Appeals from Randolph Circuit Court (CV-14-900098)
MOORE,
JUDGE.
In
appeal number 2170639, Todd Ayers appeals from a judgment of
the Randolph Circuit Court ("the trial court")
regarding the foreclosure of a mortgage on certain property
owned by John Robert Mays. In appeal number 2170640, Mays
cross-appeals from that same judgment. In both appeals, we
affirm the judgment in part and reverse the judgment in part.
Background
On
January 5, 2005, Mays borrowed $225, 000 from David Hewitt.
Mays executed a promissory note ("the note")
agreeing to repay Hewitt the principal amount of the note
plus interest by January 5, 2007. Contemporaneously with the
execution of the note, Mays executed a mortgage ("the
mortgage") in favor of Hewitt on a 208-acre parcel of
property Mays owned in Randolph County ("the
property") as security for repayment of the note. In
September 2014, Ayers sent Mays a letter notifying him that
Ayers had acquired the note and mortgage through an
assignment. In that letter, Ayers asserted that Mays had
defaulted on the note and that, unless the default was cured,
Ayers would exercise his rights under the mortgage to
foreclose on the property. In October 2014, Ayers foreclosed
on the property and purchased the property for $365, 000 at
the foreclosure sale.
On
October 24, 2014, Mays filed a multicount complaint against
Ayers. In his complaint, Mays asserted that he had executed
the note and mortgage for the benefit of JMays, LLC
("the LLC"), that he and several other members of
the LLC had paid the debt evidenced by the note, and that the
note had been discharged. Mays averred that Ayers had
wrongfully foreclosed on the property because the note had
been discharged and the mortgage satisfied. In his first
count, Mays requested that the trial court quiet title to the
property by declaring that Mays was the rightful owner. In
his second count, Mays asserted that Ayers had breached a
contract by foreclosing on the property, thereby causing
damage to Mays. In his third count, Mays sought a judgment
declaring that, in the event a valid assignment and
foreclosure had occurred, no interest was payable on the note
after January 5, 2007. In his fourth count, Mays asserted
that, if the trial court determined that the foreclosure was
valid, he was owed approximately $140, 000 from the
foreclosure sale.
Ayers
filed a counterclaim, asserting that Mays had breached the
terms of the note by failing to pay the principal and
accruing interest. Mays filed a reply to the counterclaim
denying that the note had not been paid. Mays subsequently
amended his complaint to add a request for a judgment
declaring that the statute of limitations established in Ala.
Code 1975, § 7-3-118, barred Ayers from collecting on
the note through his counterclaim or through foreclosure
proceedings and ordering that the proceeds of the foreclosure
sale, excepting the costs of the sale, be paid over to Mays.
Ayers filed an answer denying the allegations in the amended
complaint and asserting various affirmative defenses.
After
denying the parties' respective motions for a summary
judgment, the trial court conducted a bench trial in
September 2016. On June 30, 2017, the trial court entered a
final judgment. Upon consideration of a postjudgment motion
filed by Ayers, the trial court vacated the final judgment,
and, on February 3, 2018, the trial court entered an amended
final judgment. In that judgment, the trial court determined
that the applicable statute of limitations barred Ayers's
counterclaim seeking to enforce and to collect on the note
but that Ayers had validly foreclosed on the property
pursuant to the terms of the mortgage. The trial court
determined that the note had not accrued interest after
January 5, 2007, and that the mortgage secured an
indebtedness of only $208, 000. The trial court found that
$208, 000 of the proceeds of the foreclosure sale was to be
paid to Ayers and that Mays should receive the remainder of
the foreclosure proceeds, less the costs of the sale,
amounting to $155, 708.
Ayers
filed a notice of appeal to the Alabama Supreme Court on
March 14, 2018; Mays filed a cross-appeal on March 16, 2018.
The Alabama Supreme Court transferred the appeal and
cross-appeal to this court, pursuant to § 12-2-7(6),
Ala. Code 1975. This court heard oral arguments regarding the
appeal and the cross-appeal on January 31, 2019.
