# FILED April 24, 1998 Cecil W. Crowson Appellate Cou rt Clerk IN THE COURT OF APPEALS OF TENNESSEE,

AT NASHVILLE

_______________________________________________________ ) RICHARD M. WRIG

HT, III, et al, ) Davidson County Chancery Court

) No. 89-1720-I Plaintiff/Appellee. ) ) VS. ) C.A. No. 01A01-9709-CH-00470 ) C & S FAMILY CRED

IT, INC., et al, )

) Defendant/Appe

llant. ) )

______________________________________________________________________________ From the Chancery Court of Davidson County a t Nashville. Honorable Irvin H. Kilcrease, Jr., Chancellor
D. Ronald Ingram , Goodlettsville, Tennessee Attorney fo

r Defendant/App

ellant. Joseph L. Lackey, Jr. , Nashville, Tennessee Attorney for Plaintiff/Appellee.

OPINION FIL

ED: REVERSED AND REMAN DED FARMER, J. CRAWFORD, P.

J., W.S. : (Concurs) HIGHERS, J. : (Concurs)Defendant C & S Family Cr

edit, Inc., a

ppeals the trial c

ourt’s j udgment en tered in favor of Plaintiff/Appellee Richard M. Wright, III , in the amount of $122,0 48. The trial court’s judgment was predicated on C & S’s failure to disclose the existence of a judgment lien on property being purchased by

Wright with

proceed s from a lo

an transa ction with C & S. We

reverse the trial court’s judgment based on our conclusion that, under the circ umstances of this case, C & S owed no duty to disclose to Wright the existence of the judgment lien.

In January 1989 , Wright and C & S en gaged in a co

mmercial lo an tra nsaction whereby C & S loaned to Wright and his partner in a joint v enture, Ellis B. Goodloe, the sum of $662,000. Many of the de tails of the trans actio n are n ot rel evant to th is app eal. In essence, however, Wright’s purpose in securing the loan was to acquire real estate for future development, including
a piece of proper

ty in Wilson County. The lo

an was collatera

lized with the newly

-acquired prop

erty andwith other property previous ly owned by Wr ight and Goo dlo e. T he v end or o f th e new lyacquired property was Lar imore Foster.

On December 13, 1988, prior to the loan closing, Rodney M. S cott of Pro Title Servi ces, Inc., caused a title insurance commitment to be issued relative to the Wilson Count y property and the ot her property

involved in the tra

nsaction. In c

onnection with Scot

t’s services, Wright and Goodloe paid th

e sum of $32,400 to Pr

o Title Services f

or Scott to pay back taxes on the Wilson County property. The title insuranc e commitment issued

by Scott reflected that a judgment lien in the amount of $150 ,385.97 in favor of

Sovran Bank and a

gainst Elli s B. G oodloe and Larimore Foster had been recorded in both Williamson County and D avidson County, Tennessee. The title insurance commitment did not reveal the existence of such a judgmen t lien in Wilson County as the lien had not been recorded in Wilson county when the commitment was issued.

In addition to performing the title work on the property, and in accordance with the requirements

of the loan application, Rodney Scott of Pro Title Services handled the loan closing
on January 6, 1989. Wright and Goodloe a ppeared at the lo an closing and si

gned the docume

nts presented to them. According to Wright and Goodloe, neither Scott of Pro Title Services nor Charles Mullins, C & S’s branch manager, explai ned the significance of the documents the men were signing, and they did not

inform the men of the existence of any liens on the property being acquired.Wright

and Goodloe also a

dmitted, however

, that they ne

ver inquired as t

o a ny of these matters during the loan cl osing. At t he time of t he loan clos ing, Wright and Go odloe simultaneous ly purchased

the Wilson County property and another piece of property from Larimore Foster . Foster, who executed a quitcla

im deed to

the Wilson County property, also did not disclose the existence of any liens on the property. Pursuant to the parti es’ loan agreement, C & S received a mortgage on the Wilson County property and the other property involved in the transaction.

Several days after the loan closing, Scott recorded the quitclaim deed to the Wilson County property. A

t that time, Scott disc

overed that, betw

een the time of the

iss uanc e of the title insurance commitment and the closing of the loan, Sovran Bank had r ecorded its judg

ment against Goodloe and Foster in Wilson County and, thus, the judgment appeared as a $150,385.97 lien on the Wilson County property recently sold by Foster to Wright and Goodloe. When Scott called Charles Mullins at C & S to inform him of his discov ery of the Wilson County judgment lien, Mullins instructedScott to record the deed anyway and stated that they would “straighten it out later.” Mullins was involved in neg otiations with

S ovran Bank to enter into a subordination agreement relative to at leas

t one of the

other judg

ment liens , and he wa

s hopeful that the Wi

lson Count y judgment lien also could

be subordinated. Although only about half of the loan proceeds had been disbursedat this time, Mu llins procee ded to disburse the remaining loan proceeds, including the funds necessary to purchase the Wilson County proper ty. Only after disbursing all of the l oan proceeds did Mullins inform Wright of the existence of the Wilson County judgment lien.

