                   IN THE COURT OF APPEALS OF TENNESSEE
                              AT KNOXVILLE
                             May 12, 2003 Session

  BANKERS TRUST COMPANY, v. TIMOTHY L. COLLINS and APRIL
   COLLINS, LOU ROBERTSON, and COMMERCIAL CREDIT PLAN,
                     INCORPORATED

                  Direct Appeal from the Chancery Court for Knox County
                     No. 148680-2    Hon. Daryl R. Fansler, Chancellor

                                      FILED JUNE 30, 2003

                                 No. E2002-02109-COA-R3-CV



In this declaratory judgment action, the Trial Court held that recorded trust deeds and notes had
priority over unrecorded trust deeds and notes and dismissed the action. We affirm.


Tenn. R. App. P.3 Appeal as of Right; Judgment of the Chancery Court Affirmed.


HERSCHEL PICKENS FRANKS , J. delivered the opinion of the court, in which CHARLES D. SUSANO,
JR., J., and D. MICHAEL SWINEY, J., joined.


Edward T. Brading, Johnson City, Tennessee, for Appellant.

Stanley F. Roden, Knoxville, Tennessee, for Appellees.



                                            OPINION

                In this declaratory judgment action, the plaintiff made loans to Timothy L. And April
Collins, which were secured by trust deeds which were not recorded. Subsequently, defendant made
loans to the Collins secured by trust deeds which were recorded. Collins defaulted on the subsequent
loans and defendant foreclosed on Collins’ property which was sold to a third party. The parties
stipulated documents which comprise the evidentiary record, and the Chancellor ruled in favor of
defendant, and dismissed plaintiff’s action.

               The parties on appeal are Bankers Trust Company (“plaintiff”) and Commercial Credit
Plan, Inc., (“defendant”). Plaintiff is the successor-in-interest to Advanta National Bank, also d/b/a
Advanta Mortgage Corporation, although no assignment to Bankers of the account in question has
been recorded. During the pendency of the case, Defendant changed its name to CitiFinancial, Inc.,
and defendant Lou Robertson was a trustee of the deeds of trust held by defendant. She was succeeded
by Brian K. Warren as substitute trustee. Defendants Timothy Collins and April Collins are the
homeowner of the subject property located in Knox County. April Collins was non-suited as a result
of a discharge in bankruptcy. Timothy Collins failed to appear and defend; a judgment on sworn
account for $120,986.05 was entered against him.

               In February of 1999, Collins took out a loan with Advanta for $87,125.00 and a Home
Equity Line of Credit for $15,375.00. Both loans were secured by deeds of trust on the Collins’
property executed in favor of Advanta, but neither the deeds nor notes were recorded with the Knox
County Register of Deeds. The loan proceeds paid off an existing mortgage held by Sterling Bank and
Trust Company (“Sterling”), which filed a Release of its deed of trust with the register’s office in June
of 1999.

                 In April 1999, Collins obtained a loan in the amount of $93,731.21 from the defendant,
and executed two notes and deeds of trust in favor of defendant on the same property. Defendant
recorded both documents with the Knox County Register of Deeds on April 21, 1999. Defendant in
its loan to Collins agreed to payoff the Advanta indebtedness. On April 7, 1999 Advanta provided the
Collins the payoff amounts on the indebtedness. Defendant disbursed its check to Advanta in the
amount of $74,788.00 as payoffs for the accounts in Timothy Collins’ name. One month later, Advanta
returned the check tendered in payment of the two loan accounts of Timothy Collins, stating it was
unable to identify the proper loan for applying the funds. It did have record of two account numbers
in the Collins name, but the check was insufficient to pay off those loans; and was therefore returned.

                In June of 1999 Advanta declared the loan in default and threatened foreclosure.
Collins hired an attorney who attempted to rectify the problem, twice advising Advanta that Collins
stood ready to pay the account and counsel had the check in his possession, pending resolution of the
problem. There is nothing in the record indicating what action Advanta expected or what steps it felt
either party should take to conclude the matter.

                  The record shows that Advanta received a title examination of the subject property
dated December 15, 1999. The title report prominently states that the February 1999 notes and deeds
of trust in favor of Advanta had not been recorded. The report reflected the original Sterling mortgage,
and reported were the two deeds of trust filed by defendant on April 21, 1999, and the lack of an
assignment from Advanta to plaintiff.

                 Defendant foreclosed on its interest and the Collins property was sold by the substitute
trustee to a bona fide purchaser on July 26, 2000. There are no issues pertaining to the regularity or
validity of the foreclosure proceedings.

                In September 2000, plaintiff filed its action for Declaratory Judgment. The Chancellor
ruled in favor of the defendant and found that plaintiff’s failure to record its deeds precluded any claim
of constructive notice. The Court further held that defendant had not been unjustly enriched and

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dismissed defendant from the action.

