BancorpSouth Bank v. Shelby K. Brantley, Jr.

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2011-CT-00475-SCT
BANCORPSOUTH BANK
v.
SHELBY K. BRANTLEY, JR., ROBERT CRUMPTON,
NORMA S. BOURDEAUX, LANGSTON OXFORD
PROPERTIES, L.P., SUSAN M. BRYAN, JOHN
ALBRITON AND LYNN ALBRITON
ON WRIT OF CERTIORARI
DATE OF JUDGMENT: 02/28/2011
TRIAL JUDGE: HON. GLENN ALDERSON
COURT FROM WHICH APPEALED: LAFAYETTE COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: DANIEL MYLES MARTIN
JOHN J. CROW, JR.
AUSTIN GARRETT GRAY
ATTORNEYS FOR APPELLEES: SHANE F. LANGSTON
REBECCA M. LANGSTON
G. TODD BURWELL
DANA E. KELLY
JACQUELINE H. RAY
NATURE OF THE CASE: CIVIL - REAL PROPERTY
DISPOSITION: THE JUDGMENT OF THE COURT OF
APPEALS IS AFFIRMED IN PART AND
REVERSED IN PART. THE JUDGMENT OF
THE CHANCERY COURT OF LAFAYETTE
COUNTY IS REVERSED AND THE CASE IS
REMANDED - 03/20/2014
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
COLEMAN, JUSTICE, FOR THE COURT:
¶1. BancorpSouth Bank filed a complaint for declaratory judgment, judicial foreclosure,
and other relief against Van Buren Group, LLC, a corporation that organized the construction
of thirty condominiums in Oxford. BancorpSouth also named several members of Van Buren
Group and several condominium purchasers. Four purchasers and two members moved for
summary judgment, which the chancellor granted.1 The Court of Appeals affirmed the grant
of summary judgment as to the four purchasers; however, it reversed and remanded as to the
two members. We granted BancorpSouth’s subsequent petition for writ of certiorari. We
hold that an issue of material fact exists, reverse the chancery court’s grant of summary
judgment as to the four purchasers, and remand the case.
FACTS AND PROCEDURAL HISTORY
¶2. In March 2001, H. Claiborne Frazier formed Van Buren Group, LLC (“Van Buren”)
with plans to purchase a piece of real estate in Oxford, Mississippi, and build and sell thirty
condominiums. Frazier applied for financing with BancorpSouth, and, on August 20, 2001,
through loan officer Bobby Little, BancorpSouth issued a commitment letter to Van Buren
for a $5,400,000 loan. The loan commitment required Van Buren to “present evidence on
the sale of 18 units through sales contracts and the collection of earnest money equal to 10%
of the sales price.” Should eighteen units not be presold, the loan commitment provided that
letters of credit on the difference between eighteen and the number of units actually presold
would be accepted, subject to BancorpSouth’s approval.
1
The court entered an order pursuant to Mississippi Rule of Civil Procedure 54(b) for
the purpose of appeal, deeming the summary judgment a final judgment against the parties
to the motion. See Miss. R. Civ. P. 54(b).
2
¶3. On August 22, 2001, James Irby of Irby & Associates, Inc., who had been retained to
appraise the condominiums, sent a letter to Little at BancorpSouth. The appraisal letter listed
all the units, the appraised value, the listed sales price, and the sales status of each unit. The
appraisal letter listed units 102, 210, and 303 as “Sold” and unit 306 as “Pending,” however,
it did not provide the names of the purchasers. A day later, on August 23, 2001, Bobby
Covington of Taylor Covington & Smith, P.A. (“TCS”) and attorney for Van Buren, wrote
a letter to Little and BancorpSouth, certifying that nineteen units had been presold and that
he was holding deposits for the units in his escrow account. The certification letter identified
future purchasers as: John and Lynn Albriton, Shane Langston, James B. Grenfell, and Tim
Ford. The Albritons, Langston, and Grenfell together with Larry and Susan Bryan and
Norma Bourdeaux are referred to hereinafter as “the purchasers.”
¶4. On September 5, 2001, Van Buren executed a promissory note in the amount of
$5,400,000 in favor of BancorpSouth along with a deed of trust conveying a secured interest
on the property to BancorpSouth. As to the promissory note, Frazier signed a personal
guaranty. Two Van Buren members, hereinafter the “guarantors,” also signed the guaranty
– Robert Crumpton and Shelby K. Brantley, Jr. The deed of trust was recorded in the Office
of the Chancery Clerk of Lafayette County on September 12, 2001.
