Court Opinion

ID: 4226803
Source: CourtListenerOpinion
Date Created: 2017-12-07 20:14:29.835004+00
Date Added: 2024-06-11T13:26:37.146908
License: Public Domain

12/07/2017
                IN THE COURT OF APPEALS OF TENNESSEE
                           AT KNOXVILLE
                              September 13, 2017 Session

             FRANKIE G. MUNN v. SANDRA M. PHILLIPS ET AL.

                     Appeal from the Circuit Court for Cocke County
                        No. 33976-III    Rex H. Ogle, Judge

                             No. E2016-02242-COA-R3-CV

In this unjust enrichment action, the trial court awarded the plaintiff $42,929.00 for the
fair market rental value of improved real property that the plaintiff purchased at a
foreclosure sale in 2012 but did not gain possession of until 2015. Following the
foreclosure sale, the plaintiff was forced to litigate for a period of three years to obtain
title, during which time the former owners of the home, who had defaulted in payments
on their mortgage, remained in possession and failed to pay rent. The plaintiff
subsequently filed this action in the trial court, seeking an award of fair market rental
value of the home from the former owners. The trial court ordered that the former
owners pay reasonable rent of $1,200.00 per month from August 2, 2012, the date of the
foreclosure sale, to July 24, 2015, the date upon which the court in the prior action
entered a final order declaring the plaintiff to be the rightful owner of the property. The
former owners have appealed. Because the trial court failed to make specific findings of
fact and conclusions of law regarding the applicability of any res judicata defense, we
vacate the trial court’s judgment and remand this matter to the trial court for resolution of
that issue.

        Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                             Vacated; Case Remanded

THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which JOHN W.
MCCLARTY, J., joined. CHARLES D. SUSANO, JR., J., filed a separate dissenting opinion.

David S. Byrd, Morristown, Tennessee, for the appellants, Sandra M. Phillips and Danny
Phillips.

Ben W. Hooper, III, Newport, Tennessee, for the appellee, Frankie G. Munn.
                                           OPINION

                            I. Factual and Procedural Background

        The defendants, Sandra M. Phillips and Danny Phillips, were the owners of a
home located in Cocke County, Tennessee, for which they defaulted on their mortgage
payments in 2012. Consequently, the substitute trustee (“Trustee”) for the Phillipses’
lender, Beneficial Tennessee, Inc. (“Beneficial”), conducted a foreclosure sale of the
Phillipses’ home on August 2, 2012. The plaintiff, Frankie G. Munn, was the highest
bidder and purchaser of the home at the sale. Following the sale, Trustee sought to
cancel the sale and set it aside due to an alleged error with regard to the starting bid.
Trustee further refused to deliver a deed to Mr. Munn, despite the fact that Mr. Munn had
wired the purchase money to Trustee. As a result, on August 10, 2012, Mr. Munn filed
an action in the Cocke County Chancery Court (“Chancery Court”) seeking specific
performance of the sale contract. In addition to Trustee, Mr. Munn named the Phillipses
and others as defendants in the Chancery Court action. The Phillipses remained in
possession of the home for the three-year period during which the specific performance
litigation was pending.

       Following mediation and entry of a settlement agreement, the Chancery Court
entered an agreed final order on June 23, 2015, declaring Mr. Munn to be the owner of
the real property at issue.1 Mr. Munn received a Substitute Trustee’s Deed for title to the
property, which he subsequently recorded. The Phillipses ostensibly vacated the home in
August 2015. However, they paid neither mortgage payments to the lender nor any rental
payments to Mr. Munn during the time period between the date of the foreclosure sale
and the date of their departure from the residence.