Wright subsequently brought this action against C & S in which he contended, inter alia , that C &

S had breached

its duty to disc

lose any kno

wn defects in the

title to the Wilson Count

y property and that Wright suffered

damages as a

result of this brea

ch. After conduc

ting a bench tria

l, the trial court

entered a judgment in favor of Wright in the amount of $122,048. In doing so, the trial court expressly fo und that C & S had the dut y to disclose

the existence of th

e Wilson County judgment lien to Wright. This appeal followed.

Liability for non-disclosure may be imposed only i

n cases where th

e party sought to be held responsible h

ad a duty to

disclose the facts at issue. Walker v. First State Bank , 849 S.W.2d 337, 341 (Tenn. App. 1992). “As a general rule, one party to a transactionhas no duty to disclosemateri al facts t o the other.” Macon County Livesto ck Mkt., Inc. v. Kent

ucky State Bank , 724 S.W.2d 343, 350 (T enn. App. 1 986) (quot ing Klein v. First Edina Nat’ l Bank , 196 N. W.2d 619, 622 (Minn. 1972)).

An exception to

this general ru

le arises where

there “is a prev

ious definite

fiduciary relation between theparties,” or whe re the contract

or transaction “

is intrinsically

fiduciary and calls for perfec t goo d faith.” Macon County Livesto ck Mkt. , 724 S.W. 2d at 349 (q uoting Domestic SewingMach. Co. v. Jackson , 83 Tenn. 418, 424-25 (1885)); accord Walker v. First State Ba nk , 849 S.W.2d at 341. An exception also arises where the evidence demonstrates that “one or each of the parties to the contract expressly reposes a trust and confidence in the other.” Id
.

After carefully reviewing the e

vidence presen

ted, we conclude

that n one of the foregoingrelationships or c ircumstances exist

in th is ca se which would impos e a duty to dis

close upon C & S. Under Tennessee law, the debtor/creditor relationship does not constitute a fiduciary relationship. Glazer v. First Am. Nat’ l Bank , 930 S.W.2d 546, 550 (Tenn. 1996); Macon County Livestock Mkt. , 724 S.W.2d at 349; see also Merchants & Planters Bank v. Williamson , 691 So. 2d 398, 404 (Miss. 1997) (noting that “the vast majority of courts” have concluded that, as a matter of law, “the relationship between a mortgagor and mortgagee is not a fiduciary one”). Absent special facts and circums tances, “th e dealings between a lender and borrower are not inherently fiduciary .” Oak Ridge Precision Indus., Inc. v. First Tennessee Bank Nat’l Ass’n , 835 S.W.2d 25, 30 (Tenn. App. 1992). Accordin

gly, neithe

r C & S’s relations

hip to Wrig

ht nor the lo an transaction its elf imposed a duty

of disclosure upon

C & S.

Moreover, the evidence presented inthis case does not support the finding that Wright expressly re

posed a trust and c

onfidence in C & S.

In order for

a duty of disc

losure to arise under this exception, the evidence must show that the lending institution either knew or had rea

son to know that the customer was placing his trust and confidence in the lender and was rely ing upon the lender to counsel and inform him. Macon County Livestock Mkt . , 724 S.W. 2d at 350 (ci ting Klein v. First Edina Nat’l Bank , 196 N.W.2d at 622). Wright testified that, had Mullins informed him of the Wilson County judgment lien, he would have instructed Mullins to stop the transaction and to “do nothing.” Wright

never testified, however, that he placed any type of trust or c onfidence in C & Sor

Mullins to inform him of this or any other information. Wright testified that

he paid a fee to Pro TitleServ ices to pay back taxes on the Wilson County property , but there was no testimony that Wright relied on C& S to p erfo rm a tit le s earc h or to d isc los e any o uts tan din g li ens on t he p rop ert y. Although Wright signed an affidavit at the lo an closing certifying that he knew of no claim to the property which was not discl

osed in the title re

port, Wright appa

rently did not read the title insurance commitmentprepared by Pro Title Services , which would have revealed th

e exist ence of the judgment as a lien in Williamson and Davidson counties. Atthe time of the closing, Wright was not
awarethat Sovra n Bank had a ju dgm ent against Goodloe and Foster, nor did Wright direct any inquiries to C & S regarding this or any other matter. Absent evidence that Wright expressly relied upon C & S to counsel and i nform him of such lie

ns, we conclude th

at a judgment predicated on C & S’s failure to d

isclose such informat ion cannot be sustained. See Macon County Livestock Mkt., Inc. v. Kentucky Stat e Bank , 724 S.W.2d 343, 351 (Tenn. App. 1986) (affirming summary judgment entered in favor

of bank in acti

on predicat ed on bank’s failure to disclose precarious financial condition of

plaintiff’s business associate where plaintiff admitted that he did not rely upon bank’s representation

s in entering tra

nsaction but, rath

er, relied upon a

ssociate’s state

ments); s e e also Tokarz v. Frontier Fed. Sav. & Loan Ass’n , 656 P.2d 1089, 1093 (Wash. Ct. App. 1983) (holding that construction lender had no duty to disclose contractor’s financial difficulties, which included incurring of

mechanic’s liens on other homes constructed by contractor, where there was
no evidence that lender

received any greater economic benefit from tra nsaction other than normal mortgage and where borrower never inquired as to existence of any pending lien actions).

