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Community Trust Bank of Mississippi v. First National Bank of Clarksdale

Supreme Court of Mississippi

September 4, 2014

COMMUNITY TRUST BANK OF MISSISSIPPI, AS SUCCESSOR IN INTEREST TO THE MADISON COUNTY BANK
v.
FIRST NATIONAL BANK OF CLARKSDALE AND KAREN K. WHITE

DATE OF JUDGMENT: 10/11/2013.

COURT FROM WHICH APPEALED: LAFAYETTE COUNTY CHANCERY COURT. TRIAL JUDGE: HON. HOLLIS MCGEHEE.

FOR APPELLANT: ROBERT COFFMAN RICHARDSON, WILLIAM H. LEECH, TIMOTHY JAMES ANZENBERGER.

FOR APPELLEES: GENE D. BERRY, KATHLEEN SHORKEY COOK.

BEFORE RANDOLPH, P.J., LAMAR AND KITCHENS, JJ. DICKINSON AND RANDOLPH, P.JJ., LAMAR, CHANDLER, PIERCE, KING AND COLEMAN, JJ., CONCUR. WALLER, C.J., NOT PARTICIPATING.

OPINION

Page 684

NATURE OF THE CASE: CIVIL - OTHER

KITCHENS, JUSTICE

¶1. First National Bank of Clarksdale (FNB) secured a loan of more than $800,000 with, inter alia, a deed of trust on real property in Oxford, Mississippi (the " Oxford property" ), with the understanding that the bank would become the primary lien holder on the realty. FNB acquired title insurance from Mississippi Valley Title Insurance Company (" Mississippi Valley" ), to insure itself against the risk of an undiscovered superior lien holder. No formal title search on the property was performed, although Mississippi Valley's agent did discover the existence of another deed of trust on the property held by Community Trust Bank (CTB). However, he never relayed this information to FNB or to Mississippi Valley and issued the policy without regard to this prior recorded lien. Years later, CTB's loan went into default and CTB initiated foreclosure proceedings, which alerted FNB to the existence of CTB's deed of trust on the Oxford property. FNB instituted this suit in the Chancery Court of Lafayette County seeking to be subrogated to the primary lien holder position on the property in the amount that it had paid to satisfy the original primary deed of trust. After a bench trial, the chancellor found that the doctrine of equitable subrogation applied and granted primary status to FNB. CTB appealed.

¶2. We reverse the judgment of the chancery court and render judgment in

Page 685

favor of Community Trust Bank. Based upon the facts presented, subrogation is not equitable.

FACTS AND PROCEDURAL HISTORY

¶3. In 2003, Abner's Inc., owned by Abner White, executed and delivered a deed of trust on an Abner's Chicken Fingers restaurant property in Oxford, Mississippi (the Oxford property), with the First National Bank of Oxford in the amount of $272,922.17. This instrument was filed for record with the Chancery Clerk of Lafayette County. In 2005, another of Abner's business entities executed a deed of trust with CTB, formerly Madison County Bank, on the same realty in the amount of $361,616.00. This deed of trust likewise was recorded by the Chancery Clerk of Lafayette County. When CTB made the loan, it was well aware that First National Bank of Oxford was in the primary lien holder position.

¶4. In 2007, Abner White and his wife, Karen White, divorced. As part of the Whites' property settlement agreement, Abner transferred legal title to the Oxford property to Karen. CTB was unaware of this transaction. Under the terms of the Whites' agreement, Karen was obligated to pay off all debts on the Oxford property in exchange for its being deeded to her. She also received through the divorce one other property on which she was obligated to pay debts.[1] To consolidate her debts, Karen approached Ben Bolton at FNB[2] for a large loan to pay off the debts on the properties she had acquired through the divorce.

¶5. FNB's policy regarding nonresidential real estate loans required either a title commitment and a title insurance policy or an abstract with an attorney's opinion on the state of the title. Bolton testified that, in the case of loans over $250,000, it generally was the policy of FNB to obtain the extra security provided by a title commitment and insurance policy.[3] When FNB was considering whether to offer this loan, Ben Bolton asked attorney Matt McKenzie to " provide . . . a title insurance policy and to act as settlement agent." [4] McKenzie performed due diligence on the Oxford property and, as an authorized agent for Mississippi Valley, drafted the title insurance policy. During the course of his research, McKenzie discovered the existence of the CTB lien on the Oxford property. According to McKenzie, Abner White told him that he was going to move the CTB deed of trust " to a separate piece of collateral." This never was done. As to any discussion with CTB about its deed ...


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