¶5. As reflected in the August 23, 2001, letter, Van Buren had presold several units –
including those of the Albritons, Langston, and Grenfell – before entering the loan
agreement. The Albritons executed a contract to purchase unit 303 on May 30, 2001, for
$241,980. The agreement provided, in paragraph thirteen, that it was “subject and
subordinate to the lien of any construction mortgage now or hereafter placed on the Unit, but
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the Seller shall cause such mortgage to be discharged or the above-described unit released
of record prior to or simultaneously with the date of delivery of the Warranty Deed.” Further
actions concerning the Albritons’ sale did not take place until 2003.
¶6. On June 21, 2001, Shane Langston executed a Reservation Agreement with Van
Buren to reserve his right to purchase unit 102. Ten days earlier, Langston issued a check
payable to TCS, representing the reservation fee. Soon after, on June 25, 2001, Langston
entered a Purchase Agreement, which was substantially similar to that entered into by the
Albritons, including paragraph thirteen. Per the Agreement, Langston would pay a total of
$241,980 to TCS, as the escrow agent, with an earnest money deposit of $24,198, also paid
to TCS. Further actions concerning Langston’s sale did not take place until 2003.
¶7. On July 8, 2002, Susan Bryan executed a Purchase Agreement in which she agreed
to purchase unit 207 for $259,000. The Agreement was substantially the same as that entered
into by the Albritons, including the clause that Van Buren should discharge the mortgage on
or before the date of delivery of the Warranty Deed and that time was of the essence. Two
days later, on July 10, 2002, Larry Bryan subsequently issued a check to TCS in the amount
of $24,900 as earnest money.
¶8. Also in July 2002, Frazier Construction and Development, Inc., sent a letter to
BancorpSouth that appears to list the units sold to date, the respective buyers, and the
contracted purchase prices. Of note, the letter lists “102 Shane Langston - $241,980. . . 207
Bryan - $259,000 . . . 210 Tim Ford - $210,000. . . 303 John Albritton - $241,980. . . 305/306
Lee - $400,000.” A handwritten note at the bottom of the letter totals the purchase prices to
$5,306,900, which was approximately the amount of the BancorpSouth loan.
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¶9. On November 20, 2002, Norma Bourdeaux issued a check for $1,000, payable to
TCS, as a deposit for the purchase of unit 111. On January 22, 2003, Bourdeaux signed a
Purchase Agreement for unit 111, agreeing to purchase it for $190,000. Several pages of the
Agreement are absent from the record; however, it appears that it was substantially the same
as that signed by the Albritons. The Agreement provided that the purchase money would be
paid to TCS as the escrow agent. On the same day, Frazier offered Bourdeaux an $8,000
discount for early payment of the remaining purchase money, or $181,000 with the discount.
Bourdeaux delivered a check to Van Buren for $181,000 on January 22, 2003. When asked
why she made the check out to Van Buren and not TCS, as stipulated, Bourdeaux stated that
it was probably because Frazier asked her to do so. Bourdeaux’s unit was substantially
complete by the summer of 2003. However, Van Buren did not execute and file the
Warranty Deed until September 2005.
¶10. Sometime after entering their Purchase Agreement, the Albritons were approached by
Frazier, offering a $5,000 discount in exchange for an early closing. On February 26, 2003,
the Albritons entered a settlement agreement reflecting the discount, and the sale was closed
at the office of TCS. The settlement agreement shows that the Albritons paid $236,980 to
Van Buren and gave Frazier $13,438.20 in store credit at the Albritons’ jewelry store. A
Warranty Deed was executed and delivered soon after closing in February 2003; however,
the deed was not recorded until November 21, 2007.
¶11. On May 13, 2003, Van Buren and the Bryans amended their Purchase Agreement,
providing the Bryans a $5,000 discount in exchange for their early payment to TCS as
escrow agents of $228,100, increasing the total amount in escrow to $254,000. The discount
5
was provided so that Van Buren would be able to pay down the loan sooner. Although the
amended agreement provided that the funds would be paid into escrow, on May 13, 2003,
Larry Bryan made a check directly to Van Buren in the amount of $228,100. On July 13,
2003, TCS sent Susan Bryan a Certificate of Title, which referenced the security interest held
by BancorpSouth. Van Buren delivered a Warranty Deed to Susan Bryan on September 3,
2003, and the deed was recorded on October 13, 2003.
¶12. Langston closed on unit 102 on August 18, 2003, paying Van Buren $220,565. In
return, Van Buren provided Langston with a Warranty Deed the same day, but it was not
recorded until August 12, 2005. The deed was titled to “Langston Oxford Properties, LP,”
an entity Langston created to handle the closing. Prior to closing, on July 31, 2003, Langston
entered a Settlement Agreement with Van Buren, which indicated that $255,621 of the
purchase price was for “Payoff of first mortgage loan” with BancorpSouth. The Albritons,
Bryans, Langston, and Bourdeaux all took possession of their respective units between June
2003 and November 2003.
