Opinion
No. 35499.
December 20, 1943.
1. MORTGAGES.
Where trust deed contained acceleration clause that, if debtors fail to pay any portion of indebtedness secured as same falls due, the owner may declare all of indebtedness at once due and direct foreclosure, the acceleration clause did not advance due dates of all notes secured by the trust deed on fact of default in payment of one of them, but owner was required to take some step as would evince his election to that effect.
2. LIMITATION OF ACTIONS.
Where trust deed secured payment of four notes due respectively on January 1, 1926, 1927, 1928, and 1929, and none of the notes was paid in whole or in part, note due January 1, 1926, was barred by six-year statute of limitations at foreclosure of trust deed on December 17, 1932, but that fact did not affect validity of the foreclosure as to the three remaining notes, even though trust deed contained acceleration clause.
APPEAL from the chancery court of Desoto county, HON. L.A. SMITH, SR., Chancellor.
Gerald Chatham and E.J. Pollard, both of Hernando, for appellant.
On January 1, 1924, M.S. Thomas and his wife, Julia Thomas, both of whom are now deceased, executed a trust deed to T.J. Turley, trustee, covering the lands described in the original bill of complaint, to secure an indebtedness in favor of the Fidelity Mutual Life Insurance Company in the aggregate sum of $7500, and the indebtedness so secured was evidenced by a series of notes signed by the said M.S. Thomas and his wife, Julia Thomas, all dated January 1, 1924. Said series of notes consisted of one principal note for $250 due on the 1st day of January, 1926; one principal note for $250 due on the 1st day of January, 1927; one principal note for $250 due on the 1st day of January, 1928; and one principal note for $6750 due on the 1st day of January, 1929. The above mentioned trust deed was a first and prior lien against the property herein described.
Thereafter on the 12th day of January, 1924, the said M.S. Thomas and his wife, Julia Thomas, gave a second mortgage on said lands to the J.C. Ford Cotton Company securing an indebtedness therein mentioned of $5859.29; the Ford mortgage being junior and subordinate to the lien of the trust deed given by the said M.S. Thomas and wife to the Fidelity Mutual Life Insurance Company. On the 4th day of April, 1925, the Ford trust deed was foreclosed and the trustee conveyed the lands therein described to H.H. Honnoll, trustee. On February 2, 1927, Honnoll, trustee, conveyed the lands described in the original bill to D.D. Thomas, the appellant, who immediately went into possession thereof.
On December 17, 1932, the Fidelity Mutual trust deed was foreclosed by one James J. Pleasants, substituted trustee, and struck off to the Fidelity Mutual Life Insurance Company at and for the sum of $6000, default having been made in the payment of the principal and interest of the indebtedness thereby secured, nothing having been paid thereon by the original mortgagors or any other person to the owner and holder thereof. Prior to the foreclosure of the Fidelity Mutual trust deed, the original trustee therein, one T.J. Turley, had forcibly evicted D.D. Thomas therefrom and taken possession of said lands.
The Fidelity Mutual Life Insurance Company then by different conveyances sold and conveyed different parts of said lands to the defendant, B.F. Thomas; also to W.O. White, Jr., who subsequently conveyed to the defendant, Margaret M. Pennell; also to the defendant R.C. Jordan, who later conveyed part of the lands he purchased to the defendant, W.S. Jordan. The defendant, Fidelity Mutual Life Insurance Company, took trust deeds from their grantees on the different portions of the lands sold to each to secure balance of purchase money due from each of said purchasers.
The appellant, D.D. Thomas, brought this suit against the Fidelity Mutual Life Insurance Company and its ultimate grantees B.F. Thomas, Margaret M. Pennell, R.C. Jordan, and W.S. Jordan, to cancel the deeds or trustee's deed of the defendants as clouds on the title of the appellant and for an accounting.
