Case Name: UNIFIRST FEDERAL SAVINGS & LOAN ASSOCIATION and Tom B. Scott III, Trustee v. TOWER LOAN OF MISSISSIPPI, INC.
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 1986-11-19
Citations: 524 So. 2d 290
Docket Number: No. 55953
Parties: UNIFIRST FEDERAL SAVINGS & LOAN ASSOCIATION and Tom B. Scott III, Trustee v. TOWER LOAN OF MISSISSIPPI, INC.
Judges: Before HAWKINS, P.J., and PRATHER and ROBERTSON, JJ.
Reporter: Southern Reporter, Second Series
Volume: 524
Pages: 290–295

Head Matter:
UNIFIRST FEDERAL SAVINGS & LOAN ASSOCIATION and Tom B. Scott III, Trustee v. TOWER LOAN OF MISSISSIPPI, INC.
No. 55953.
Supreme Court of Mississippi.
Nov. 19, 1986.
Rehearing Denied May 11, 1988.
Patrick F. McAllister, Dalton McBee, Jr., Scott, Hetrick & McBee, Jackson, for appellant.
William J. Lutz, E. Stephen Williams, Young, Scanlon & Sessums, Jackson, for appellee.
Before HAWKINS, P.J., and PRATHER and ROBERTSON, JJ.

Opinion:
ROBERTSON, Justice,
for the court:
I.
This case presents the question whether the holder of a second deed of trust on real property, through foreclosure and thereby obtaining title to the property via a trustee's deed, triggered the due-on-sale clause contained in the first deed of trust so that its holder could accelerate its debt and failing payment, foreclose.
We hold that the due-on-sale clause in the first deed of trust may be enforced according to its tenor, answer the question presented in the affirmative, and reverse.
II.
Mickey P. Ellzey and Marilyn D. Ellzey executed a deed of trust in favor of Uni-first on August 22, 1977, to secure a note for $28,000.00, accruing interest at a rate of 9% percent per annum. The deed of trust contained a standard "due-on-sale" clause which is the focal point of this dispute. Paragraph 17 reads in part as follows:
If all or any part of the property or an interest therein is sold or transferred by borrower without lender's prior written consent, excluding (a) the creation of a lien or encumbrance subordinate to this deed of trust, . lender may at lender's option declare all the sums secured by this deed of trust to be immediately due and payable.
On June 4, 1979, the Ellzeys executed a second deed of trust on the same property in favor of Central Finance Services, Inc. On September 7, 1983, Central sold and assigned that second deed of trust to Tower Loan of Mississippi. The deed of trust purchased by Tower Loan secured a note in the principal amount of $14,299.32, with interest at a rate of 18.44 percent per an-num.
When the Ellzeys defaulted on the obligation secured by the Tower Loan second deed of trust, Tower Loan instituted foreclosure proceedings against the property. On October 20, 1983, the substitute trustee under the Tower Loan deed of trust conducted a public foreclosure sale; at that sale Tower Loan purchased the property for $12,127.86. The fair market value of the property was approximately $40,000.00. On that same day, October 20, 1983, the substitute trustee delivered his deed to Tower Loan.
Although there is dispute about when Unifirst first became aware of transfer of title to the property, the record shows that Tower Loan tendered and Unifirst accepted on January 18, 1984, $848.88 — the amount due to Unifirst under the Ellzey deed of trust for the three months of November and December, 1983, and January, 1984. Nevertheless, on March 12, 1984, Unifirst invoked the due-on-sale clause contained in its first deed of trust and declared its entire indebtedness immediately due and payable.
On April 23, 1984, Tower Loan commenced this civil action by filing in the Chancery Court of Hinds County its complaint seeking of and against Unifirst declaratory, injunctive and other relief. In due course the Chancery Court enjoined Unifirst from acceleration and foreclosure, construing the due-on-sale clause to "except" both the creation and enforcement of the Tower Loan second mortgage security interest. From this adverse ruling, Uni-first has appealed.
III.
We regard the due-on-sale clause of the Unifirst deed of trust as privately made law which may be enforced according to its tenor against any party thereto, absent disabling provisions in our positive law. First National Bank of Vicksburg v. Caruthers, 443 So.2d 861, 864-65 (Miss.1983). The question then is whether the property subject to the deed of trust has been "sold or transferred by the borrower," it being undisputed that Unifirst has given no prior written consent.
