First Federal Savings Bank v. Johnson

By Judge Joseph E. Spruill, Jr. Billy G. Dowdy and Eileene Johnson purchased a parcel of land in Northumberland County as joint tenants with common law rights of survivorship in 1983. Simultaneously, they acquired a loan and executed a purchase money deed of trust After acquiring the property, these parties married. Later they entered into a separation agreement and divorced. Thereafter, in 1991, Mr. Dowdy died intestate. la 1992 Johnson executed a deed of trust against die entire property securing a loan she acquired from First Federal Savings Bank of Shenandoah Valley. A portion of the loan proceeds was used to pay off the prior deed of trust First Federal, toe Complainant, brings this declaratory judgment action asking that its deed of trust be found to constitute a valid first lien against toe entire property and that toe interest of toe Dowdy heirs be subordinate to this instrument. The Dowdy heirs argue that they own an outstanding undivided one-half interest in toe subject property as tenants in common with Johnson and that their interest is not and should not be encumbered by First Federal’s deed of trust When Dowdy and Johnson , divorced, toe interest of each in toe subject property was converted into a tenancy in common. Virginia Code § 20-111. Upon Dowdy’s death, Ms interest passed to Ms heirs at law. Virginia Code §64.1-1. [609] Thereafter, Johnson undertook to convey the entire property in bust But the interest of the Dowdy heirs was not hers to convey, and her attempt to encumber this interest is a nullity. The Supreme Court in Overby v. White, 245 Va. 446 (1993), relied on by the Dowdy heirs, held as follows: one tenant in common cannot bind his co-tenant personally nor by any unauthorized agreement or act in respect to úle common property. There is no relationship existing between co-tenants, as between partners, which will render the acts of one co-tenant respecting the common property binding on the others. No action of one or more of several tenants in common can impair the rights of the other co-tenants. Applying this principle, Johnson could not impair the property rights of the Dowdy heirs when she signed the deed of trust and note. Neither the deed of trust nor the note can affect the Dowdy heirs’ property rights because they did not execute these documents or authorize anyone to execute them on their behalf. First Federal next argues that, should the Court find Overby controlling, as we do, the bank has a claim superior to the Dowdy heirs by virtue of the separation agreement and requests die Court to impose a constructive trust against the interest of the heirs in favor of tire bank. The failure to do so, argues the bank, will result in unjust enrichment to the heirs. Just such a claim was made in Overby. In Overby, the loan proceeds were used to renovate improvements on property owned by the parties. The Supreme Court, finding that there was no evidence of fraud or any other improper acts, refused to impose a constructive trust, concluding that the innocent party was not, under these circumstances, unjustly enriched. Here the facts are somewhat different The property came to die Dowdy heirs subject to the unpaid balance of the prior deed of trust. Moreover, die disposition of this property was agreed upon between Dowdy and Johnson in their separation agreement This agreement provided that the property would be sold and, from the proceeds of sale, the hen of die deed of trust would be satisfied in full. Thus, the heirs inherited the property subject to their share of die balance due under this hen. To that extent only (being one-half of the outstanding balance at the time), it is equitable that their interest be subject either to a constructive trust or to an equitable hen. This will place die heirs in precisely die position they were in at the time they inherited Mr. Dowdy’s interest in this property. [610] These are no factual disputes hoe as agreed by the parties, and the mattes was submitted to the Court after arguments heard on May 16 on the heirs’ motion for summary judgment Subject to die foregoing, the motion is granted.