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Eb Inc. v. Allen

October 08, 1998


Pittman, P.j., Banks And Waller, JJ.

The opinion of the court was delivered by: Pittman, Presiding Justice






¶1. This case began when Janie Hessler (hereinafter "Hessler") sued Dr. Paul Allen (hereinafter "Allen") on the outstanding principal and interest on a note and deed of trust. Dr. Richard Nicholls (hereinafter "Nicholls") intervened in the case. The original $200,000 note and deed of trust was given by Allen to Nicholls in exchange for 100 acres of land in VanCleave, Mississippi. Eventually, the note and deed of trust were assigned to Nicholls' attorney, Paul Benton. Subsequently, the note and deed of trust were assigned to Hessler, as part of a divorce settlement between Hessler and Nicholls. EB, Inc., who foreclosed on the property, was joined in this action as a third party by Allen.

¶2. Hessler and Nicholls were married on February 14, 1983. They divorced on August 23, 1984. The judgment of Divorce and Settlement Agreement provided that Nicholls pay Hessler lump sum alimony in the amount of $396,000, payable in monthly installments of $3000 for a period of 11 years beginning on August 1, 1984.

¶3. On January 13, 1986, Hessler and Nicholls entered into an Agreed Order modifying the Judgment of Divorce, whereby it was agreed that Nicholls would pay no more alimony to Hessler. Thereafter, Hessler filed a Complaint to set aside the Agreed Order modifying the judgment. On February 6, 1989, Judge Robertson denied the Complaint. No order was entered. On February 9, 1989, Hessler filed another motion to set aside the agreed order. On April 25, 1990, Judge Oswald, present law partner of William Reed, counsel for Allen, entered a judgment setting aside the Agreed Order. On August 28, 1990, that decision was appealed to this Court.

¶4. On October 10, 1990, Hessler filed a Motion for Contempt against Nicholls. On September 12, 1991, a judgment was entered settling all matters between Hessler and Nicholls. Included in the settlement was the provision that Nicholls dismiss the appeal to this Court. The transcript of the hearing on this settlement is included in the record.

¶5. Also included in the settlement was the provision that Paul Benton would assign to Hessler his interest in the note secured by deed of trust from Allen to Nicholls dated February 15, 1985. Nicholls argued in the lower court that the only interest Paul Benton had in the note was a collateral assignment from Nicholls for attorney's fees of $50, 000. The assignment from Nicholls to Benton is included in the record.

¶6. The second set of events leading to this appeal occurred as follows. On or about February 25, 1985, Allen bought 100 acres of land located in VanCleave, MS for $200,000 from Nicholls. The full amount of the purchase price was amortized and Allen delivered to Nicholls a promissory note secured by a deed of trust on the land. Shortly, thereafter, Nicholls and Allen started practicing medicine together. In order to purchase a one-half ownership in the stock of Gynecology & Obstetrics, P.A., Allen borrowed $125,000 from Pascagoula-Moss Point ("PMP") Bank. Allen's 100 acres was used as security for the debt, and Nicholls agreed to subordinate to the bank to facilitate the loan. Thereafter, PMP held the first mortgage position, while Nicholls held the second mortgage.

¶7. In September, 1987, the PMP loan was moved to Eastover Bank For Savings, the predecessor of EB, Inc. Allen had reduced the original principal by about $20,000, so the new loan was for $105, 010. Nicholls again signed a subordination agreement. Therefore, Eastover held the first lien position, while Nicholls held the second.

¶8. Allen's note at Eastover Bank was renewed in 1988 and 1989 with no subordination by Nicholls. No new deeds of trust were executed with these renewals.

¶9. In August 1990, Nicholls assigned the Allen note and deed of trust to his attorney, Paul Benton . The assignment language stated that: "Said Deed of Trust and Contract for Sale is hereby assigned, conveyed, and delivered to Paul T. Benton in consideration of the Fifty Thousand Dollar ($50,000.00) retainer which Richard A. Nicholls, M.D., has agreed to pay Paul T. Benton for fees and expenses in the defense of the above stated cause of action." Nicholls contended at trial that the assignment was security only for Paul Benton's fee.

¶10. In September, 1991, Hessler and Nicholls entered into a settlement, already mentioned above, wherein it was agreed among other things that Benton would assign to Hessler all his interest in the Allen note and deed of trust. This was in satisfaction of a $155,000 judgment that Hessler had obtained against Nicholls as well as to relieve Nicholls of the payment of $3000 per month in alimony. Nicholls and Hessler released each other from any and all claims against each other.

¶11. After the assignment of the note from Benton to Hessler, Allen began making monthly payments on the note to Hessler. Allen stopped making payments on the note to Hessler in December, 1992. The principal due on the note at that time was approximately $162,076.00, accumulating interest at the rate of $1350.64 per month.