¶13. An internal BancorpSouth memorandum was sent by Ronald Winford, who succeeded
Bobby Little in overseeing the Van Buren loan, to James Stringer in the Credit
Administration Department on June 2, 2003. The memo recapped a meeting between
Winford and Stringer, accompanied by Ron Hendrix and the Fraziers on March 27, 2003.
The memo lists the loan to Van Buren, stating that the $5.4 million loan had been advanced
$5,311,885 to date and that the project was “91% complete with 27 of 30 units sold.” It also
states that Covington “is preparing Deed of Trust release documents for us to review in
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anticipation of condo closing in mid-June,” and that Winford anticipated “being paid out of
this project by the end of August.”
¶14. As previously mentioned, Tim Ford was listed in the August 23, 2001, letter from
Covington to BancorpSouth as having contracted with Van Buren for the purchase of unit
210 and having deposited $21,000 in escrow with TCS. According to a BancorpSouth
document, Van Buren executed a deed to Ford on September 26, 2003, and BancorpSouth
executed a partial release of that unit on October 9, 2003. BancorpSouth had not been
remitted the proceeds from the sale. Winford testified that the release of Ford’s condo was
a mistake because Ford’s condo closed the “same day” as unit 202, the sales of which were
remitted to BancorpSouth on September 19, 2003. However, Ford’s condo actually closed
nine days after unit 202. BancorpSouth’s partial release list, date unknown, shows that unit
202 was not released from the deed of trust, although Ford’s was released.
¶15. The August 22, 2001, appraisal letter listed unit 306, eventually purchased by Lee, as
pending. Further, the July 2002 letter sent by Frazier Construction & Development, Inc., to
BancorpSouth included “305/306 Lee $400,000.” Lee received a Warranty Deed as to units
305 and 306 on February 19, 2004, and the deed was filed February 23, 2004. Lee had paid
$399,000 to Van Buren; however, the sum was never remitted to BancorpSouth. His deed,
like those of the four purchasers, showed no encumbrance by BancorpSouth. Around the
same time, Lee decided to purchase a third unit. In his title work relating to the third unit,
Lee discovered that his first two condos had not been released from the BancorpSouth Deed
of Trust. On April 13, 2004, Lee sent a letter to Frazier demanding an immediate release of
his condos. Frazier faxed Lee’s demand letter to Winford along with a letter stating that the
7
release would be imminent. Lee’s first two condos were released soon after, on May 19,
2004.
¶16. Lee still owed $50,000 on his third condo, unit 307, but would not release the final
payment until BancorpSouth executed a partial release of that unit. On June 22, 2004, Lee
sent a letter to Frazier indicating that Frazier had breached the Purchase Agreement and that
he had a general suspicion of criminal conduct. On that same day, Lee visited Dave Bush,
senior vice-president at BancorpSouth, and alerted Bush that the money he had paid to Van
Buren had not been tendered to BancorpSouth. Bush immediately spoke with Winford and
instructed Lee to take the check for $50,000 to Winford in Madison, Mississippi, and that he
would deliver a partial release to Lee. Lee did that, and his third unit was released from the
mortgage on June 23, 2004. At his deposition, Winford could not recall that Lee had
requested a release of his units, nor did he recall meeting with Lee.
¶17. Van Buren remitted the purchase money to BancorpSouth for twenty-one of the units
sold, which the bank accordingly credited to the Van Buren loan and subsequently executed
partial releases of the deed of trust for the respective units. However, at some point in time,
the bank discovered that Van Buren had sold five units – the purchasers’ units – without
remitting the money to the bank. Having not received the money and not knowing that those
five units had sold, the bank did not release the purchasers’ units from the deed of trust. Van
Buren defaulted on its loan, and BancorpSouth initiated foreclosure proceedings against the
purchasers. In essence, the purchasers argue that, because BancorpSouth, knowing that units
had been previously conveyed to the purchasers, released Ford’s and Lee’s units without
respectively crediting the Van Buren loan, the bank should not be able to proceed with
8
foreclosure against the purchasers until the bank credited the loan as to Ford’s and Lee’s
units. The purchasers argue that, because the amount outstanding on the loan was less than
the value of Ford’s and Lee’s units, the loan would be fully satisfied, and the bank could not
foreclose on the purchasers’ units.
¶18. In October 2007, BancorpSouth filed a complaint for declaratory judgment, judicial
foreclosure, and other relief in the Lafayette County Chancery Court against the Van Buren
Group and its members: Claiborne Frazier, Austin Frazier, C.E. Frazier, Shelby Brantley Jr.,
and Robert Crumpton. It also named five condo purchasers: Norma Bourdeaux, Langston
Oxford Properties, L.P., Susan Bryan, Lynn Grenfell, and John and Lynn Albriton. Grenfell
was dismissed by agreed order. The remaining four purchasers moved for summary
judgment, which Brantley and Crumpton separately joined.