       On December 28, 2015, Mr. Munn filed the instant action in the Cocke County
Circuit Court (“trial court”), asserting a claim against the Phillipses for fair market rental
value of the real property from August 2, 2012, the date of the foreclosure sale, until the
date the property was vacated in August 2015. Mr. Munn alleged, inter alia, that the
Phillipses failed to pay rent during that three-year period, resulting in their unjust
enrichment. Mr. Munn further alleged that he was damaged by the denial of his use of
and/or rental income derived from the real property and that the home sustained damage
and depreciation during the period when the Phillipses were in possession of the home
following foreclosure. Mr. Munn asserted that the foreclosure sale was conducted
pursuant to the Phillipses’ deed of trust, which contained a provision stating that if the
property were sold in foreclosure, the Phillipses would immediately surrender possession

1
  The record is unclear regarding whether the Phillipses actually participated in the mediation or
settlement agreement.
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of the property to the purchaser at the sale or would pay the reasonable rental value for
same.

       The Phillipses filed an answer, admitting that they continued to occupy the real
property while the prior litigation was pending. Furthermore, the Phillipses averred that
they remained in possession of the property with the permission of their “bank” and with
the “implicit permission” of Mr. Munn. According to the Phillipses, Mr. Munn never
requested that they vacate the property, such that they relied on his implicit authorization
to their detriment. They also alleged that because Mr. Munn had failed to seek rent
payments in the prior litigation, he had waived that claim.

       On October 7, 2016, the trial court entered an order, which provided, inter alia:
“Plaintiff shall have and recover from the defendants, jointly and severally, the sum of
$42,929.00 for rent at the rate of $1,200.00 per month from August 2, 2012 to July 24,
2015.” The trial court’s order does not specifically address the Phillipses’ asserted
affirmative defenses. The Phillipses filed a timely notice of appeal.

                                    II. Issues Presented

        The Phillipses present the following issues for our review, which we have restated
slightly:

       1.     Whether the trial court erred by awarding fair market rental value for
              the subject real property to Mr. Munn, retroactive to the date of the
              foreclosure sale.

       2.     Whether the trial court erred by declining to find that Mr. Munn’s
              claim was barred by the doctrine of res judicata.

                                 III. Standard of Review

        Our review of the trial court’s judgment following a non-jury trial is de novo upon
the record, with a presumption of correctness as to the trial court’s findings of fact unless
the preponderance of the evidence is otherwise. See Tenn. R. App. P. 13(d); Rogers v.
Louisville Land Co., 367 S.W.3d 196, 204 (Tenn. 2012). “In order for the evidence to
preponderate against the trial court’s findings of fact, the evidence must support another
finding of fact with greater convincing effect.” Wood v. Starko, 197 S.W.3d 255, 257
(Tenn. Ct. App. 2006) (citing Rawlings v. John Hancock Mut. Life Ins. Co., 78 S.W.3d
291, 296 (Tenn. Ct. App. 2001)). We review questions of law de novo with no
presumption of correctness. See Bowden v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000)
(citing Myint v. Allstate Ins. Co., 970 S.W.2d 920, 924 (Tenn.1998)).
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                         IV. Award of Fair Market Rental Value

       The Phillipses assert that the trial court erred by awarding to Mr. Munn fair market
rental value for the improved real property during the time when litigation was pending
regarding his ownership. According to the Phillipses, Mr. Munn never demanded that
they vacate the home, and they relied on his implied acquiescence in their possession of
the home to their detriment.

        The Phillipses attempt to rely on various long-standing Tennessee cases in support
of their position, including Pearson v. Gillenwaters, 42 S.W. 9 (Tenn. 1897) and
Armstrong v. McClure, 51 Tenn. 80 (1871). Pearson and Armstrong both involved
circumstances wherein real property was sold at a judicial sale rather than through a
foreclosure action. See Pearson, 42 S.W. at 11; Armstrong, 51 Tenn. at 83. In each case,
the Supreme Court elucidated the general rule that a purchaser of land at a judicial sale is
entitled to possession and/or rents only upon confirmation of the sale by the court. Id.
The Court qualified this rule, however, by explaining its general application “if there can
be nothing in the terms or decree of sale providing otherwise.” See Pearson, 42 S.W. at
11; see also Armstrong, 51 Tenn. at 83 (stating that the purchaser is not entitled to rent
before confirmation “if there is nothing in the terms of the sale, as contained in the decree
which controls the question of rents.”).