This suit was brought on the theory that the six year statute of limitations had run against the indebtedness secured by the Fidelity Mutual trust deed at the time it was foreclosed and that the purchaser at said foreclosure sale acquired no title to the lands in question for the reason that the foreclosure was void and D.D. Thomas, the appellant, having purchased the property in question at the foreclosure of the Ford trust deed or rather from the purchaser at the Ford foreclosure, on February 2, 1927, is in the attitude of a junior mortgagee in redeeming the property covered by his mortgage from a sale under a prior mortgage when the debt secured by his mortgage is barred by the statutes of limitation. In other words, he had redeemed the Ford mortgage by purchase and assumed the debt secured by the Fidelity mortgage or trust deed. And when the Fidelity debt was barred he became the owner in fee of the lands in question.
The lower court erred in sustaining the general demurrers of the defendants to the original bill. The bill alleges and the demurrers admit that no part or portion of the indebtedness due and owing by M.S. Thomas and wife to the Fidelity Mutual secured by this trust deed was ever paid either by M.S. Thomas or any other person, so that default was made in the payment of the first principal note for $250 due on January 1, 1926, and this note and the other three thereby secured continued in default until the date of the foreclosure of the Fidelity trust deed on December 17, 1932, or more than six years after the due date of the first of said series of notes.
Under the terms and provisions of said trust deed specifically embodied in the acceleration clause, the right of action or the right to foreclose said trust deed accrued to the Fidelity Mutual Life Insurance Company on the 2nd day of January, 1926, or the day after default was made in the payment of the first of said series of notes and which default the demurrers admit. The right of action having accrued on January 2, 1926, and the foreclosure of the Fidelity trust deed not having been made until December 17, 1932, a period of more than six years had elapsed after the right of action had accrued, the entire indebtedness secured thereby was barred by the six year statute of limitations and said sale made thereunder was wholly void and conveyed no title to the purchaser at said sale. The bar of the statute having been complete at the time of the foreclosure there was no indebtedness due and owing thereunder to the Fidelity Mutual or any other person.
The court will bear in mind that on this appeal we are dealing only with the general demurrers. The lower court sustained these several general demurrers on the theory that the acceleration clause in the Fidelity trust deed was, as the court said, "characterized" by an option feature, and that under this option clause something is required to be done by the creditor to manifest an election to avail of the option and that the acceleration clause in this instrument did not automatically establish acceleration; and that in the opinion of the court the acceleration clause in the Fidelity Mutual trust deed was subject to election by the creditor, which election he did not exercise until the date of foreclosure, December 17, 1932. The court further stated in its opinion that "the Court does not believe that the right of action could be dictated to the mortgagee as to its date of accrual by the debtor, that the option was in the creditor and it elected to use the option at the time it instituted foreclosure proceedings, the court therefore does not believe that the senior trust deed was barred by the statute of limitations." In this construction of the Fidelity Mutual trust deed acceleration clause we think the lower court was in error.
The true question is not when the privilege is exercised but when the right accrues to exercise the privilege. It is not a question of the debtor dictating the time of exercising the privilege; it is a question of when the right accrued under the terms and provisions of the contract. We submit it accrued on January 2, 1926, and concede the right was not exercised until December 17, 1932, or more than six years after the right accrued. The creditor wrote this acceleration clause into the trust deed — it was for his benefit. He cannot thereby accept the privileges given and reject the penalties attendant.
The statute of limitations begins to run whenever the cause of action accrues. In other words, the time limited is to be computed from the day upon which the plaintiff might have commenced an action for the recovery of his demands.
Johnson v. Pyles, 11 Smedes M. (19 Miss.) 189.
The pertinent question, then, in the case at bar is not when the privilege of foreclosing was exercised by the Fidelity Mutual, but when could they have exercised the right. When did the right to foreclosure accrue? Unquestionably, the right accrued on default of the payment of the first note which was due on January 1, 1926, and the right to foreclose accrued the following day, January 2, 1926.