We consider that the best reading that may be given the undefined phrase "sold or transferred" within this Unifirst deed of trust encompasses any conveyance of the real property held in trust or any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by outright sale, deed, contract, leasehold, option or judicial foreclosure, private power of sale foreclosure, enforcement of any other lien or encumbrance, or any other forced sale or any other method of conveyance. Compare 12 C.F.R. § 591.2(b) (1984). These words do not include the granting of a lien, encumbrance or other security interest. They do include the enforcement, execution or foreclosure of any such lien, encumbrance or other security interest which results in another party acquiring all of the incidents of ownership. There is nothing in federal law to the contrary. See Garn-St. Germain Depository Institutions Act of 1982, 12 U.S.C. § 1701j-3 (Supp.1984); Federal Home Loan Bank Board Regulations at 12 C.F.R. Part 591 (1984).
The language of the deed of trust at issue requires sale or transfer by "borrower," the Ellzeys. Tower Loan argues that transfer of title by substitute trustee's deed is not a transfer by the borrower. The point is specious. Under our law a conveyance by a trustee's deed is a conveyance by an agent of the grantor (the Ell-zeys) and has the same legal effect as if the Ellzeys had executed the deed themselves. Vincent v. J. W McClintock, Inc., 200 Miss. 445, 455, 27 So.2d 681, 682 (1946).
Tower Loan attacks as irrational a reading of the due-on-sale clause which would allow creation of a subordinate security interest in the collateral with impunity but give the holder of the first security interest acceleration rights upon foreclosure of the subordinate security interest. Fundamentally, Tower overlooks the fact that, with exceptions not relevant here, nothing in our law disables private parties from making and enforcing contracts some may regard as irrational. But the creation/enforcement dichotomy is not irrational. It strikes us as commercially reasonable.
Our law allows a first mortgage lender to prohibit sale or transfer of the collateral without consent. First National Bank of Vicksburg v. Caruthers, 443 So.2d at 864-65. This it may do because it believes the value of the collateral may suffer at the hands of its new occupant, because it believes its prospect of payment impaired, because it wants to get out from under a long term low yield loan, and no doubt for other reasons. While our law should facilitate home equity/second mortgage loans, no reason has been advanced why this should be done at the expense of the contractual rights of the first mortgage holder. It makes sense that a first mortgage holder be prohibited from acceleration or other objection upon the creation of a second mortgage, for nothing done thereby invades or prejudices any legitimate right or expectation of the first mortgage holder. The second mortgage lender merely acquires a security interest in the homeowner's equity, by definition, only to the extent that the first mortgage holder has no interest in it.
Foreclosure of the second mortgage is another matter, for it transfers title, all incidents of ownership, and occupancy to third parties with whom the first mortgage holder has not dealt. The first mortgage holder may legitimately contract with its original borrower for acceleration rights in the event of such a transfer. No reasonable expectation of the home equity/second mortgage holder is thwarted. By definition his security interest is wholly subject to all rights of prior encumbrancers. See Peoples Bank & Trust Co. v. L & T Developers, 434 So.2d 699, 708 (Miss.1983). While our law affords him several practical means of protecting himself against prior encumbrancers, none may require that we deprive that prior encumbrancer of its valid and enforceable rights created or existing under private or public law.
In summary, we hold that the due-on-sale clause in paragraph 17 of the Unifirst deed of trust is a valid contractual provision enforceable according to its tenor. The terms of that provision were triggered on October 20, 1983, when the substituted trustee executed and delivered his deed to Tower Loan. Unifirst acted seasonably in enforcement of its rights under paragraph 17 when, on March 12,1984, it declared the entire indebtedness secured by the first deed of trust due and payable. First National Bank of Vicksburg v. Caruthers, 443 So.2d 861, 864-65 (Miss.1983); Unifirst Federal Savings & Loan Association v. Bowen, et al, Civil Action No. J83-0697(L) (S.D.Miss., August 17, 1984) [available on WESTLAW, 1984 WL 3290]. That indebtedness not having been paid, Unifirst is entitled to proceed with foreclosure action. As there are other issues in the case which have not been considered and decided in the Chancery Court, the case is not this day ripe for final resolution. The judgment below is reversed and the case is remanded for further proceedings consistent with this opinion.
REVERSED AND REMANDED
WALKER, C.J., ROY NOBLE LEE and HAWKINS, P.JJ., PRATHER, SULLIVAN, ANDERSON and GRIFFIN, JJ., concur.
DAN M. LEE, J., dissents.