       In the case at bar, Mr. Munn contends that the foreclosure sale and associated
questions regarding possession and rent following the sale are governed by the terms of
the Phillipses’ deed of trust, which provides in pertinent part:

       If the Property is sold pursuant to this paragraph 19 [concerning
       acceleration and foreclosure sale in the event of default], Borrower, or any
       person holding possession of the Property through Borrower, shall
       immediately surrender possession of the Property to the purchaser at sale.
       If possession is not surrendered, Borrower or such person shall be a tenant
       at will of the purchaser and hereby agrees to pay to the purchaser the
       reasonable rental value of the Property after sale.

Ergo, according to Mr. Munn, the Phillipses contractually agreed to immediately
surrender the real property upon foreclosure sale or pay reasonable rent thereon upon
signing the deed of trust. We agree.

      As Mr. Munn notes, a similar provision in a deed of trust was upheld by our
Supreme Court more than a century ago in Griffith v. Brackman, 37 S.W. 273, 274 (Tenn.
1896), wherein the purchaser acquired property through a foreclosure sale conducted
                                             4
pursuant to a deed of trust, but the borrowers refused to vacate the premises. The
borrowers’ deed of trust provided:

       The said party of the first part further agrees that in case of any sale
       hereunder he will at once surrender possession of the said property, and
       will from that moment become and be the tenant at will of the purchaser,
       and removable by process as upon a forcible and unlawful detainer suit,
       hereby agreeing to pay the said purchaser the reasonable rental value of
       said premises after said sale.

Id. at 273.

       The Supreme Court explained that this provision would be upheld, stating:

       [The question] is whether or not a mortgagor in possession may not, in
       advance, contract with the trustee or mortgagee that in the event a
       foreclosure becomes necessary the relation of landlord and tenant shall
       thereby be created between the purchaser and the mortgagor, and upon
       default of the latter in surrendering possession of the premises he shall be
       removable by the writ of unlawful detainer. We are unable to perceive any
       sound reason why such a contract, made for the benefit of the purchaser,
       may not be enforced by him. It is objected that the action cannot be
       maintained for the reason that there was no entry of the premises after the
       purchaser acquired title. We think, in view of the contract embodied in the
       deed, establishing the relation of landlord and tenant between the
       mortgagor and the purchaser, there was a constructive entry that attached as
       soon as the purchaser acquired title. It is further objected that there is no
       provision in the contract reserving to the purchaser the right of re-entry in
       the event of a sale under the trust deed. We think this objection is met by
       the observations already made. The mortgagor expressly stipulated that if
       he refused to surrender possession he should be removable by the writ of
       unlawful detainer. In view of such a stipulation, it was not necessary that
       there should have been any express reservation of a formal right of re-entry.

Id. at 274.

      Similar provisions have likewise been upheld by this Court in recent cases. See
BAC Home Loans Servicing v. Goodson, No. M2014-02566-COA-R3-CV, 2016 WL
3752217, at *4 (July 6, 2016) (holding that a former owner could be subjected to an
unlawful detainer action when she continued to possess real property in violation of her
deed of trust, which required the former owner to immediately surrender possession of
                                            5
the property following foreclosure or become a tenant at will of the purchaser); see also
Fed. Nat’l Mort. Assoc. v. Daniels, 517 S.W.3d 706, 712 (Tenn. Ct. App. 2015)
(enforcing a similar provision in an unlawful detainer action). Moreover, this Court has
also expressly held that such a provision created the relationship of landlord and tenant
between the purchaser at a foreclosure sale and the former owner holding over, such that
the former owner was “under contract to pay rent for the use of the building” based on
the express terms of the former owner’s deed of trust. See Allemannia Fire Ins. Co. v.
York, 65 S.W.2d 838, 840 (Tenn. Ct. App. 1932). Due to the similarity between the
relevant provision contained in the subject deed of trust and the deed of trust provisions
at issue in the above-referenced cases, we determine the Phillipses’ reliance on cases
involving a judicial sale to be unavailing.