¶19. As of March 5, 2004, the outstanding balance on the Van Buren loan was
$1,530,763.80. BancorpSouth later received $1,068,287.30 in payments toward the balance.
The purchasers argued that BancorpSouth improperly released the four units sold to Lee and
Ford, which, minus the $50,000 payment by Lee, amounted to $869,000. When this amount
is added to the payments already received, the sum is greater than the total amount of the
loan; therefore, no debt was secured by the four purchasers’ units, and judicial foreclosure
was improper. The four purchasers also alleged that BancorpSouth was aware through
Winford that Van Buren had sold the five units out of trust and did not notify the purchasers.
Further, they alleged that BancorpSouth’s dealings with Lee and Ford demonstrated unclean
hands. On February 28, 2011, the chancery court granted summary judgment in favor of
9
Brantley, Crumpton, and the four purchasers. BancorpSouth appealed the chancery court’s
grant of summary judgment.
¶20. The Court of Appeals affirmed as to the four purchasers but reversed and remanded
as to Brantley and Crumpton, finding that a genuine issue of material fact existed as to
whether BancorpSouth received full payment of the amount owed based on the funds
received from the units sold. BancorpSouth Bank v. Brantley, 2012 WL 6118137 (Miss.
Dec. 12, 2013). Following the decision of the Court of Appeals, BancorpSouth settled its
claims against the guarantors. BancorpSouth filed a petition for writ of certiorari, which we
granted to clarify the correct application of what we refer to below as the Pongetti rule.
DISCUSSION
¶21. Under Mississippi Rule of Civil Procedure 56(c), summary judgment “shall be
rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.” Miss.
R. Civ. P. 56(c). A trial court’s grant or denial of a motion for summary judgment is
reviewed under a de novo standard. Poppenheimer v. Estate of Coyle, 98 So. 3d 1059, 1062
(¶ 7) (Miss. 2012) (citing Whitaker v. Limeco Corp., 32 So. 3d 429, 433-34 (¶ 10) (Miss.
2010)). In reviewing a trial court’s grant of summary judgment, the Court views the
evidence “in the light most favorable to the party against whom the motion has been made.”
Pratt v. Gulfport-Biloxi Reg’l Airport Auth., 97 So. 3d 68, 71 (¶ 5) (Miss. 2012). Where
doubt exists as to whether a genuine issue of material fact exists, courts should err on the side
10
of denying summary judgment. Todd v. First Baptist Church of West Point, 992 So. 2d 827,
829 (¶ 9) (Miss. 2008).
Whether the grant of summary judgment was appropriate.
A. The Pongetti Rule
¶22. Mississippi has long followed the doctrine of inverse alienation in situations in which
“a judgment debtor has various pieces of property, affected by the judgment lien[;] if he
alienate[s] one piece, that [piece] is not to be charged, until the others, not alienated, have
been subjected [to the judgment lien], provided they still remain within reach of the
execution.” Agric. Bank of Miss. v. Pallen, 16 Miss. 357, 359 (8 S. & M. 357) (1847). In
such situations, “If all be alienated, then each is liable to the satisfaction of the judgment, in
the inverse order of alienation; the last alienated being first liable.” Id. The rule of inverse
alienation has been reaffirmed most recently by the Court in Pongetti v. Bankers Trust
Savings & Loan Association, 368 So. 2d 819 (Miss. 1979). The doctrine of inverse
alienation applies to the facts of the case sub judice. If all subdivided parcels of a tract of
land “be necessary to satisfy the judgment, then all must be so applied. It is a question only
as to the order of application.” Id. (citing Pallen, 16 Miss. at 359).
¶23. While the doctrine of inverse alienation is itself straightforward, the situation is
complicated when, as here, the debtor first alienates parcels of property, which the mortgagee
does not release from the lien, and the debtor subsequently conveys other parcels, which the
mortgagee does release from the lien. The Pongetti Court wrote, in pertinent part, as
follows:
11
It is the general rule, subject to certain qualifications set out in succeeding
subdivisions, that where a mortgagor or other lienee has alienated a portion of
the mortgaged premises, and the mortgagee or other lienor, having notice of
such alienation, releases the mortgage or other lien as to the portion retained
by the mortgagor or lienee, such mortgagee or lienor must deduct from the
debt, before enforcing his lien against the property alienated, the value of the
property released.
Pongetti, 368 So. 2d at 823 (quoting 110 A.L.R. 67 (1937)) (emphasis added). The above-
quoted language, not the doctrine of inverse alienation established well before Pongetti,
constitutes the Pongetti rule. Stated differently, a mortgagee such as BancorpSouth may
release whatever parcel of land it wishes from a mortgage that covers multiple parcels.
