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MAY 10, 1989




Appellee, Otto J. Rogers, a resident of Greenville, Mississippi, and an adjudicated N.C.M., filed a complaint in the Chancery Court of Washington County, by and through his legal guardian, June Thompson, against Defenbaugh and Company of Leland, Inc., a Mississippi corporation engaged in the small loan business. The complaint alleged that the appellant, with actual and constructive knowledge that the appellee was an adjudicated N.C.M., made a loan to him and took a note and deed of trust on real property owned by the appellee as security. The case was tried before the chancellor in Washington County, who entered a judgment in behalf of the appellee cancelling the note and deed of trust and awarding appellee damages, including punitive damages in the amount of $8,753.22, and attorney fees in the amount of $3,250.00, plus out-of-pocket expenses of $88.60. This appeal followed.

The record reflects that appellee was adjudged a non compos mentis in the County Court of Oklahoma County, Oklahoma, on November 27, 1962. At some point thereafter, the appellee moved his residence to Greenville, Mississippi. The record indicates a Mississippi guardian was appointed for him on August 7, 1978, by order of the Chancery Court of Washington County. There is no explanation in the order as to why Otto was adjudged N.C.M.

 The events which resulted in this appeal began in the summer of 1985, when a pecan tree fell on the appellee's house, causing damages which appellee sought to repair. The appellee went to a small loan company, appellant Defenbaugh and Company of Leland, Inc., in Leland, Mississippi, to get a loan to, among other things, make the necessary repairs to his house. The appellee met with Defenbaugh's loan officer, Mr. James Sparkman, and made application for a loan. He told Sparkman he owned the house on which the repairs were to be made and would use the house as collateral for the loan. At the initial meeting, Sparkman told the appellee he could make the loan subject to receipt of a good title opinion on the property.

 Shortly thereafter, a title opinion made by Defenbaugh's attorney disclosed that the appellee held fee simple title to the said property; that he had received the property from his father's estate; and that the appellee had a court-appointed guardian to manage his estate. At a subsequent meeting, Mr. Sparkman queried the appellee concerning the guardianship and was told that the guardianship had been removed. Mr. Sparkman testified the appellee presented what

 appeared to be a one-page court order releasing the guardian, who was cited in the title opinion. Mr. Sparkman did not keep a copy of the one-page order.

 On the day the appellee was to finalize the loan at Defenbaugh's Leland office, July 11, 1986, he was driven and accompanied by his nephew, John D. Crittenden. Mr. Crittenden, who is an insurance salesman, wrote a fire policy on the appellee's home and delivered it at the loan closing. He was paid $235.08 from the loan proceeds.

 The appellee signed a note for $2,700. Because he wanted to receive the loan proceeds immediately, he signed a waiver of his three-day right to cancel the loan under the Truth in Lending Act, 15 N.C.S., 1601, et seq. and he was given $1,600. The note was to be repaid at $75.00 a month for a three-year period. As a part of the transaction, Defenbaugh took a deed of trust on the appellee's house to secure the loan. Of the loan proceeds, $474.19 was used to pay an existing debt for materials and supplies from the Greenville Lumber Company and $773.41 was advanced directly to the appellee. The remaining balance was used for related expenses, i.e., property insurance and fees.

 When the appellee failed to make full payments on the loan, Defenbaugh attempted to collect them on a regular basis. After some difficulty in keeping track of the partial payments made, the appellee, in early 1986, consulted an attorney and asked him to assist in getting his payment record straightened out. The attorney contacted Defenbaugh several times, getting receipts and making partial payments for the appellee. He advised Defenbaugh that the deed of trust was unrecorded and it was at this point, February, 1986, that Defenbaugh proceeded to record its deed of trust.

 In May, 1986, Defenbaugh's attorney notified the appellee that foreclosure proceedings would commence if his debt, which was in default, was not brought current. Approximately one week later, May 21, 1986, the appellee had consulted another attorney, who wrote Defenbaugh, advising that the appellee was a N.C.M. and had a court-appointed guardian. A copy of an order partially removing the appellee's disability and allowing him to receive his veteran's benefit check but restricting his right to deal with his real property was attached. The attorney advised Defenbaugh that the note and deed of trust it held were unenforceable since the appellee's guardian had not signed them. He requested the note be returned to the appellee marked "paid" and the deed of trust cancelled.

 On May 30, 1986, the same attorney advised Defenbaugh that a foreclosure notice against the appellee had been published

 in a recent edition of the newspaper. He requested the foreclosure proceedings be stopped or he would institute a suit against them. On June 3, 1986, Defenbaugh's attorney responded stating there would be no further publication and indicated they could resolve the matter without litigation. The appellee's attorney responded the next day by requesting that the deed of trust be cancelled within ten (10) days or suit would be brought against Defenbaugh. Shortly thereafter, on June 18, 1986, the appellee filed suit seeking cancellation of the promissory note, deed of trust, and requesting punitive damages not to exceed $100,000.

 The appellant assigns ...

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