       In this matter, the Phillipses expressly agreed when they executed the deed of trust
to “immediately surrender possession of the Property to the purchaser” at a foreclosure
sale. Mr. Munn was that purchaser. The Phillipses further expressly agreed that should
they not immediately surrender possession of the property, they would “be a tenant at
will of the purchaser and hereby agree[] to pay to the purchaser the reasonable rental
value of the Property after sale.” Based on this enforceable contractual provision, we
conclude that the trial court properly awarded Mr. Munn the fair market rental value of
the real property from the Phillipses for the period following the foreclosure sale and
continuing until their departure from the property. See, e.g., Allemannia Fire Ins. Co., 65
S.W.3d at 840. We note, however, that any recovery by Mr. Munn in this action could be
precluded by the potential applicability of a res judicata defense. We therefore address
the res judicata doctrine in the following section of this opinion.

                                     V. Res Judicata

       The Phillipses argue that Mr. Munn’s initial lawsuit seeking specific performance
of the sale of the home, wherein the Phillipses were among the named defendants,
precludes his recovery in the instant action seeking fair market rental value of the real
property because such claim could have been litigated in the first action but was not. It is
noteworthy that in their answer filed in the trial court, the Phillipses stated as an
affirmative defense that Mr. Munn had “waived seeking the relief requested by failing to
seek it in the previous litigation.” The Phillipses did not expressly utilize the term “res
judicata” even though it is an affirmative defense that must be specifically pled pursuant
to Tennessee Rule of Civil Procedure 8.03. See Boyce v. LPP Mort. Ltd., 435 S.W.3d
758, 768 (Tenn. Ct. App. 2013).

       Our thorough review of the record demonstrates that notwithstanding the lack of
specificity of pleading, the trial court did question during oral argument whether Mr.
Munn’s claim for rent could have been instituted in the prior litigation. We recognize
                                             6
that the court’s grant of relief to Mr. Munn in its subsequent October 2016 order implies
that the court rejected any affirmative defense. However, the court did not expressly rule
on the issue of applicability of a res judicata defense or the elements thereof.

      As our Supreme Court has elucidated regarding the defense of res judicata:

              The doctrine of res judicata or claim preclusion bars a second suit
      between the same parties or their privies on the same claim with respect to
      all issues which were, or could have been, litigated in the former suit. It is
      a “rule of rest,” Moulton v. Ford Motor Co., 533 S.W.2d 295, 296 (Tenn.
      1976), and it promotes finality in litigation, prevents inconsistent or
      contradictory judgments, conserves judicial resources, and protects litigants
      from the cost and vexation of multiple lawsuits.

             The party asserting a defense predicated on res judicata or claim
      preclusion must demonstrate (1) that the underlying judgment was rendered
      by a court of competent jurisdiction, (2) that the same parties or their
      privies were involved in both suits, (3) that the same claim or cause of
      action was asserted in both suits, and (4) that the underlying judgment was
      final and on the merits. A trial court’s decision that a claim is barred by the
      doctrine of res judicata or claim preclusion involves a question of law
      which will be reviewed de novo on appeal without a presumption of
      correctness.

Jackson v. Smith, 387 S.W.3d 486, 491 (Tenn. 2012) (emphasis added) (other internal
citations omitted).

