FILED

February 21, 1997

Cecil W. Crowson

Appellate Court Clerk

FRANCES W. ALMANY; and )

WILLIAM T. HALL and wife, )

NORMA JEAN HALL and LAWYERS )

TITLE INSURANCE CORP., by and )

on behalf of ROBERT L. WOODS, )

)

Plaintiffs/Appellants, )

) Appeal No.

) 01-A-01-9608-CH-00376

VS. )

) Sumner Chancery

) No. 94C-83

THOMAS A. CHRISTIE and wife, )

MARIA L. CHRISTIE; and GAIL P. )

PIGG, Substitute Trustee, )

)

Defendants/Appellees. )

COURT OF APPEALS OF TENNESSEE

MIDDLE SECTION AT NASHVILLE

APPEALED FROM THE CHANCERY COURT OF SUMNER COUNTY

AT GALLATIN, TENNESSEE

THE HONORABLE JOHN H. GASAWAY, III, JUDGE BY INTERCHANGE

MICHAEL W. EDWARDS

177 E. Main Street

Hendersonville, Tennessee 37075

THOMAS F. BLOOM

500 Church Street, 5th Floor

Nashville, Tennessee 37219

Attorneys for Plaintiffs/Appellants

GAIL P. PIGG

219 Second Avenue, North

First Floor Suite

Nashville, Tennessee 37201

Attorney for Defendants/Appellees

AFFIRMED AND REMANDED

BEN H. CANTRELL, JUDGE

CONCUR:

LEWIS, J.

KOCH, J.
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O P I N I O N

The question we must decide in this case is whether a purchaser of real

estate, whose purchase money is used in the closing to pay off two prior mortgages,

is subrogated to a position superior to a third mortgage. The Chancery Court of

Sumner County refused to recognize the subrogation. We affirm.

I.

On July 31, 1993 the owner of a parcel of real property in Sumner

County entered into a contract to sell the property to Robert L. Woods. The seller

promised to convey the property by a good and valid warranty deed to the buyer for

$68,000 cash. At the time of the closing, the title to the property was encumbered by

the following four deeds of trust (in order of priority):

1. Boston Five Cent Mortgage $46,325.80

2. Homeowners Equity Service 8,711.29

3. Jerry Butler 33,411.33

4. Nashville Electric Service 7,661.57

On August 13, 1993, the parties closed the transaction and the seller

gave Mr. Woods a warranty deed stating that the land was unencumbered. The

closing agent withheld funds from the seller’s proceeds to pay Boston Five Cent

Mortgage, Homeowners Equity Service, and Nashville Electric Service. Jerry Butler’s

claim was not paid, and his deed of trust remained an encumbrance on the title.

In June of 1994, Mr. Butler started foreclosure proceedings. The

purchaser’s title insurance company sued to enjoin the foreclosure. Later, the

complaint was amended to substitute as party plaintiffs the lenders who loaned Mr.

Woods the purchase money and obtained a secured interest in the property. The

chancellor granted summary judgment to Mr. Butler allowing him to proceed with
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foreclosure.

II.

The appellants rely on the doctrine of equitable subrogation which allows

a person who pays the debt of another to assume the creditor’s place with respect to

the debt. Castleman Construction Co. v. Pennington, 222 Tenn. 82, 432 S.W.2d 669

(1968). Being a creature of equity, subrogation principles are naturally flexible, and

may be said to encompass all cases where complete justice cannot be done without

it. Walker v. Walker, 138 Tenn. 679, 200 S.W. 825 (1917). The doctrine, however,

will not be extended beyond the settled principles on which it rests. Cole v. Patty, 175

Tenn. 334, 134 S.W.2d 160 (1939).

Perhaps the fullest extension of the subrogation doctrine can be found

in the case of Dixon v. Morgan, 154 Tenn. 389, 285 S.W. 558 (1926), on which the

appellants rely. In that case Wright sold a farm to Morgan, retaining a vendor’s lien

to secure the payment of the balance of the purchase price. Morgan borrowed money

from a bank to make the down payment and gave the bank a deed of trust, making

the bank’s security interest secondary to Wright’s vendor’s lien. The bank’s deed of

trust was properly recorded. Morgan then conveyed a part of the land to Dixon, who

paid all of the consideration to Wright to be applied on his vendor’s lien. Wright joined

in the conveyance from Morgan to Dixon in a deed containing the following:

“I, the undersigned I. G. Wright, hereby join in this

deed and hereby convey, release, and quitclaim unto the

said C. M. Dixon, his heirs and assigns forever, all the

right, title, claim, and interest that I have in and to said

above-described tract of land by reason of the lien

retained in the deed executed by myself and wife to John

H. Morgan, conveying a large tract of land of which the

above-described tract is a part, and I join in this

instrument simply to release said lien, and do hereby

release and discharge said above-described tract of land

from the lien retained in the deed executed by myself and

wife to said John H. Morgan.”
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Dixon did not search the records but assumed that Wright’s vendor’s lien

was the only encumbrance on the property. Morgan did not mention the bank’s

security, but there was no indication in the record that he intended any harm to Dixon.

