Opinion
No. 78-096
Decided April 19, 1979.
Action seeking a declaration of the rights and obligations of grantor of deed of trust, plaintiff appealed the judgment entered.
Affirmed in Part, Reversed in Part.
1. TRUSTS — Deed of Trust — Partial Release Provision — Grantor — Select — Parcels for Release. Where a deed of trust has a partial release provision, but is silent as to which party may select the parcels to be released, the grantor of the deed of trust initially has the right to make the selection.
2. Deed of Trust — Partial Release — Selected by Grantor — Insufficient Security — Balance of Note — Court — May Authorize — Note Holder — Refuse Release. Although grantor of deed of trust containing partial release provision has initial right to select parcels for release, that right may not be exercised in such a fashion as to deprive the grantee of adequate security, and thus, if parcel or parcels selected for release would result in the remaining property being insufficient security for the balance of the note, then the court, upon a proper showing by the trust deed beneficiary, may authorize the note holder to refuse to grant the release.
Appeal from the District Court of the County of El Paso, Honorable Joe A. Cannon, Judge.
Geddes, MacDougall, Geddes Paxton, P.C., M. E. MacDougall, for plaintiff-appellant.
Melat Wheeler, Justin R. Melat, for defendants-appellees.
White commenced this action against the Spencers under C.R.C.P. 57 seeking a declaration of his rights and obligations under a deed of trust. From an adverse judgment White appeals, and we affirm in part, reverse in part, and remand for further proceedings.
In 1973 White bought 2,200 acres of land in eastern El Paso County from the Spencers for $233,200. White paid $53,200 as a down payment and the balance of $180,000 was paid by execution of an interest bearing note, which required White to pay twenty annual installments of $9,000 each on the principal plus interest. Privilege was granted in the note to prepay any additional amount of principal not to exceed $36,000 in any one calendar year. This note was secured by a deed of trust which provided, inter alia, as follows:
"Grantors shall be entitled to partial releases of parcels of the above described property from the lien hereof upon payment of $12,857 upon the principal balance secured hereby for each 160 acre increment to be released. The two 160 parcels upon which improvements are located shall be the final two 160 acre parcels released."
The trial court initially interpreted this clause as granting to White the right to obtain a release on a 160 acre parcel each time the accumulated principal paid amounted to $12,857, with the two improved parcels to be released last. The court rejected the Spencers' contention that the $12,857 requirement of principal payment was over and above the annual principal payments required by the note. In these interpretations the trial court was correct.
After hearing testimony from both White and the Spencers, the trial court further concluded that, as to such partial releases, White could not select the unimproved land which would comprise the parcels to be released or determine the order in which parcels should be released. The trial court, in essence, concluded that the Spencers had the exclusive right to make these determinations. We agree with the trial court that the language of the release clause here clearly and unambiguously entitled White, as grantor of the deed of trust, periodically to request the release of, and to have released, portions of the land from the operation of the deed of trust; however, we reject the trial court's conclusions as to which party was entitled to select the parcels to be released and the order in which the releases should be granted.
[1] It is axiomatic that deeds of trust are granted for the purpose of providing security for the beneficiary, but that reservations, or provisions for partial release, are inserted for the benefit of the grantor. Lambert v. Jones, 540 S.W.2d 256 (Tenn.App. 1976). Reason impels us to the conclusion that partial release clauses are bargained and paid for by the grantor of a deed of trust and are a limitation or reservation upon the security right granted. Where a deed of trust has a partial release provision, but is silent as to which party may select the parcels to be released, we hold that it must be implied that the grantor of the trust deed initially has the right to make the selection. This follows from the fact that the release provision exists for his benefit and presumably was negotiated by him at the outset. Leisure Campground Country Club Limited Partnership v. Leisure Estates, 280 Md. 220, 372 A.2d 595 (1977).
[2] However, since the primary purpose of a deed of trust is to secure the payment of the outstanding balance of a promissory note, the exercise of this right is qualified. The grantor of a deed of trust may not select portions of the secured property for release in such a manner as to deprive the note holder of adequate security for his note. Consequently, if the grantor under a deed of trust selects a parcel or a series of parcels for release which would result in the remaining property being insufficient security for the balance of the note, then the court, upon a proper showing of that fact by the beneficiary of the deed of trust, may authorize the note holder to refuse to grant the releases. See Lawrence v. Shutt, 269 Cal. App.2d 749, 75 Cal. Rptr. 533 (1969). Thus, the burden is upon the Spencers to establish that the specific releases sought by White will impair their security for the note.
Hence, when the trial court allowed the Spencers to designate which land should be included in each 160 acre parcel to be released and authorized them to determine in what order the releases should be granted, it not only denied to White the basic right to select the parcels to be released, but also improperly relieved the Spencers of the burden of showing the basis for any challenge they might have to White's selections for release. White should have been allowed to make the initial selection and then, if the Spencers' evidence warranted, the court could have modified such selection or even directed White to make a new selection in such a manner as to protect the Spencers' security interest.
The portion of the judgment relative to White's entitlement to releases is affirmed, but the portion in which the court adopted the Spencers' designation of the land to be included in each parcel and the order in which the parcels would be released is reversed, and the cause is remanded for a new determination of those issues consistent with the views expressed herein.
JUDGE RULAND and JUDGE STERNBERG concur.