Edwards v. Hunt
635 S.W.2d 696, 1982 Tenn. App. LEXIS 491 (1982)
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Rule of Law:
When a deed is intended as security for a loan, it is treated as a mortgage, and if the mortgagee wrongfully conveys the property, extinguishing the mortgagor's equity of redemption, the measure of damages is the difference between the fair market value of the property at the time of the conveyance and the outstanding debt.
Facts:
- In 1955, Anderson and Jessie Edwards purchased an 86-acre farm in Madison County, Tennessee.
- After several loans from different parties, the Edwardses secured a loan from Gus Jones with a general warranty deed to their farm dated January 13, 1971.
- To pay off Jones, the Edwardses obtained a loan from Fred Hunt on March 29, 1972. The transaction was structured as a deed from Jones back to Edwards, followed immediately by a deed from Edwards to Hunt.
- Simultaneously, Hunt and Edwards signed a contract allowing Edwards to repurchase the land by repaying the loan, and Edwards believed he was signing a promissory note.
- The Edwardses remained in possession of the farm and made two partial payments on the debt to Hunt.
- On April 14, 1976, Hunt demanded that the Edwardses vacate the land.
- On April 28, 1976, while the Edwardses were still in possession, Hunt conveyed the property by warranty deed back to Gus Jones.
- Jones then conveyed the property to Joe Nip McKnight, who knew someone was farming the land but made no inquiry into their interest before purchasing.
Procedural Posture:
- Joe Nip McKnight brought an eviction suit against the Edwardses in Chancery Court.
- The Chancery Court ruled in favor of McKnight, finding he was a bona fide purchaser, and the Edwardses were ejected from the land; this ruling was not appealed.
- The Edwardses then filed a new lawsuit in Chancery Court against Fred Hunt and his wife for damages from the loss of their right to redeem the property.
- The Chancellor found the deed was a mortgage and awarded the Edwardses $9,720.23, the difference between the debt and the sale price to McKnight.
- The Hunts, as defendants, filed a notice of appeal to the Court of Appeals.
- The Hunts then moved to voluntarily dismiss their appeal, but the Edwardses, as appellees, objected in order to pursue their own cross-appeal challenging the amount of damages.
- The trial court permitted the Hunts' dismissal but allowed the Edwardses' cross-appeal to proceed to the Court of Appeals.
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Issue:
Is the proper measure of damages for a mortgagor, whose equity of redemption was wrongfully extinguished by the mortgagee's sale of the property, the difference between the outstanding debt and the property's fair market value at the time of the wrongful conveyance?
Opinions:
Majority - James M. Swiggart, Special Judge
Yes, the proper measure of damages is the difference between the land's fair market value and the outstanding debt. The court determined that the deed from Edwards to Hunt, despite its form, was intended as a mortgage to secure a loan. This conclusion is supported by the fact that the Edwardses remained in possession and had a contractual right to reconveyance upon repayment. A mortgagee's attempt to cut off a mortgagor's right of redemption without a proper foreclosure is illegal. Because Hunt's subsequent sale of the property to a third party wrongfully extinguished the Edwardses' right to redeem their property, Hunt is liable for damages. The court rejected calculating damages based on the non-arm's-length sales prices between Hunt, Jones, and McKnight, instead using an expert appraiser's testimony to establish the fair market value of the land at the time of the wrongful transfer.
Analysis:
This case reaffirms the long-standing equitable principle of 'once a mortgage, always a mortgage,' emphasizing that courts will look to the substance of a transaction over its form to protect debtors. It solidifies the remedy for mortgagors when a mortgagee circumvents foreclosure laws and wrongfully sells the secured property. By setting the measure of damages at the property's fair market value rather than a potentially deflated sale price from a non-arm's-length transaction, the decision provides robust protection for debtors against predatory lending practices and ensures they are made whole for the loss of their equity.