However, when a mortgagee does so with notice that other parcels were alienated prior to the
released parcels, then it does so at its own risk. Should foreclosure occur, the mortgagee
must count the value of the released parcels against the total remaining debt.
¶24. The reason for the Pongetti rule, as we call it herein, is simple. As discussed above,
the doctrine of inverse alienation has long been the law in Mississippi. People who purchase
parcels of real property that have been subdivided from a larger parcel subject to one
overarching mortgage have the right to expect the law to be followed should the mortgagee
commence foreclosure proceedings. Allowing the mortgagee to release later-alienated
parcels without consideration and with notice of the earlier-alienated properties inequitably
takes away the quite-justified expectation of the earlier purchasers. Ridge of Brooklyn
Realty Co. v. Offerman, 149 A.D. 878, 134 N.Y.S. 788 (N.Y. App. Div. 1912) (“The
enforcement of the rule is never permitted to interfere with the legal rights of the mortgagee,
but at the most it controls the method or order in which his rights may be enforced, and
12
forbids him to wantonly disregard the equitable rights of others of which he has
knowledge.”).
¶25. In Pongetti, Mississippi Valley Title Insurance Company held a senior mortgage on
a piece of property divided into Tract I and II. Pongetti, 368 at 820. Sims held a junior
mortgage as to only Tract I. Id. Without receiving any payment on the mortgage,
Mississippi Valley released Tract II and began foreclosure against the part of Tract I covered
by Sims’s mortgage. Id. Sims sought to enjoin Mississippi Valley from selling that part of
Tract I covered by his deed of trust. Id. Sims asked that any proceeds from a sale be applied
first to satisfy his deed of trust plus his damages. Id. at 820-21. The Court, applying the rule
quoted above, found that Sims “had a right to require Mississippi Valley, as holder of the
senior mortgage covering both Tract I and Tract II, not to release its security on Tract II
without crediting the value of Tract II on its senior mortgage.” Id. at 823-24. The Court
went on to find that, as to Sims, Mississippi Valley’s senior mortgage was discharged
because the value of the land released without consideration satisfied its mortgage. Pongetti,
368 So. 2d at 824.
¶26. In the instant case, BancorpSouth released from its mortgage four units sold to John
Lee and Tim Ford for little or no consideration after the sales to the four unit purchasers. On
October 9, 2003, BancorpSouth released Ford’s unit 210 for no consideration, and on May
19, 2004, the bank released Lee’s units 305 and 306, also for no consideration. After sending
a letter to Frazier and personally talking to a vice-president of BancorpSouth, Lee obtained
a release on his third unit in exchange for $50,000 paid to the bank, despite the unit being
purchased for a total of $300,000. Added together, the amount of money that should have
13
been remitted to the bank from the sales of these units totaled $869,000, which does not
include the $50,000 that Lee in fact paid the bank.
¶27. According to BancorpSouth’s documents, the Van Buren loan had an outstanding
balance of $1,530,763.80 as of January 23, 2004. From January 23, 2004, to March 31,
2008, the bank received payments totaling $718,213.66. The four purchasers would add
approximately $300,000 to that total, according to their Motion for Summary Judgment,
which would account for the March 11, 2008, foreclosure of unit 309. However, the
foreclosure amount for unit 309 is unclear. BancorpSouth’s documents indicate a payment
of $45,000 on March 31, 2008, which may have been for the foreclosure of unit 309, but this
is unknown.
¶28. Thus, BancorpSouth actually received $718,213.66 between June 23, 2004, and
March 31, 2008. Were we to apply the Pongetti rule, we would then add the $869,000 that
should have been remitted to the bank when it released the deeds of trust on Lee’s and Ford’s
units, bringing the total to $1,587,213.66, an amount more than the $1,530,763.80 due on the
Van Buren loan as of January 23, 2004. Accordingly, if the Pongetti rule applies, the Van
Buren debt was fully satisfied by the Pongetti credit for the Ford and Lee units.2
B. Whether Pongetti requires actual or constructive notice of the earlier alienations to
apply.
2
In its brief, BancorpSouth contends that other costs, such as legal fees, would drive
the total amount due under the mortgage higher such that additional foreclosures would be
necessary. Although we do not reach the argument, we note that the trial court will have to
determine what, if any, additional amounts should be added to the total debt.
14
¶29. BancorpSouth argues that for the Pongetti rule to be applicable, it must be shown that
the bank had actual notice of the earlier alienations to the purchasers. The four purchasers
argue that Pongetti does not require actual notice. The Court of Appeals did not expressly
answer what type of notice was required, finding the argument moot, as BancorpSouth had
received actual notice. BancorpSouth, 2012 WL 6118137, at *3 (¶ 13).
