BEFORE PATTERSON, C. J., ROBERTSON AND SULLIVAN, JJ.
ROBERTSON, JUSTICE, FOR THE COURT:
Today's outcome determinative question is, where in the case of a real estate secured transaction the debtor conveys to the secured party the debtor's interest in a leasehold estate, does that conveyance without more also vest in the secured party the debtor's rights in an option to purchase held incident to the lease. We hold that, where the granting clause in the security agreement makes no express reservation of the debtor's interest in the purchase option, that interest is granted to the secured party. We affirm the decision below which has been based on this premise.
Mrs. Ophelia Moore is the owner of approximately 24.24 acres of real property in Tupelo, Mississippi. On September 25, 1972, Mrs. Moore and her late husband, Joseph H. Moore, entered into an agreement, denominated" LEASE ", with Moore & McCaleb, Inc. (hereinafter" Moore & McCaleb "). Included in the agreement was a grant by the Moores to Moore & McCaleb of a term of years, thirty-five (35) years to be exact, for a rental of $2,000.00 per month. The instrument further granted
to Moore & McCaleb an option to purchase the property, exercisable at any time during the thirty-five year term.
Following the lease, Moore & McCaleb entered into a secured transaction with Columbus Savings and Loan Association (hereinafter sometimes" Savings & Loan "), wherein Moore & McCaleb obtained a loan in the amount of $350,000.00, and as security therefor conveyed its leasehold interest to the Savings & Loan's trustee. The deed of trust was subsequently assigned to Bankers Trust Savings & Loan Association. Following default by Moore & McCaleb, the deed of trust was foreclosed in 1975, and Bankers Trust purchased the leasehold at foreclosure. Moore & McCaleb was thereupon removed from possession of the property and has made no subsequent rent payments.
Bankers Trust assigned the lease to J. W. Rice and Associates. J. W. Rice and Associates gave Bankers Trust a deed of trust on the leasehold interest, and subsequently defaulted, causing foreclosure and repurchase of the leasehold interest by Bankers Trust in 1977. Bankers Trust, which had by this time changed its name to Depositors Savings Association, then assigned the leasehold interest in 1979 to Ben M. Gaines and his partner, Ed Perkins. Gaines in turn purchased his partner's interest in 1981, thereby acquiring the entire leasehold interest. Gaines remains the current Tenant under the Lease, and, in addition to having made the rent payments continuously since 1979, Gaines has begun a substantial development project on the real property in question. He intends to exercise the option to purchase.
The dispute between Gaines and Moore & McCaleb regarding ownership of the option rights was brought to the attention of the Chancery Court of Lee County when Gaines filed his complaint naming Moore & McCaleb as defendant and seeking removal of Moore & McCaleb's claim to the option as a cloud on Gaines' title. In due course the matter came on for hearing on its merits whereupon, on June 13, 1984, the Chancery Court held that the original deed of trust conveyed to Columbus Savings and Loan Association conveyed in trust the option to purchase as well as the" leasehold interest "held by Moore & McCaleb and that the option was lost by Moore & McCaleb by virtue of foreclosure proceedings. The Chancery Court reasoned:
The first mortgage given by the tenant was to The Columbus Savings and Loan Association. The deed of trust described the mortgaged property as:
That certain leasehold interest of the Grantor as evidenced by lease dated September 28, 1972, and recorded in Deed Book 908 at Page 431 in the Chancery Clerk's office of Lee County, Mississippi, in and to the following described real property.
It thus appears that the terminology" leasehold interest "and as" evidence by lease "go together and the intention appears to be that the mortgage includes all parts of the lease itself by the reference to the lease and its recording data. This would include the option to purchase as provided in paragraph 22 of the lease.
It would be inconsistent and not reasonable to construe the lease in such a way to reserve a part of it to Moore & McCaleb, Inc., and at the same time to have it to lose all other rights ...