See Central Trust Co. et al. v. Meridian Light R. Co., 106 Miss. 431, 63 So. 575, 51 L.R.A. (N.S.) 151; Graham McNeil Co. v. Scarborough, 135 Miss. 59, 99 So. 502; Johnson v. Pyle, supra; Dunton v. Sharpe, 70 Miss. 850, 12 So. 800; Taylor v. Alliance Trust Co., 71 Miss. 694, 15 So. 121; Magruder v. Eggleston, 41 Miss. 284; Johnson v. Crisler, 156 Miss. 266, 125 So. 724; Carter v. Witherspoon, 156 Miss. 597, 126 So. 388; Hebron v. Yerger, 65 Miss. 548, 5 So. 110; Pevey v. Jones, 71 Miss. 647, 16 So. 252, 42 Am. St. Rep. 486; Market v. Plant (Miss.), 1 So. 250; W.T. Rawleigh Medical Co. v. Atwater, 33 Idaho 399; Boyd v. Buchanan, 176 Mo. App. 56, 162 S.W. 1075; Perkins v. Swain, 207 P. 585; Reed v. Culp, 63 Kan. 595; Buss v. Kemp Lumber Co., 23 N.M. 567; Harrison Machine Works v. Reigor, 64 Tex. 89; Fort Worth v. Rosen, 228 S.W. 933; Canadian Birkbeck Investment Savings Co. v. Williamson, 186 P. 916; Lycoming Fire Ins. Co. v. Batcheller Sons, 62 Vt. 148, 19 A. 982; First Nat. Bank v. Peck, 8 Kan. 660; Miles v. Hamilton, 106 Kan. 804, 19 A.L.R. 276; Green v. Frick, 126 N.W. 579; San Antonio Real Estate Bldg. Loan Ass'n. v. Stewart, 61 S.W. 386, 86 Am. St. Rep. 864; Barry v. Minahan, 107 N.W. 488; White v. Miller, 54 N.W. 736; Hemp v. Garland, 114 Eng. Reprint 994; 37 C.J. 810, Sec. 153; 6 Words Phrases 356.
Holmes Bowdre, of Hernando, for appellees, Fidelity Mutual Life Insurance Company and Mrs. Margaret M. Pennell.
The debt secured by the trust deed in the favor of appellee, Fidelity Mutual Life Insurance Company, was not barred by the six year statute of limitations at the time of the foreclosure of said trust deed.
The senior trust deed executed by M.S. Thomas et ux. to the appellee, Fidelity Mutual Life Insurance Company, contained an optional, as distinguished from an absolute, acceleration clause.
Where the acceleration provision is absolute in its terms, — that is, that the notes become due upon default, without any optional features, — the courts are not agreed as to when the statute of limitations begins to run. According to one line of authorities the statute of limitations begins to run upon such default. This is held where the acceleration provision is in the note itself, or where the acceleration is in the mortgage securing the note. But the weight of authority seems to hold that even in case of an absolute provision in a note, or mortgage securing it, the statute of limitations does not begin to run upon default, but the provision is permissive only.
34 A.L.R. 901 et seq.
However, appellees contend that the acceleration provision in the senior trust deed in favor of Fidelity Mutual Life Insurance Company is not absolute, unconditional and self-executing in its terms but optional and permissive, and that acceleration occurs by the exercise of an election and not by force of the language in the stipulation for acceleration, and without the exercise of an election.
Bank of Topeka v. Valf Mfg. Co., 108 Kan. 176, 179, 194 P. 638, 195 P. 599; Twin Falls Oakley Land Water Co. v. Martens, 271 F. 428, Certiorari denied, 257 U.S. 637, 66 L.Ed. 410, 42 S.Ct. 49; First Nat. Bank v. Park, 37 Colo. 303, 86 P. 106; Meyers v. Hot Lake Sanatorium Co., 82 Or. 587, 161 P. 697; McCarty v. Goodsman, 39 N.D. 389, 167 N.W. 503, L.R.A. 1918F, 160; Walker v. Temple, 130 Va. 567, 107 S.E. 720; City Nat. Bank v. Pope (Tex.), 260 S.W. 903; Harrington v. Claflin, 28 Tex. Civ. App. 100, 66 S.W. 898; Hall v. Jameson, 151 Cal. 606, 91 P. 518, 12 L.R.A. (N.S.) 1190, 121 Am. St. Rep. 137.