¶30. Before addressing whether the law requires actual or constructive notice, we must first
determine of what, exactly, BancorpSouth would need to have notice for the Pongetti rule
to apply. The bank contends that, in order for the rule to apply, it must have notice that the
purchasers had bought their units at the time the bank released the later-purchased Ford and
Lee units from the mortgage. The purchasers, without citation to authority, argue that the
pertinent event, of which notice was required, was that the bank had released the Ford and
Lee units, even though it had not received the purchase funds from Van Buren. We need
look no further than the Pongetti Court’s opinion to determine that BancorpSouth’s
interpretation is correct. In the above-quoted section from Pongetti, in which the Court
quoted and relied upon 110 American Law Reports 67 (1937), the rule requires the mortgagee
to have notice of the alienation of part of the mortgaged tract by the mortgagor to trigger the
Pongetti rule as to the remaining part of the tract, still held by the mortgagor, should the bank
release that remaining, nonalienated part from the mortgage.
¶31. The result jibes well with the doctrine of inverse alienation. The purpose of the
doctrine of inverse alienation, put simply, is protection.
In so far as the inverse order of alienation doctrine requires that the land
retained by the lienee must first be sold to pay the paramount encumbrance,
before the land aliened by him may be reached, it seems to be based on the
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fundamental notion of equity that in the absence of a contract or intention
indicating to the contrary, one man’s property may not be used to pay the debts
of another; and that an owner of land subject to a paramount encumbrance,
who encumbers or alienates a part, retaining the other part, who does not
expressly charge the parcel encumbered or aliened with the payment of the
paramount encumbrance, must be presumed to have intended or agreed that the
encumbrance should be discharged out of the part remaining in his hands, and
that the parcel aliened or encumbered should be free from the burden of the
paramount encumbrance, particularly where he conveys the part with
covenants of warranty against encumbrances, and receives full value for the
part aliened.
P.H. Vartanian, Sale in Inverse Order of Alienation, 131 A.L.R. 4 (1941). “The right to have
the lien satisfied by this method is an equity which each grantee has against the original
owner and against all subsequent grantees.” Doctrine of Inverse Order of Alienation as
Affected by Release of Part of Property Covered by Mortgage or Other Lien, 110 A.L.R. 65(1937). Without any release by the bank of any part of the mortgaged property, after the
mortgagee alienates part of the property, the portion alienated goes to the back of the line,
so to speak, for purposes of collection should foreclosure occur. The bank would be required
first to execute upon the part still held by the mortgagee, and – only then – proceed against
the parts alienated, now in the hands of a third person. If more than one conveyance were
made to more than one third person, then the bank would be able to execute against the
multiple parcels in the reverse order of alienation but – again – only after executing against
the nonalienated portion. Accordingly, something of a equitable hierarchy emerges for the
purpose of determining whose property is at risk first in foreclosure. For example, the proper
treatment of the instant case would be straightforward absent the release of the Ford and Lee
units from the mortgage. The purchase agreements signed by the purchasers stated that the
units were subject to the lien of a construction mortgage. The eight units would have been
16
subject to foreclosure, with the latest-purchased unit the first to be at risk, then the next-
latest-purchased unit, and so on, until the mortgage was satisfied or the property available
to foreclose upon was exhausted.
¶32. In the situation here, eight units – all alienated by the mortgagor – are extant in
foreclosure, but the four later-alienated units, which normally would be the first four subject
to foreclosure, have been released by the bank from the mortgage. If the bank released the
four later-alienated units with knowledge that four other units, bought by purchasers with the
expectation that the remaining units would be foreclosed first, had already been alienated,
it makes perfect sense to hold that the bank, so knowing, released the later-alienated units at
its own risk. However, if the bank released the later-alienated units without knowledge that
four units had previously been alienated – in other words, believing additional units remained
in the hands of the mortgagor that would be available for foreclosure – then no reason exists
to penalize the bank for releasing whomever it will from a mortgage.
Where, however, it appears that the mortgagee had no notice of a prior
conveyance or conveyances at the time when he released a parcel of the
mortgaged premises alienated by the mortgagor, it is uniformly held that he
may enforce his lien against the parcel or parcels first conveyed, to the full
extent of the debt secured.
Doctrine of Inverse Order of Alienation as Affected by Release of Part of Property Covered
by Mortgage or Other Lien, 110 A.L.R. 65 (1937). Accordingly, we hold that the event of
which a mortgagee must be on notice is the earlier alienation of parcels of the mortgaged
land at the time it chooses to release later-alienated parcels (or units, as in the case sub
judice). Having identified the notice event, we now turn to the type of notice required–
actual or constructive.