               Where only questions of law are involved, the trial court’s findings are reviewed de
novo upon the record with no presumption of correctness on appeal. Guffey v. Creutzinger, 984
S.W.2d 219 (Tenn. Ct. App. 1998). Cases involving priority of rights among lienholders and mortgage
holders where the facts are undisputed are solely questions of law. ATS, Inc., v. Kent, 27 S.W.3d 923
(Tenn. Ct. App. 1998).

                Tenn Code Ann. § 66-26-103 provides:

                Unregistered Instruments Void as to Creditors and Bona Fide Purchasers:
                Any of such instruments not so proved or acknowledged and registered or noted for
                registration shall be null and void as to existing or subsequent creditors of, or bona fide
                purchasers from, the makers without notice.

                 There is nothing in the record to indicate that the letter from Advanta to Collins was
furnished to defendant. The only evidence in the record as to what notice defendant had at the time
it made the loan was the document styled: “Itemization of Account Financed” which sets forth the
amount of the loan, prepaid finance charges and registration fees, and a “Schedule C: Paid to Others”.
Listed under this schedule is an amount of $74,788.10 with payee’s name Advanta, and the reason
being “payoff of account”. There is simply no evidence that defendant had notice of Advanta’s
mortgage. The property securing all of the trust deeds has been sold to a bona fide purchaser for value,
and as a matter of law is beyond the reach of the parties. The issue thus becomes whether on these
facts the plaintiff is entitled to any equitable relief. We conclude it is not.

                Subrogation is defined as “the substitution of another person in the place of a creditor,
so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the
debt.” Blankenship v. Estate of Bain, 5 S.W.3d 647, 650 (Tenn. 1999). It may arise by contract, by
application of equitable principles of law, or by application of a statute. Id.

                 Subrogation is a creature of equity whose jurisprudence dates from Roman law. The
cornerstone of the doctrine is the principle that “substantial justice should be attained regardless of
form, that is, its basis is the doing of complete, essential and perfect justice between all the parties
without regard to form.” Castleman Const. Co. v. Pennington, 432 S.W.2d 669, 674 (Tenn. 1968)
The Court cited Couch on Insurance, § 16:21 in a general review of the doctrine of subrogation:

                To entitle one to subrogation, his equity must be strong and his case clear, since it will
                not be enforced where the equities are equal, or the rights are not clear, or where it will
                prejudice the legal or equitable rights of others. Where equities are equal, there is no
                right to subrogation. However, subrogation will not be enforced against superior
                equities.

Id. at 675; see also, Lawyer’s Title Ins. Corp. v. United American Bank, 21 F. Supp.2d 785, 792 n.
2 (W.D. Tenn. 1998). The equities weigh in defendant’s favor. Or, at a minimum the equities are
at least in equipoise, which will allow no equitable subrogation.

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               In this case the Advanta loan was transacted specifically to refinance the Sterling
mortgage; Advanta did not pay the Sterling debt through fraud or mistake and is not entitled to
subrogation to Sterling’s rights (to the extent they existed) on this basis.

                Equitable relief may be granted where one party pays the debt of another by mistake,
but not where the party seeking relief is guilty of “culpable negligence.” Dixon v. Morgan, 285 S.W.
558 (Tenn. 1926). As noted, plaintiff failed to record its documents for over one year, and was aware
of another creditor’s involvement with the same collateral as early as April or May 1999. Defendant
attempted to pay off Advanta pursuant to the figures provided, and Advanta simply returned the check.
Collins’ counsel advised on at least two occasions that the debt would be paid and the matter
concluded as soon as correct information was provided. In response, Advanta’s last communication
in the record dated August 5, 1999, simply stated: “The payoff figures are incorrect. The payoff check
was returned to Commercial Credit because the funds were not sufficient to payoff the loans.” There
is no indication that it would thoroughly investigate the situation and provide the correct information.
Plaintiff could have retained the check with notification that the amount tendered was insufficient to
pay off the balance, or place the funds in escrow. Generally “where a party’s remedy was “in his own
hands” and he fail[s] to protect his interest, as a general rule, neither a court of law nor equity will
intervene on his behalf.” Leeper v. Cook, 688 S.W.2d 94 (Tenn. Ct. App. 1985). Plaintiff asserts that
defendant was somehow negligent when, having knowledge of the Advanta loan, it attempted to pay
it. Next, it is argues that defendant did not correct the error by re-issuing a check in the correct
amount, despite there being no evidence that it ever forwarded an accurate figure to defendant.

               The rationale to employ equitable subrogation is to prevent unjust enrichment. See
               rd
Restatement (3 ) of Property Mortgages, § 7.6. In this case the Trial Court found, “Commercial Credit
has not been unjustly enriched”. The record supports this conclusion and we decline to invoke the
doctrine of equitable subrogation to grant any relief to plaintiff.

                 We affirm the Judgment of the Trial Court for the reasons set forth and remand, with
the cost of the appeal assessed to Bankers Trust Company.




                                                        _________________________
                                                        HERSCHEL PICKENS FRANKS , J.




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