Inarguing that th

e trial court’s ju

dgment should be u

pheld, Wright cite

s Gray v. Boyl

e Investment Co. , 803 S.W.2d 678 (Tenn. App. 1990), in which the defendants were held liable for thei r failure to disclos

e to the purchase

r prior to a real e

state closing the

fact that f

oreclosur e proceedings had been ins tituted on the subject property. While we recognize some factual similarities between Gray and the present case, we also note that the relat ionships between the parties in Gray differed from the debtor/creditor

relationship found in the present case. In Gray , the defendants

were the real estate broker who handled the transaction, the attorney who performed the closing, and the vendor wh o signed a warr

anty deed to

the property. Id . at 682-84. Accordingly, the Gray defendants’ re

lative duties to

disclose any adverse claims against the subject property werenot governed by the duty of

disclosure applicable to the debtor/credit relationship.Moreover, we note that the matter which the defendants failed to disclose in Gray , i.e. the fact that foreclosure proceedings were in progress, wa s not a matter

of public record. Even where a party to a transaction does have a duty to disclose materi al facts, this duty does not apply if “common observation or ordinary diligence would have furnished the information.” Gray , 803 S.W.2d at 683 (cit ing Simmons v. Evans , 206 S. W.2d 295 (Tenn. 1947 )). In imposing

a duty to disclose in Gray , we reaso

ned that, “[o] bviously, an ordinary citizen would not search the fore closure notices published in trade papers for any notice c oncerni ng property which he is purchasing and which will be handled by a closing attorney.” Gray , 803 S.W.2d at 683.

In contrast, the matt

er which C & S fail

ed to disclose

in the present case, the existence of th e judg ment lien in Wilson County, was a matter of public record. Upon Sovran Bank’s recordationof the judgment lien, Wright was charged with constructive notice of the lien as a matter of law. Moore v. Cole , 289 S.W.2d 695, 698 (T enn. 1956); accord Merchants State Bank v. First Tennessee Bank , 1993 WL 424817, at *2 (Tenn. App. Oct. 22, 1993) (holding that recordation of d eedof trust in favor of first mortgagee constituted constructive notice of such deed to secon d mortgagee); see also Massachusetts Mut. Life Ins. Co. v. Taylor Implement & Vehicle Co. , 195 S. W. 762, 765 (Tenn. 1917) (noting that object of recording statutes is to enable purcha ser t o ascertain from county record s whether or not there are any judgment liens on property being acquired); Hames v. Archer Paper Co. , 319 S.W.2d 252, 255-56 (Tenn. App. 1958) (indicating tha t, under recording statutes, registration of judgment lien affords notice of such lien to all the world).

Our conclu sion that C & S owed no duty to disclose the existence of the judgment lien in this case is suppo rted by the Geor gia Court of Appeals’ decision in Shaw v. Cook County Federal Savings & Loan Ass’n , 228 S.E.2d 326 (Ga. Ct. App. 1976). There, theplaintiff, Velora Shaw, applied to the Cook Co unty Federal Savings & Loan Association (CCF) for a loan to pay off outstanding liens against her home. Id . at 327-28. Pursuant to standard procedure, CCF’s attorney
ran a preliminary

title check on Shaw ’s home, which re vealed an outsta

nding lien in favor of Farmers & Merchants Bank (FMB). Id . at 328. CCF allegedly obtained a subordination agreement from FMB, but the agreement never was filed or recorded bec ause CCF’s attorney

lost or misplaced the document. Id . At the loa n closing, CCF’s representative, apparently believing that FMB ’s lien hadbeen subordinated, failed to reveal the existence of the lien and, according to Shaw, even assuredher

that no such liens existed. Id . at 328-29. In concluding that CCF had no duty to disclose FMB’s prior lien, the court reasoned:

The record shows that CCF’s attorney discovered FMB’s dee d during his title sear ch, indic ating that the deed had been duly recorded. Notwithstanding CCF’s knowledge that FMB’s prior lien existed, the plaintiff, Mrs. Shaw, has show n no reason why

CCF would be liable for its failur e to di sclose informatio n which was a matte

r of public record and wh ich she hers elf was charge d with know ing.

Id . at 329.

The trial court’s jud gment entered i n favor of Wright

is reversed, and

this cause is remanded for further pro

ceedings consi

stent with this opinion. Costs of this appea l are taxed to Wri ght, for whi ch ex ecut ion may i ssu e ifnece ssa ry.

____________________________________ FARMER

, J.

______________________________ CRAWFORD, P.J., W.S. (Conc urs)

______________________________ HIGHERS, J. (Conc

urs)