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¶33. As discussed above, the Pongetti Court adopted the American Law Reports article’s
discussion of the effect of a release on part of a larger tract of mortgaged land. The language
so adopted provides, in pertinent part, that “the mortgagee or other lienor, having notice of
such alienation, releases the mortgage or other lien as to the portion retained by the
mortgagor or lienee. . . .” While the quoted language should not be taken as dispositive, as
the parties did not place the type of notice required at issue in Pongetti, it is worth noting that
the language contains none of the usual markers to indicate that something less than actual
notice is acceptable, such as “reasonably should have known” or the like.
¶34. Because the Pongetti Court’s language does not wholly answer the question, the Court
turns to decisions by other courts as persuasive authority. In a case analogous to Pongetti,
the Fourth Circuit wrote:
Where the owner of the paramount incumbrance [sic] releases security
therefrom, there is ordinarily nothing to put him on notice that the owner of the
property incumbered has conveyed any part of it, and he is not chargeable with
notice of such conveyance unless it is expressly brought to his attention.
Fidelity & Cas. Co. of N.Y. v. Mass. Mut. Life Ins. Co., 74 F.2d 881, 885 (4th Cir. 1935)
(emphasis added). However, that court went on to say that if the owner of the paramount
encumbrance “is diligent and investigates the holdings of the grantor and the incumbrances
[sic] against them, as he should do in the exercise of ordinary care, he will learn of prior
conveyances which are of record and the equities of prior alienees.” Id. The court found that
it was reasonable to hold that
the surety on such a bond, given to protect against the enforcement of a lien,
is chargeable with notice of what the records disclose as to prior conveyances
by the grantor of property subject to that lien. He is fairly put upon inquiry by
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the circumstances and is chargeable with knowledge of what the inquiry would
have disclosed.
Id. at 885-86. Thus, the Fourth Circuit merely requires inquiry notice for the Pongetti
principle to apply.
¶35. In contrast, the Tenth Circuit has required actual notice, holding that “if the senior
mortgagee, with actual knowledge of the junior encumbrance voluntarily releases a portion
of its security to the prejudice of the junior encumbrancer, without releasing a proportionate
part of its debt, it is accountable to the junior encumbrancer for the value of the released
security.” Cont’l Supply Co. v. Marshall, 152 F.2d 300, 308 (10th Cir. 1945) (citing Turner
v. Ridge Heights Land Co., 92 N.J. Eq. 64, 111 A. 675 (N.J. Ch. 1920); Anderson v.
McCloud-Love Live-Stock Comm’n Co., 58 Neb. 670, 79 N.W. 613 (1899); Howard v.
Burns, 73 Minn. 356, 76 N.W. 202 (1898); Boone v. Clark, 129 Ill. 466, 21 N.E. 850(1889)). The Third Circuit quoted the above language with apparent approval in In re Penn
Central Transportation Co., 494 F.2d 270, 277 (3d Cir. 1974). The Supreme Court of
Alabama has similarly required actual notice. Interstate Land & Inv. Co. v. Logan, 196 Ala.
196, 206, 72 So. 36, 40 (1916) (“The mortgagee is not prevented from dealing with the
mortgaged premises in any manner consistent with his general rights as a mortgagee, unless
he has received actual notice of the conveyance to the subsequent owners whose interest
would be affected by his dealings.”).
¶36. The Court holds that actual notice is required to trigger the Pongetti rule. Requiring
actual notice aligns with the intention of Pongetti that mortgagees, such as BancorpSouth,
cannot release a partial deed of trust on a parcel – here the Ford and Lee units – when they
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expressly knew that other parcels had been previously conveyed but not released – here the
purchasers’ units – without subsequently deducting the value of the parcel from the overall
lien. In other words, the intention of the rule of inverse alienation is fulfilled under Pongetti
in that, upon foreclosure, the mortgagee must first foreclose on the parcels most recently
alienated and cannot release recently alienated parcels without crediting the earlier alienated
parcels, if actually known by the mortgagee, for the value of the parcels released.
¶37. The Court has defined what constitutes actual notice:
actual notice often means knowledge of facts and circumstances sufficiently
pertinent in character to enable reasonably prudent persons to investigate and
ascertain as to the ultimate facts, and it may include knowledge of all facts
which a reasonable inquiry would have disclosed. Actual notice is implied
only when the known facts are sufficiently specific to impose the duty to
investigate further and when such facts furnish a natural clue to the ultimate
fact. Implied notice arises from an inference of fact.
AmSouth Bank v. Gupta, 838 So. 2d 205, 215 (¶ 27) (Miss. 2002) (quoting King Lumber
Indus. v. Cain, 209 So. 2d 844, 848 (Miss. 1968)). With that said, the AmSouth Court went
on to find that “[m]erely alleging what Farmer knew or should have known sometime over
the course of one month, in a case where specific dates are crucial, will not support a finding
that AmSouth actually was on notice . . . .” Id. at 215-16 (¶ 29). Similarly, the Court cannot
find that the purchasers have demonstrated that BancorpSouth actually knew that they
specifically had been conveyed their units. Instead, the purchasers merely allege that the
bank knew of their conveyances through documents that do not make specific reference to
the purchasers’ conveyances. Taking the evidence in the light most favorable to
BancorpSouth as the nonmoving party, the Court finds that an issue of material fact exists
as to whether BancorpSouth had actual notice of the purchasers’ conveyances.
