             IN THE COURT OF APPEALS OF TENNESSEE
                         AT NASHVILLE

                                                         FILED
                                                            July 1, 1998
CHARLES F. GAULDEN, and Wife,              )
RUTH S. GAULDEN,                           )            Cecil W. Crowson
                                           )           Appellate Court Clerk
       Plaintiffs/Appellants,              )
                                           )   Appeal No.
                                           )   01-A-01-9708-CH-00417
VS.                                        )
                                           )   Davidson Chancery
                                           )   No. 95-3970-III
ROBERT L. SCRUGGS, and Wife,               )
JOYCE W. SCRUGGS,                          )
                                           )
       Defendants/Appellees.               )


      APPEALED FROM THE CHANCERY COURT OF DAVIDSON COUNTY
                     AT NASHVILLE, TENNESSEE

             THE HONORABLE ELLEN HOBBS LYLE, CHANCELLOR



ROBERT A. ANDERSON
2021 Richard Jones Road, Suite 350
Nashville, Tennessee 37215
      Attorney for Plaintiffs/Appellants

NADER BAYDOUN
JOHN I. HARRIS III
Suite 2420, Nashville City Center
511 Union Street
Nashville, Tennessee 37219
       Attorneys for Defendants/Appellees




                            AFFIRMED AND REMANDED




                                               BEN H. CANTRELL, JUDGE


CONCUR:
TODD, P.J., M.S.
BUSSART, S.J.




                                OPINION
              The question in this case is whether a purchaser of mortgaged property,

who pays off the mortgage, takes an assignment of the note and deed of trust, and

subsequently releases the deed of trust, can then sue the original mortgagee on the

note. The Chancery Court of Davidson County dismissed the action. We affirm.



                                            I.



              In 1988 the defendants, Mr. and Mrs. Scruggs, purchased three parcels

of property, one parcel from the plaintiffs, Mr. and Mrs. Gaulden. The purchase price

was $500,000 and the sellers agreed to help with the financing by taking a down

payment of $125,000 and a deed of trust to secure payment of the balance. They

also agreed with the Scruggs’ to subordinate their security to a first mortgage given

to Union Planters Bank. The $225,000 loan from Union Planters was used in part to

make the down payment to the sellers.



              In 1989 when the Gauldens and the other sellers threatened to foreclose

their deeds of trust, the parties worked out an agreement whereby the Scruggs’ would

transfer the property back to the sellers in full satisfaction of the second mortgage.

The Scruggs’ signed quitclaim deeds transferring the property to the original sellers.

Thus, at that point the original sellers were purchasers of the property subject to a first

mortgage to Union Planters Bank.



              The Gauldens then purchased the $225,000 note from Union Planters

and took an assignment of the first mortgage deed of trust. They immediately

released the property they originally owned from the mortgage and sold the property

for $333,330. They did not credit the note with any of the proceeds.




                                           -2-
              Five years later, the Gauldens released the other property covered by

the mortgage so that the owner could sell it. Again, they did not give any credit to the

first mortgage note.



                                           II.



              The chancellor held that “the merger doctrine applies and that the first

mortgage indebtedness was extinguished by the plaintiff’s purchase of the first

mortgage note and deed of trust at a time when they were also the owners of real

property which secured the same indebtedness.” We are satisfied that the result was

correct, but we are not sure that it should be based on the merger principle. Our

hesitation stems from the line of authority that holds a merger does not necessarily

occur where the grantee of the mortgaged premises merely takes subject to the

mortgage and does not assume it. See 55 Am. Jur. 2d Mortgages § 1404.



              It is clear, however, that where a grantee of mortgaged property takes

subject to the mortgage, the land itself “is charged with the mortgage to the same

effect as though the purchaser had expressly assumed the payment of the debt or

had himself made a mortgage on the land to secure it, and the purchaser must pay

the sum due, in equity, on the mortgage if he wishes to relieve the land from the

encumbrance.” 59 C.J.S. Mortgages § 390. See Sanders v. Lackey, 439 S.W.2d 610

(Tenn. App. 1969). Since the Gauldens did not expressly (or by implication) assume

the debt, they are not personally liable for it, and could not have been sued on it by

the bank; but they, in equity, agreed that the land itself was primarily responsible for

the payment of the mortgage.

              The chancellor held that

              “[T]he defendants, by quitclaiming real property subject to
              the first mortgage indebtedness to the plaintiffs, obtained
              the legal and equitable right to force the plaintiffs, as the
              vendees of that property, to apply the proceeds from any
              subsequent sale of the quitclaimed property to the
              satisfaction or reduction of the first mortgage

                                          -3-
             indebtedness. The Court finds that the plaintiffs have
             sold the quitclaimed property for consideration in excess
             of the amount of the first mortgage indebtedness and that
             the defendants therefore have the right to enforce the
             complete satisfaction of the first mortgage indebtedness
             out of those sales proceeds.”



             We think that is a correct view of the relative rights of the Gauldens and

the Scruggs’ after the Gauldens took the property back subject to the mortgage.



             The judgment of the trial court is affirmed and the cause is remanded

to the Chancery Court of Davidson County for any further proceedings necessary.

Tax the costs on appeal to the appellants.




                                                ____________________________
                                                BEN H. CANTRELL, JUDGE

CONCUR:



__________________________________
HENRY F. TODD, PRESIDING JUDGE
MIDDLE SECTION



__________________________________
WALTER W. BUSSART, SPECIAL JUDGE




                                        -4-
