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Ayers v. Mays

Alabama Court of Civil Appeals

August 9, 2019

Todd Ayers
John Robert Mays John Robert Mays
Todd Ayers

          Appeals from Randolph Circuit Court (CV-14-900098)

         On Application for Rehearing in Case No. 2170639

          MOORE, JUDGE.

         This court's opinion of April 5, 2019, is withdrawn, and the following is substituted therefor.

         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.


         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 the mortgage 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 the 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.


         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, $12, 000 from Rex Addison, $50, 000 from Kennedy, 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 he 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 Mays and 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 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 ...

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