteen parcels to James Hartman. At closing, on November 14, 2003, Hartman paid cash for a portion of the properties. Additionally, Hartman had Ron Nelson, owner of Ronson Construction Systems, the entity to which Hartman previously had agreed to sell the remaining properties (the Ronson properties), to tender to the McInnises a promissory note (the Ronson note) for the properties. The note was secured by a deed of trust (the Ronson deed of trust) for which Hartman was a guarantor. The parties agreed the McInnis deeds of trust would be senior to the Ronson deed of trust. On November 14, 2003, BancorpSouth, the McInnises, Ronson, and Hartman executed the “Agreement” where, in exchange for satisfaction of certain terms and conditions, BancorpSouth agreed to refrain from exercising the due-on-sale clause applicable against the McInnis deed of trust. The McInnises were to assign to BancorpSouth both the Ronson note and the Ronson deed of trust. Ronson was to make monthly payments on the note to BancorpSouth, and these payments would apply to the outstanding balance on the McInnises’ loans. BancorpSouth would issue any excess from the payments to the McInnises. The McInnises assigned the Ronson note and deed of trust to BancorpSouth on November 14, 2003. Ronson made a number of payments to BancorpSouth, but eventually ceased payments. The McInnises filed suit against Ronson, Nelson, and Hartman, alleging breach of contract, bad-faith breach of contract, accounting and specific performance, intentional interference with business relations, and breach of the duty of good faith and fair dealing. BancorpSouth was added as a party defendant. BancorpSouth filed a cross-claim for judicial foreclosure. Upon the oral stipulation of both parties, the trial court issued an Order authorizing BancorpSouth to initiate foreclosure on the Ronson properties. The trustee sold the properties located in Jones County at a public auction at the Jones County courthouse to BancorpSouth, the sole bidder, for $32,200. Similarly, the properties located in Forrest County were sold at public auction to BancorpSouth, the sole bidder, for $167,700. BancorpSouth asserted that, with the costs of $920.70 for publication and $2,079 for the trustee, the sales resulted in a deficiency of $259,711.91 from the $456,169.05 owed on the note on the date of sale. The court found that BancorpSouth was precluded from obtaining a deficiency judgment against the McInnises, and awarded the McInnises a deficiency judgment with interest against Ronson, Nelson, and Hartman. Hartman and BancorpSouth appeal. |
| Summary of Opinion Analysis: | Issue 1: Deficiency judgment The trial court held that BancorpSouth was precluded from obtaining a deficiency judgment because it breached its fiduciary duty to the McInnises. The McInnises argue that a fiduciary-duty relationship was created when BancorpSouth imposed as conditions of the sale the wraparound mortgage and assignment of the Ronson note. BancorpSouth argues that it had no fiduciary duty to the McInnises since the relationship was simply an arms-length business transaction involving a normal debtor creditor relationship. An arms length business transaction involving a normal debtor-creditor relationship does not establish a fiduciary relationship. In determining whether a fiduciary relationship exists in a commercial transaction, the court considers whether the parties have shared goals in each other's commercial activities, one of the parties places justifiable confidence or trust in the other party's fidelity, and the trusted party exercises effective control over the other party. In the present case, the record is devoid of facts which would take the relationship between BancorpSouth and the McInnises out of the scope of the generally non-fiduciary mortgagor/mortgagee relationship. No evidence was presented or precedent provided to support a finding that the relationship was anything other than an arms-length business transaction involving a normal debtor-creditor relationship where, as is common, the debtor tendered to the creditor collateral security, the assignment of a promissory note. Therefore, the trial court erred in finding that a fiduciary relationship existed. Issue 2: Fair market value The trial court found that BancorpSouth failed to establish the fair market value of the Ronson properties, which was necessary to determine whether a deficiency existed after the foreclosure sale. The trustee announced at the foreclosure sale that the sale would be subject to the liens of the McInnis deeds of trust, which BancorpSouth held. The trial court found this announcement discouraged any potential bidders other than BancorpSouth; and therefore, the sale was not a determinant of the fair market value. Announcing the amount due on a senior deed of trust enables bidders to take the prior lien into consideration in making bids, since the successful bidder buys subject to the prior lien. In this case, the mere announcement that the properties were subject to a lien is insufficient to refute the commercial reasonableness of the sale. Thus, the trial court erred in finding that announcement prevented the sale price from serving as fair market value. BancorpSouth argues that the chancery court erred in precluding the foreclosure sale from serving as a determinant of fair market value of the properties sold when it presented sufficient evidence to establish fair market value. “Fair market value” is defined as the amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. There are no specific requirements for establishing fair market value. However, simply looking at the property, making vague notes regarding the physical condition of the property and issuing a value therefrom are insufficient to meet the mortgagee’s burden. In addition to BancorpSouth’s self-inspection, the court had an indication of fair market value from the price at which BancorpSouth sold two of the properties during the five months between the foreclosure sales and the trial. While these numbers provide an indication of the price an informed, willing buyer would pay for these two properties, there is no such indication for the remaining twelve properties by sale, appraisal, adequate inspection or otherwise. BancorpSouth merely engaged in “eyeballing” properties, without providing an explanation on how the value was deduced or even entering all the properties for which a value was estimated. The trial court therefore correctly found that BancorpSouth failed to establish fair market value of the properties, and thus, the amount of deficiency could not be determined. Issue 3: Standing The dispute concerning the McInnises’ entitlement to a deficiency judgment is essentially a question of whether the McInnises have standing to bring suit with regard to the cessation of payments on the Ronson note. The McInnises argue that they have standing as third-party beneficiaries. The concept of gaining enforcement rights by way of third-party beneficiary status does not apply to the McInnises when they were parties, signatories, to the Agreement as well as the assignment. The McInnises also argue that they have standing as parties to the Agreement. The language in the assignment is strongly evident of the intent of the parties to assign all of the McInnises’ rights to the Ronson note and deed of trust. The language of the Agreement, which calls for creation of the assignment and provides for the tender of excess funds from payments to the McInnises and release to the McInnises of the assigned note and deed upon satisfaction of the Ronson note, suggests that BancorpSouth and the McInnises intended the assignment to serve only as collateral security. With regard to rights between the assignor and assignee to collect on the debt, before the debt secured is paid, the assignee is, to the extent of his interest, the owner of the collateral as against the assignor and creditors or others claiming under him. Thus, BancorpSouth, has priority over the assignor, the McInnises, in collecting on the unsatisfied debt of the Ronson note, which was assigned as collateral security the creditor assignee. The McInnises do have standing to sue for collection of payments on the Ronson note. However, as the note was tendered to BancorpSouth as collateral security, BancorpSouth had an interest in the Ronson note to the extent of the amount of the loan which the note secured. Further, BancorpSouth’s interest was superior to the McInnises’ interest. Accordingly, BancorpSouth is entitled to collect first the amount of the secured debt owed to it, and upon satisfaction of that debt, the McInnises are entitled to collect any remainder due on the note. |
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