The American cases are agreed that, when the acceleration provision is optional with the holder of the note, the statute of limitations does not run until the note is due according to its terms, in the absence of an exercise of the option to declare it due upon the default; in other words, the default does not ipso facto start the running of the statute. This is true when the acceleration provision is in the bond or note and expressly states that it is at the option of the holder.
Nebraska City Nat. Bank v. Nebraska City Hydraulic Gaslight Coke Co., 4 McCrary 319, 14 F. 763; Kennedy v. Gibson, 68 Kan. 612, 75 P. 1044; Fisher v. Spillman, 85 Kan. 552, 118 P. 65; Quackenbush v. Mapes, 107 N.Y. Supp. 1047, 123 App. Div. 242; Quakenbush v. Mapes, 107 N.Y. Supp. 1052, 123 App. Div. 250; Bowman v. Rutter (Tex.), 47 S.W. 52; Harrington v. Claflin, supra; Cooper v. Ford, 29 Tex. App. 253[ 29 Tex.Crim. 253], 69 S.W. 487; City Nat. Bank v. Pope (Tex.), 260 S.W. 903.
Appellant cites numerous cases holding that the statute of limitations begins to run whenever the cause of action accrues. We offer no objection to the decision of the court under the facts in each of the particular cases cited.
Dunton v. Sharpe, 70 Miss. 850, 12 So. 800; Taylor v. Alliance Trust Co., 71 Miss. 694, 15 So. 121; Magruder v. Eggleston, 41 Miss. 284; Central Trust Co. et al. v. Meridian Light R. Co., 106 Miss. 431, 63 So. 575, 51 L.R.A. (N.S.) 151; Maddux v. Jones, 51 Miss. 531.
L.E. Farley, of Memphis, Tenn., for appellees, R.C. Jordan and W.S. Jordan.
A provision in a deed of trust securing a note or notes, and in the note secured thereby, that the maturity of such note or notes shall be accelerated by default in payment of a matured part of the debt, or in performance of conditions and covenants of the deed of trust, is valid and enforceable.
Caldwell v. Kimbrough, 91 Miss. 877, 45 So. 7; Taylor v. Alliance Trust Co., 71 Miss. 694, 15 So. 121; Magruder v. Eggleston, 41 Miss. 284; Dunton v. Sharpe, 70 Miss. 850, 12 So. 800; 41 C.J. 413, Mortgages, Sec. 262.
Acceleration clauses in evidences of debt, and in mortgages and trust deeds securing same, may be either self-executing, or optional.
If the language is such as to provide that upon default the whole of the indebtedness, both matured and unmatured, shall at once become due, it will be given that effect, as being a contract made by the parties over which the courts have no control and the benefit of which may be claimed by either of such parties.
Central Trust Co. et al. v. Meridian Light R. Co., 106 Miss. 431, 63 So. 575, 51 L.R.A. (N.S.) 151; Note to Perkins v. Swain, 34 A.L.R. 894 ( 35 Idaho 485, 207 P. 585).
But, if the language used amounts only to an option or right on the part of the mortgagee, or holder of the indebtedness, to declare the unmatured portion of the debt due, it is permissive merely, and default alone in payment of a part will not mature the unmatured portion of the debt, unless the option is exercised.