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¶38. To summarize, it is the actual notice of the alienation of the unreleased portions, i.e.,
the purchasers’ units, that is of concern, not the alienation of the released portions. Whether
the Pongetti rule is in play hinges on whether BancorpSouth, as mortgagee, knew that units
had been conveyed to the purchasers when the bank released the Ford and Lee units from the
deed of trust.
¶39. A list showing the dates of the partial releases shows that Ford’s unit 210 was released
on October 9, 2003. The partial release signed by Ron Winford of BancorpSouth shows that
Lee’s units 305 and 306 were released on May 19, 2004, and his unit 307 was released on
June 23, 2004. Thus, whether the Pongetti rule is triggered depends on whether
BancorpSouth had notice that Van Buren had sold units specifically to the purchasers before
the partial releases of the Ford and Lee units.
¶40. A letter from Bobby Covington of TCS to Bobby Little of BancorpSouth regarding
the Van Buren condos, dated August 23, 2001, states that Covington, who, as an attorney on
behalf of Van Buren, was tasked with preparing the Deed of Trust release documents for the
bank to review, was holding in his escrow account $21,000 as a deposit of earnest money for
Ford’s purchase of unit 210. The same letter references the Albritons, Grenfell, and
Langston, each of the purchaser group. The fact that only earnest money had been tendered
signifies that the units had not yet been conveyed, thus the letter fails to ameliorate the
existence of material issues of fact as to the subject of notice.
¶41. A second letter, from Frazier Construction to BancorpSouth, dated July 2002, lists
several units next to what appears to be a list of buyers and the contracted price, although
there are no labels. The July 2002 letter lists, “102 Shane Langston $241,980 . . . 201 James
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Grenfell $240,000 . . . 207 Bryan $259,000 . . . 303 John Albritton $241,980.” The letter also
lists “210 Tim Ford $210,000 . . . 305/306 Lee $400,000.” Similar to the August 2001 letter,
the July 2002 letter does not state that the units actually had been conveyed to their
respective purchasers or even that a contract had been entered.
¶42. An internal BancorpSouth letter from Ron Winford to James Stringer, dated June 2,
2003, and summarizing the discussions of a March 31, 2003, meeting with Frazier, states that
“the project is 91% complete and 27 of 30 units [have been] sold.” It goes on to say that
Winford “anticipate[d] being paid out of this project by the end of August [2003].” The letter
then cryptically states that, according to a third-party inspector, “the project has been slow
and there has been derogatory information reported on [the inspector’s] trade lines. This
verifies information that we have received regarding the same.” Another internal bank
document, dated April 8, 2004, states that “25 of the 30 units have been sold and delivered”
and that two of the five remaining had been contracted. Neither of these documents makes
reference to specific conveyances to any of the purchasers.
¶43. Viewing the evidence in the light most favorable to BancorpSouth, the Court finds
that an issue of material fact exists regarding whether BancorpSouth had actual notice of Van
Buren’s conveyances to the purchasers when it released Ford’s and Lee’s units from the deed
of trust. Because of the existence of an issue of material fact, we reverse the trial court’s
grant of summary judgment and remand the case for further proceedings consistent with the
instant opinion. We also affirm in part the judgment of the Court of Appeals as to the
reversal of the trial court’s judgment as to Brantley and Crumpton, but we reverse it in part
as to its affirmance of summary judgment as to the four purchasers.
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CONCLUSION
¶44. In order for the Pongetti rule to apply and for BancorpSouth to have to credit the
value of the Ford and Lee units against the amount owed before foreclosing on the
purchasers’ units, BancorpSouth must have had actual notice of the alienation of the
purchasers’ units when it released the Ford and Lee units. Because an issue of material fact
exists as to whether the bank had such actual notice, we reverse the trial court’s grant of
summary judgment and remand to the trial court for proceedings consistent with this opinion.
¶45. THE JUDGMENT OF THE COURT OF APPEALS IS AFFIRMED IN PART
AND REVERSED IN PART. THE JUDGMENT OF THE CHANCERY COURT OF
LAFAYETTE COUNTY IS REVERSED AND THE CASE IS REMANDED.
WALLER, C.J., DICKINSON, P.J., KITCHENS, CHANDLER, PIERCE AND
KING, JJ., CONCUR. RANDOLPH, P.J., AND LAMAR, J., NOT PARTICIPATING.
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