# FILED
February

21, 1997 Cecil W. Crowson Ap pellate Cou rt Clerk FRANCES W. ALMANY; and ) WILLIAM T. HALL and wife, ) NORMA JEAN HALL and LAW YERS ) TITLE INSURANC E CORP., by and ) on behalf of ROBERT L. WOODS, ) ) Plaintiffs/App ellants, ) ) Appeal No. ) 01-A-01-9608- CH-00376 VS. ) ) Sumner Chancery ) No. 94C-83 THOMAS A. CH RISTIE and wi fe, ) MARIA L. CH RISTIE; and GAIL P. ) PIGG, Substitut e Trustee, ) ) Defendants/Ap pellees. )

COURT OF APPE ALS OF TENNESSEE MIDDLE SEC TION AT NASHVILLE
APPEALE D FRO M THE C HANC ERY C OURT O F SUM NER C OUNTY AT GALLATIN, TENNESSE E THE HONORABLE JOHN H. G ASAWAY, III, JUDGE BY INTERCHANGE

MICHAEL W . EDW ARDS 177 E. Main Str

eet Hendersonvi lle, Tennessee 37075 THOMAS F. BLOO M 500 Church Street, 5th Floor Nashvil le, Tennessee 37219 Attorneys for Plaintiffs/Appell ants GAIL P. PIGG 219 Second Avenue, North First Fl oor Suite Nashvil le, Tennessee 37201 Attorney for Defendants/Appellees

AFFIRMED AND REMAN DED

BEN H. CAN TRELL, JUDGE
CONCUR: LEW IS, J. KOCH, J.- 2 - 

## O P I N I O N

The question we must decidein this cas e is wheth er a purchaser of real estate, whose purc hase money is used in the cl osing to pay offtwo prior mortgages, is subrogated t o a position s uperior toa t hird mortga ge. The Chancer y Court of Sumner County

refuse d to re cogni ze th e subrogati on. We affirm.

I.

On July 31, 199 3 the owner of a parcel of real property i n S umne r County entered into a contract to sel l the property to Robert L. Wood s. The s eller promised to conv

ey the proper

ty by a good and val id warr anty deed to the buyer for $68,000 cash. At the t ime 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 Mor tgage $46,325.80 2. Homeowners Equity Service 8,711.29 3. Jerry B utler 33,411.33 4. Nashville Electric Service 7,661.57

On August 13, 1993, the parties c losed t he transaction and the seller gave Mr. W oods a warra nty deed stating t h at the land was unencumbered. The closing agentwithheld funds from the seller ’s proceeds t o pay Boston F ive Cent Mortgag e, Homeowners Equity Service, and Nashville Electric Service. Jerry Butler’s claim was

not paid, and his

deed of trust remai ned an encumbrance on the title.

In June of 1994 , M r. Butler started foreclosu re proceeding s. The purchaser’s tit le i nsur

ancecomp any

sued to enjoi n thefo rec losure. Later , the
co mplaintwas amended to substitute as party plai ntiffs the lenders w ho loaned Mr

. Woods the purchase money and obtained a sec ured interest in the prop erty. The chancellor

gran ted sum mary

judg ment to Mr. B utler allow ing h im t o p roceed wi th- 3 -

foreclosure.

II.

The appellants rely on the doc tr ine of equitable subro gatio n which allows
a person who

pays thedebt of another to assume t he creditor’ s place w ith respect t o the debt. Castleman Construction Co. v. Pennington , 222 Tenn. 82, 432 S.W.2d 669 (1968). Beinga creature of eq uity, subr ogation principles

are naturall y flexib le, and maybe said to encompass all cases whe re complete justice cannot be don e without it. Walker v. Walker

, 138 Tenn. 679, 200 S.W . 825 (1917). The doctrine, however, will not be extended beyond the sett led princip les on which it rests. Cole v. Patty , 175 Tenn. 334, 134 S.W .2d 160 (1939).

Perhaps the fullest ex

tension ofthe subrogatio n doctrine can be found in the case of Dixon v. M organ , 154 Tenn. 389, 285 S.W. 558 (1926 ), o n which th e appellants rel y. In that case Wright sold a farm to M organ, retai ning a vendor’s lie n to secure the pay ment of the balance of the purchase pri ce. Morg an borrowe d money from a bank to make the d ow n p ayment and gav e the bank a deed of tr ust, making the bank’s security interest secondary to W right’s vendor’s lien. The bank’s deed of trust was proper ly recor ded. Morgan then conveye d a part of the land t o Dixon, w ho paid all of the consi deration to Wright tobe applied on his vend or’s lien. Wright joined in the co nveyance f rom Morgan to Dixon in a deed co ntainin g the fo llowing:

“I, the undersig ned I. G. W right, hereby join in this deed and hereby convey, r elease, and qui tclaim unto the said C. M. Di xon, his hei rs and assig ns forever, all the right, title, cl aim, and interest that I h av e in and to said abov e-desc ribed tract of land by reason of the li en retained in the deed executed by mysel f and wife to John H. Morgan, co nveying a large tract of land of w hich the above-descr ibed tract is a part, and I join in this instrument

simply t o release sai d l ien, and do hereby release and disc harge said above- described tr act of land from the lien ret ained in the deed ex ecuted by mysel f and wife to said John H. Morgan.”- 4 - Dixon did not searc h th e reco rds but assumed t hat Wright’s vendor’ s lien
was the only encumbrance on the p roperty. Morgan did not mention the bank’s
secu rity, but there was no indication in the record that h e intended any harm to Dixon.