Facts
Mays
testified that the LLC had been formed for the purposes of
owning and operating a mica mine. At all material times,
Mays, Charles Merchant, Tom Powers, Crandall Kennedy, Rex
Addison, and Margaret Addison were members of the LLC.
(Merchant, Powers, Kennedy, and the Addisons are sometimes
hereinafter referred to collectively as "the LLC
members"). On January 5, 2005, Mays borrowed $225, 000
from Hewitt, a local businessman. Mays testified that he
incurred the debt on behalf of the LLC because, he said, the
LLC was negotiating to sell the LLC's mining assets to a
third party and needed funds to purchase necessary grinding
equipment to keep the business going in the meantime. Mays
conceded, however, that he did not have anything in writing
to indicate that the LLC members had agreed that the LLC
would assume the loan or that the loan would be paid by the
LLC or the LLC members. The LLC members who testified at
trial denied that Mays had incurred a corporate debt. Mays
testified that he had used the proceeds of the loan to
satisfy some past debts, including $40, 000 to repay an
advance that he had taken and $49, 000 to pay on an
outstanding loan to Colonial Bank, and that he had paid the
remainder into the LLC, as evidenced by its internal
financial records.
To
obtain the loan, Mays executed the note and the mortgage in
favor of Hewitt. According to the terms of the note, Mays
promised to pay Hewitt, on or before January 5, 2006,
one-half of the principal plus all accrued interest on the
full loan amount and to pay the remaining balance by January
5, 2007. The terms of the note called for 10% interest during
the first year and 12% during the second year, should the
prime interest rate reach or exceed 7% during the note term,
which it did. Mays further agreed that, in the event any
installment remained unpaid for as much as 5 days after its
due date, a late penalty of 10% of the amount of the
installment payment due would be payable.
Mays
testified that, when interest in the amount of $22, 500 and
one-half of the principal amount of the note became due on
January 5, 2006, he did not have sufficient funds to make the
payments. Merchant, a managing member of the LLC, testified
that the LLC loaned Mays the money to pay the first
year's interest in May 2006. Mays testified that he did
not pay any part of the principal at that time. Mays
testified further that, as the maturity date of the note was
approaching, he informed Merchant that the money had been
borrowed on behalf of the LLC and requested that the LLC
"make my obligation good." Mays indicated that the
LLC had previously paid other similar obligations Mays had
incurred. Mays thereafter solicited the LLC members,
including Merchant, to come up with the funds to satisfy the
outstanding debt to Hewitt.
Merchant
testified that he had discussed with Powers, Kennedy, and the
Addisons that they should acquire the note by assignment,
which, he said, they all agreed to do. According to Merchant,
he contacted Chad Lee, Hewitt's real-estate attorney, who
had indicated that it would cost $257, 000 to purchase the
note and the mortgage. Thereafter, Merchant arranged for wire
transfers to be made to Lee's trust account totaling
$257, 000, consisting of $100, 000 from Powers and Associates
General Contractors, Inc., an entity Powers was affiliated
with, $20, 000 from Margaret Addison, $50, 000 from Kennedy,
$12, 000 from Rex Addison, and $75, 000 from Titan Mining, a
company Merchant had developed. Merchant testified that the
money was intended to "buy the note" from Hewitt
and not as a gratuitous payment of the debt on behalf of
Mays.
Kennedy
testified that Merchant had telephoned him and informed him
that Hewitt held a "lien" on the property and that
the LLC members needed to raise $250, 000 to avoid
foreclosure of the "lien." Kennedy stated that he
had agreed to contribute $50, 000, which, he said, he had
understood would be used to pay off the Hewitt loan and to
satisfy the mortgage. Kennedy testified that he had
considered the $50, 000 to be a loan to Mays but that he did
not know how that loan would be repaid. Kennedy denied that
anyone had discussed an assignment of the note and the
mortgage with him, but, he said, he had understood that, upon
payment, the debt Mays owed to Hewitt would be transferred
from Hewitt to the LLC members. Rex Addison testified that he
and his wife, Margaret, had agreed to loan Mays $32, 000 to
avoid foreclosure on the property. Addison could not recall
anyone discussing an assignment of the note and the mortgage
with him at the time, but, he said, he had expected that
appropriate documents would be drawn up to reflect his right
to repayment. Powers did not testify.