¶12. As stated before, Eastover Bank held a note and first deed of trust on the same land that Hessler held her note on. The note to Eastover matured on September 25, 1992. The bank determined that the assignment from Nicholls to Benton to Hessler was defective in that the book and page number, as well as the date of the deed of trust were incorrect. The bank was attempting to refinance the loan. On October 27, 1992 and December 10, 1992, Joe Baran, branch manager of Eastover Bank in Ocean Springs, wrote Allen, via certified mail, advising him that he either needed to pay off the loan or get Nicholls's subordination. Allen's attorney, William Reed, by letter dated November 4, 1992, advised the bank that Nicholls had assigned his interest in the Allen note to his ex-wife, and that he would contact her attorney and attempt to obtain a subordination. EB did not hear from Reed again until the day before foreclosure.

¶13. The day before the foreclosure, February 10, 1993, Reed contacted Frank Goodman, EB's in house counsel. Reed asked Goodman to stop the foreclosure, and Goodman told Reed that the bank was not inclined to do that. Reed told Goodman that Joe Baran, the branch manager, had told Reed that the bank would stop the foreclosure if Allen would pay $2000 or $3000. Goodman told Reed that he knew nothing about that, but that he would look into it, and get back to him. Goodman asked the chief lending officer, Bob Hardison, if he knew of any such deal, and he said that he did not. Goodman was unable to contact Baran because he was out of town. He did talk to Baran's loan secretary, who also knew nothing about it. At trial, Baran denied ever telling Reed that the foreclosure would be stopped if Allen paid $2000 or $3000.

¶14. Goodman suggested to Reed that he seek injunctive relief, and Reed stated that he was contemplating it. He did not, however, seek an injunction. The foreclosure sale was held on February 11, 1993, and a third party bought the 100 acre parcel for $84,000, the amount of the outstanding indebtedness to EB.

¶15. As stated before, Hessler sued Allen for payment on her note. Nicholls intervened because it was his contention that his assignment to Benton was only for attorney's fees, and that he still retained an interest in the note, and should be paid. Allen joined EB, Inc. as a third party defendant for wrongful foreclosure on his property. Allen contended, among other things, that EB failed to give notice of the foreclosure to Allen or his attorney.

¶16. The Chancellor made findings of fact and Conclusions of law. He found, in pertinent part, that:

"(H) Eastover Bank held a Note and First Deed of Trust on the same land that Hessler held her Note and Second Deed of Trust from Allen. Eastover Bank renewed its Allen Note and First Deed of Trust in September, 1989, even though Nicholls was asked to subordinate but refused, and the bank refinanced without Nicholls' subordination. Said September, 1989 Note matured on September 25, 1992, and Eastover attempted to refinance. Hessler agreed to subordinate to the bank her Deed of Trust which Benton had assigned to her. When Nicholls refused to subordinate, the bank, without any actual notice to Allen, Hessler, or their attorneys, proceeded to foreclose the bank's Deed of Trust on February 11, 1993. The bank never advised Allen nor Allen's attorney, William Reed, that Nicholls had refused to execute the subordination agreement."

"(I) Eastover had determined that the Hessler assignments from Nicholls had not been properly recorded but apparently did not convey this information or their concern to Allen or his attorney, nor to Hessler or her attorney."

"(J) Eastover would have refinanced the Allen Deed of Trust, thereby causing Allen to continue his payments to Hessler, except that Nicholls would not execute the subordination agreement to cure the bank's problem."

"(K) Intervenor/Cross-Defendant Nicholls' position was that his settlement with Hessler in the Chancery Court in September, 1991, was not for the full amount but only for a partial amount. At no time prior to the foreclosure did Nicholls state why he refused to sign the subordination agreement; and if he had any rights or any just cause to make such a showing, he failed to do so.. Allen and Hessler were willing to execute whatever was necessary to obtain the Eastover refinancing."

"(L) Nicholls owed the alimony debt; and his maneuvering of the Chancery settlement and his subsequent actions to try to get the bank to believe he retained an interest in the Allen Note, when he did not, all contributed to the bank's hasty foreclosure of the Allen Deed of Trust; actions which this Court does not condone."

"(M) The bank was unreasonable in not being more deliberate in its efforts to refinance the Note and Deed of Trust. The bank had let Allen have other money on his mobile home and for other purposes, and also had a third and fourth mortgage. Apparently, the bank was proceeding with the financing until one of its workers caused the process to stop, although Hessler had subordinated to the entire debt due the bank."

"(N) The bank's position was well protected and it had been so advised by its attorneys. The bank's documents showed, and witness Baran, the bank's employee, knew that both Allen and Hessler were represented by counsel, but the bank never gave Allen or his attorney, nor Hessler or her attorney, actual notice that it had failed to obtain a subordination from Nicholls and was proceeding with foreclosure...."

"(O) Eastover Bank was in the process of combining its assets with Sunburst Bank."

"P) Eastover was obligated to give actual notice of the foreclosure to Defendant Allen and Plaintiff Hessler; and the bank led Allen's attorney to believe it would agree to stop the foreclosure. There was a possible disruption of the combination with Sunburst Bank; and the bank made a quick decision to proceed with foreclosure, based upon Nicholls' refusal to ...

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