Dixon, upon lea rni ng o f the bank ’s l ien, fi led an action in chancery praying that he be subrogated to W right’s lien with rights superior to the bank’s. The SupremeCourt up held Dixon ’s claim. Although the Court del ivered a l engthy opinion its reasons may be summed up in a passage from 25 Ruling C ase Law 1353 which the Court q uoted:

“And the rule suppor

ted by the weight of authority is that, when a purchaser p ays off a prior incumbrance asa part of the purchase pr ice, without ac tual notice of a j unior

lien, it will be presumed th at he pa id th e sam e fo r his o wn benefit and the protection of his own interests, and equity will treat him as the assig nee of the origi nal incumbrance, and will revive and enforce it for h is benefit.” 285 S.W. at 564, 154 Tenn. at 411.

In contrast, the appellee cites Cole v. Patty , 175 Tenn. 334, 134 S. W.2d 160 (1939), in which the Cou rt denied subr ogation to a pur

chaser wh o paid off an existingmortgage as

part of the purchas e price. The C ourt said: It is show n by the conveyance to Co l e that he assumed defendant’ s mort gage debt on t he tract of land i nvolved and it appears from evidence that when compla inant paid the debt, he intended t o an d did exting uish it. Extingui shment of the debt rebuts the idea ofsubstitution and in such cas es the rig ht of subrogati on cannot arise

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

W hile an arg ument could be made that Dixon v. M organ has been overrule d by Cole v. Patty , we need not go that far. Dixon may be disti nguished from this case on several points. First, th e purchaser i n Dixon actually received a conveyance of the vendor ’s lien w hen the origi nal seller joined in the de ed. The- 5 -

language quoted above shows that the origi nal seller’ s security interest i n the property
was granted to the buyer. Second, the buyer in this case is not the party

claiming subrogation. This action has been prosecuted fro m the beginning, first by the buyer’s title insu ranc e com pan y, and now by t he m ortga gees wh o loaned him t he do wn payment. Whatever equit ies arose in favor of the purchaser in Dixon do not extend with the same force to thi rd parties w ho claim throug h the purchaser. Third, the buyer in this case di d not pay off the ex isting mor tgages as part of the purchas e price. The contract between the buyer and the sell er shows that the buyer was to pay

the seller $68,000 in cash and rec eive a warrant y deed to the pr

operty. That is exactl y what happened. Fourth, there is no indication in this record that t he sel ler is in solvent. Therefore, the buyer has an adequate remedy against the seller on the warranties in the deed.

We concur in th e chancellor’ s decision t hat t hi s is not a cas e for the application of subrogation principles . Therefore, we affirm the chancellor’s decisio n and remand th e case to the Ch ancery Co urt of Sumner County for any further procee dings that may become n ecessary. Tax the costs on appe al to the appellants.

_____________________________ BEN H. CAN TRELL, JUDGE CONCUR:

_______________________________ SAMUEL L. LEWIS, JUDGE

______________________________ WILLIAM C. KOCH, JR., J UDGE

IN THE COURT OF APPEALS OF TEN NESSEE MIDDLE SEC TION AT NASHVILLE
FRANCES W. ALMANY; and ) WILLIAM T. HALL and wife, ) NORMA JEAN HALL and LAW YERS ) TITLE INSURANC E CORP., by and ) on behalf of ROBERT L. WOODS, )) Plaintiffs/App ellants, ) ) Appeal No. ) 01-A-01-9608- CH-00376 VS. ) ) Sumner Chancery ) No. 94C-83 THOMAS A. CH RISTIE and wi fe, ) MARIA L. CH RISTIE; and GAIL P. ) Affirmed PIGG, Substitut e Trustee, ) and ) Remanded Defendants/Ap pellees. )



### J U D G M E N T This cause came on to be heard upon the record on appeal from the ChanceryCourt of Sumner C ounty, bri efs and arg ument of counsel; upon consideration whereof, this Court is of the opinion that i n 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 C ourt thatthe decree of the C hancellor i s affirmed. The
cause is remanded to the Chancery Court of Sumner C ounty for the enforcement of the d ecre e and for t he co llect ion o f th e cos ts ac crue d bel ow.

Costs of this appeal are taxed against Fr anc es W. Almany, et al., Princ ipals, and Michael W. Edwards, Surety, for which execution may i ssue i f
nece ssary. ENTER _______________________.

_________________________________ SAMUEL L. LEWIS, JUDGE

_________________________________ BEN H. CAN TRELL, JUDGE

_________________________________ WILLIAM C. KOCH, JR., J UDGE