Mays
stated that he went to Lee's office on December 28, 2006,
to pay off the loan. According to Mays, Lee informed him that
the payoff amount was $265, 500, $257, 000 of which had
already been wired to Lee's trust account from the LLC
members. Mays agreed to pay $3, 000 of his own money and
borrowed $5, 500 from Lee to cover the remaining amount
needed "to pay off the note." Mays testified that
he had not discussed an assignment of the note and the
mortgage with anyone, but, he said, he had understood that
the money contributed by the LLC members was to be used
solely to satisfy the note. Mays testified that he had left
Lee's office with the understanding that the note had
been paid in full. Mays admitted, however, that he did not
have any document memorializing the payment and discharge of
the note.
Hewitt
later arrived at Lee's office, and Lee presented to
Hewitt a check, drawn on Lee's trust account, that was
made payable to Hewitt in the amount of $265, 500. Lee
testified that the check was paid to Hewitt for "the
balance due on the mortgage." Hewitt testified that he
went to Lee's office on December 28, 2006, with the
expectation that he would be "paid off" and that he
would be "out of it" without any concern or
involvement in the dealings between the LLC members. Hewitt
stated that he obtained the check from Lee, "signed the
documents," and considered the note and the mortgage to
be fully satisfied, having no remaining value.
Hewitt
testified that no one had discussed with him the contents of
the "documents" he signed on December 28, 2006.
Hewitt acknowledged that, without reading it, he had signed a
document entitled "Assignment of Mortgage,
"[1] which provided, in pertinent part:
"For valuable consideration in hand paid to the
undersigned, David Hewitt, the receipt of which is hereby
acknowledged, the undersigned does hereby grant, bargain,
sell, convey, and assign:
"Unto Rex and Margaret Addison - a 12.451% interest
"Unto Charles H. Merchant, Sr. - a 29.182% interest
"Unto Crandall Kennedy - a 19.455% interest
"Unto Powers & Associates General Contractors, Inc.
- a 38.912% interest
"in and to that certain mortgage executed by John Robert
Mays in favor of David Hewitt bearing date of January 5, 2005
... and that certain provisory note dated January 5, 2005
executed by John Robert Mays in favor of David Hewitt,
together with the debt thereby secured and the property
therein described and all rights, privileges, and remedies
contained therein."[2]
Hewitt
testified that he had not previously discussed any assignment
of the note and the mortgage before signing the document.
Merchant
testified that Lee had mailed him the assignment and that he,
Merchant, recorded the assignment in the office of the local
probate court on January 22, 2007. At trial, Mays introduced
as an exhibit another document that was later recorded in the
office of the probate court and that stated "December
29th, 2006. John's mortgage on his land paid off by Rex
and Margaret, Charles, Crandall, and Tom." Merchant,
Kennedy, and Rex Addison testified that that statement
accurately reflected the December 28, 2006, transaction. Lee
and Kesa Dunn, another local real-estate attorney, testified
that that document, although unsigned, would have led them to
inquire further as to whether the mortgage on the property
had been satisfied; however, neither Lee nor Dunn
definitively opined that the document had any particular
legal effect.
Mays
testified that, in 2012, he learned of the assignment when he
discovered that it had been recorded in the office of the
probate court. Mays testified that he went to see his
attorney regarding the matter, that he had not done anything
further regarding the matter because "there was nothing
to do," and that he had not discussed the situation with
any of the LLC members. Mays stated that, at that point, none
of the LLC members had ever asserted to him that he owed them
any money on the note and no one had ...