Dixon, upon learning of the bank’s lien, filed an action in chancery

praying that he be subrogated to Wright’s lien with rights superior to the bank’s. The

Supreme Court upheld Dixon’s claim. Although the Court delivered a lengthy opinion

its reasons may be summed up in a passage from 25 Ruling Case Law 1353 which

the Court quoted:

“And the rule supported by the weight of authority is that,

when a purchaser pays off a prior incumbrance as a part

of the purchase price, without actual notice of a junior lien,

it will be presumed that he paid the same for his own

benefit and the protection of his own interests, and equity

will treat him as the assignee of the original incumbrance,

and will revive and enforce it for his benefit.”

285 S.W. at 564, 154 Tenn. at 411.

In contrast, the appellee citesCole v. Patty, 175 Tenn. 334, 134 S. W.2d

160 (1939), in which the Court denied subrogation to a purchaser who paid off an

existing mortgage as part of the purchase price. The Court said:

It is shown by the conveyance to Cole that he assumed

defendant’s mortgage debt on the tract of land involved

and it appears from evidence that when complainant paid

the debt, he intended to and did extinguish it.

Extinguishment of the debt rebuts the idea of substitution

and in such cases the right of subrogation cannot arise.

134 S.W.2d at 162, 175 Tenn. at 338.

While an argument could be made that Dixon v. Morgan has been

overruled by Cole v. Patty, we need not go that far. Dixon may be distinguished from

this case on several points. First, the purchaser in Dixon actually received a

conveyance of the vendor’s lien when the original seller joined in the deed. The
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language quoted above shows that the original seller’s security interest in the property

was granted to the buyer. Second, the buyer in this case is not the party claiming

subrogation. This action has been prosecuted from the beginning, first by the buyer’s

title insurance company, and now by the mortgagees who loaned him the down

payment. Whatever equities arose in favor of the purchaser in Dixon do not extend

with the same force to third parties who claim through the purchaser. Third, the buyer

in this case did not pay off the existing mortgages as part of the purchase price. The

contract between the buyer and the seller shows that the buyer was to pay the seller

$68,000 in cash and receive a warranty deed to the property. That is exactly what

happened. Fourth, there is no indication in this record that the seller is insolvent.

Therefore, the buyer has an adequate remedy against the seller on the warranties in

the deed.

We concur in the chancellor’s decision that this is not a case for the

application of subrogation principles. Therefore, we affirm the chancellor’s decision

and remand the case to the Chancery Court of Sumner County for any further

proceedings that may become necessary. Tax the costs on appeal to the appellants.

_____________________________

BEN H. CANTRELL, JUDGE

CONCUR:

_______________________________

SAMUEL L. LEWIS, JUDGE

______________________________

WILLIAM C. KOCH, JR., JUDGE

IN THE COURT OF APPEALS OF TENNESSEE

MIDDLE SECTION AT NASHVILLE

FRANCES W. ALMANY; and )

WILLIAM T. HALL and wife, )

NORMA JEAN HALL and LAWYERS )

TITLE INSURANCE CORP., by and )

on behalf of ROBERT L. WOODS, )
)

Plaintiffs/Appellants, )

) Appeal No.

) 01-A-01-9608-CH-00376

VS. )

) Sumner Chancery

) No. 94C-83

THOMAS A. CHRISTIE and wife, )

MARIA L. CHRISTIE; and GAIL P. ) Affirmed

PIGG, Substitute Trustee, ) and

) Remanded

Defendants/Appellees. )

J U D G M E N T

This cause came on to be heard upon the record on appeal from the

Chancery Court of Sumner County, briefs and argument of counsel; upon

consideration whereof, this Court is of the opinion that in the decree of the Chancellor

there is no reversible error.

In accordance with the opinion of the Court filed herein, it is, therefore,

ordered and decreed by this Court that the decree of the Chancellor is affirmed. The

cause is remanded to the Chancery Court of Sumner County for the enforcement of

the decree and for the collection of the costs accrued below.

Costs of this appeal are taxed against Frances W. Almany, et al.,

Principals, and Michael W. Edwards, Surety, for which execution may issue if

necessary.

ENTER _______________________.

_________________________________

SAMUEL L. LEWIS, JUDGE

_________________________________

BEN H. CANTRELL, JUDGE

_________________________________

WILLIAM C. KOCH, JR., JUDGE