Dunton v. Sharpe, supra; Caldwell v. Kimbrough, supra; Hall v. Jameson (Cal.), 91 P. 518, 12 L.R.A. (N.S.) 1190; Carnahan v. Lloyd, 4 Kan. App. 605, 46 P. 323; Bowman v. Rutter (Tex.), 47 S.W. 52; York-Ritchie Exch. Inv. Co. v. Mitchell, 6 Kan. App. 317, 51 P. 57; Nebraska City Nat'l Bank v. Nebraska City Hydraulic Gas Light Coke Co., 14 F. 763; Scott v. Blades Lumber Co. (N.C.), 56 S.E. 548; Hebrun v. Reynolds, 73 Misc. 73, 132 N.Y.S. 460; Quackenbush v. Mapes, 107 N.Y.S. 1047, 123 App. Div. 242; Insurance Co. of North America, 151 Ind. 209, 51 N.E. 361; Clause v. Columbia Sav. Loan Ass'n, 16 Wyo. 450, 95 P. 54; Sherwood v. Wilkins, 65 Ark. 312, 45 S.W. 988; First Nat'l Bank of Greeley v. Park, 37 Colo. 303, 86 P. 106; McCarty v. Goodsman (N.D.), 167 N.W. 503, L.R.A. (N.S.) 1918F, 160; Twin Falls Oakley Land Water Co., 271 F. 428; Central Trust Sav. Co. v. Kirkman, 73 Ind. App. 633, 127 N.E. 452; Moline Plow Co. v. Jno. A. Webb Bro., 141 U.S. 616, 35 L.Ed. 879, 12 S.Ct. 100; Note 34 A.L.R. 894, and cases cited; 37 Am. Jur. 66, Mortgages, Sec. 582.
Where the language providing for acceleration creates an option only, such option must not only be exercised by the holder of the debt in order to start the running of the statute of limitations, but it must be exercised within a reasonable time, and if not so exercised will be deemed to have been waived.
Caldwell v. Kimbrough, 91 Miss. 877, 45 So. 7; 41 C.J. 850, Mortgages, Sec. 1034.
In such cases, the institution by the creditor of proceedings to foreclose the mortgage or deed of trust is sufficient evidence of the exercise of the option to accelerate the maturity of the future installments.
Dunton v. Sharpe, supra; 41 C.J. 851, Mortgages, Sec. 1036.
The statute of limitations as to a mortgagee or deed of trust is tolled by recognition of the debt by the original mortgagor in a subsequent mortgage, securing the same debt, or by a grantee of the mortgagor accepting a deed, under the terms of which such grantee assumes and agrees to pay the mortgage debt.
Market v. Plant (Miss.), 1 So. 250; 37 C.J. 1134, 1135. Limitation of Actions, Sec. 611.
On January 1, 1924, M.S. Thomas and wife gave a deed of trust to appellee insurance company to secure the payment of four notes, due respectively on January 1, 1926, 1927, 1928, and 1929. None of the notes was paid in whole or in part, and the deed of trust was foreclosed by trustee's sale on December 17, 1932.
The trust deed contained an acceleration clause reading as follows: "If the parties of the first part fail to pay any portion of the indebtedness hereby secured, either principal or interest, as the same shall fall due . . . the owner or holder of the same may declare all of the indebtedness hereby secured at once due and payable and direct the foreclosure of this trust deed . . ."
Appellant exhibited his bill seeking to set aside and cancel the trustee's deed on the theory that, because of the acceleration clause, the entire indebtedness became due on default of the first note on January 1, 1926, and was barred by the six year statute of limitations when the trustee's sale was made. The chancellor declined to accept that view of the case and dismissed the bill. We think he was correct in so doing.
The quoted acceleration clause is not one which of its own terms advanced the due dates of all the notes upon the fact of the default in the payment of one of them, is not an absolute acceleration clause, but is one wherein the acceleration is to happen at the election or option of the holder of the indebtedness, and wherein the holder must take some such step as will evince or declare his election to that effect. It belongs to the class illustrated by Bank of Topeka v. Valf Mfg. Co., 108 Kan. 176, 194 P. 638, 195 P. 599, and others cited in the notes 34 A.L.R. 901 et seq. It does not fall within Central Tr. Co. v. Meridian Light R. Co., 106 Miss. 431, 63 So. 575, 51 L.R.A. (N.S.) 131, and those of similar import.
The note which became due on January 1, 1926, was barred at the date of the foreclosure, but this did not affect the validity of the foreclosure as to the three notes remaining.
Affirmed.