      This Court has further explained:

             In order to succeed on a plea of res judicata, or estoppel by
      judgment, the party raising the defense must plead it, Tenn. R. Civ. P. 8.03,
      and must carry the burden of proving it. Carter County v. Street, 36 Tenn.
      App. 166, 252 S.W.2d 803 (1952). To carry that burden, the party raising
      the defense must generally put in evidence the record or a copy of the
      record of the former case. American National Bank v. Bradford, 28 Tenn.
      App. 239, 188 S.W.2d 971 (1945). If the record does not conclusively
      show that a particular matter was determined in the former proceeding, the
      party relying on res judicata as a defense must supplement the record by
      other proof. Carter County v. Street, 36 Tenn. App. 166, 252 S.W.2d 803
      (1952). “Parol evidence is always admissible to show the fact, even if it
      appears prima facie that a question has been adjudicated, where the record
                                            7
       does not show that it was actually settled.” Fowlkes v. State, 82 Tenn. (14
       Lea) 14, 19 (1884); see also Borches & Co. v. Arbuckle Bros., 111 Tenn.
498, 78 S.W. 266 (1903).

Gregory v. Gregory, 803 S.W.2d 242, 243-44 (Tenn. Ct. App. 1990). In addition, “[i]f
there is any uncertainty to the matter formerly adjudicated, the burden of showing it with
sufficient certainty by the record or extrinsically is upon the party who claims the benefit
of the former judgment.” Id. at 244. See also Boyce, 435 S.W.3d at 768.

         The transcript from the September 6, 2016 hearing before the trial court reveals
that although there was some discussion between the court and counsel for the parties
regarding whether Mr. Munn’s claim for rent could have been instituted in the prior
Chancery Court litigation, there was no specific discussion of a res judicata defense or
the elements required to be proven by the Phillipses in order to rely on such a defense.
See Jackson, 387 S.W.3d at 491; Gregory, 803 S.W.2d at 243-44. Moreover, the trial
court made no specific findings of fact or conclusions of law with regard to the
applicability of the res judicata doctrine. We therefore conclude that it is necessary to
remand this issue to the trial court for specific findings and conclusions regarding the
potential applicability of a res judicata defense. See, e.g., Taylor v. Cloud, No. E2014-
02223-COA-R3-CV, 2015 WL 4557328, at *6 (Tenn. Ct. App. July 29, 2015), perm.
app. denied (Tenn. Nov. 25, 2015) (concluding that because the trial court had made no
specific findings regarding whether an agreement between the parties was applicable or
enforceable, the case would need to be remanded for findings regarding that issue); In re
Conservatorship for Ayers, No. M2014-01522-COA-R3-CV, 2015 WL 3899406, at *4
(Tenn. Ct. App. June 24, 2015) (“Without sufficient findings and conclusions, this court
is left to wonder on what basis the court reached its ultimate decision.”) (quoting Hardin
v. Hardin, No. W2012-00273-COA-R3-CV, 2012 WL 6727533, at *3 (Tenn. Ct. App.
Dec. 27, 2012))); Akridge v. Fathom, Inc., No. E2014-00711-COA-R9-CV, 2015 WL
97946, at *7 (Tenn. Ct. App. Jan. 7, 2015) (remanding the matter for a ruling on an issue
upon which the trial court failed to make a determination). See also Dorrier v. Dark, 537
S.W.2d 888, 890 (Tenn. 1976) (“This is a court of appeals and errors, and we are limited
in authority to the adjudication of issues that are presented and decided in the trial courts .
. . .”); In re Estate of Boykin, 295 S.W.3d 632, 636 (Tenn. Ct. App. 2008) (“At the
appellate level, ‘we are limited in authority to the adjudication of issues that are presented
and decided in the trial courts . . . .’”) (quoting Dorrier, 537 S.W.2d at 890).

                                       VI. Conclusion

       For the foregoing reasons, we vacate the trial court’s judgment and remand this
matter to the trial court for specific findings of fact and conclusions of law with regard to
the potential applicability of a res judicata defense. Costs on appeal are taxed one-half to
                                              8
the appellants, Sandra M. Phillips and Danny Phillips, and one-half to the appellee,
Frankie G. Munn.

                                             ________________________________
                                             THOMAS R. FRIERSON, II, JUDGE

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