46 A.3d 1076
Del.2012Background
- Delaware Code 25 Del. C. § 2108 grants priority to a purchase money mortgage if identity, purpose, and timeliness requirements are met.
- Sellers agreed to a $210,000 purchase money mortgage subordinate to a third-party loan under the original agreement of sale (later not effective).
- Revised agreement: buyers funded $550,000 with a third-party lender, and sellers increased their purchase money mortgage to $400,000 with priority over the third party.
- Handwritten modifications were added to the original agreement; parties dispute whether the sellers initialed them or consented to subordination.
- Recordings occurred: the third-party mortgage and deed were recorded on July 5, 2007, and the sellers’ mortgage on July 6, 2007; buyers defaulted later.
- Superior Court held the sellers’ mortgage lacked 2108 status because the instrument did not self-declare purchase money status, invoking the parol evidence rule; Supreme Court reverses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Parol evidence applicability to 2108 priority | Galantinos say parol evidence not required; record documents prove 2108 elements. | Baffone contends parol evidence excludes extrinsic proof to establish 2108 status. | Parol evidence not required; extrinsic evidence permissible to prove 2108 identity and timeliness. |
| Self-declaration requirement in mortgage for 2108 | Record supports purchase money status without explicit recitation in four corners. | Guarantee Bank requires express statement within mortgage. | No strict four-corners self-declaration; record deeds/mortgages suffice to prove 2108 status. |
| Effect of parol evidence on priority vs relinquishment | Establish priority, not subordinate, via recorded instruments. | Guarantee Bank stance should govern to prove subordination expressly. | Priority establishment may rely on recorded documents; relinquishment rules differ and need express terms. |
| Burden and presumption regarding purpose requirement | Presumption that purpose requirement is satisfied if loan amount ≤ purchase price. | Opponent can rebut with persuasive evidence that funds weren't for purchase. | Presumption applies but is rebuttable; burden on opposing party to show lack of purchase financing purpose. |
Key Cases Cited
- Guarantee Bank v. Magness Construction Co., 462 A.2d 405 (Del. 1983) (strict construction of subordination—express in mortgage to override 2108)
- Masten Lumber & Supply Co. v. Sub. Builders, Inc., 269 A.2d 252 (Del. Super. 1970) (purchase money priority; subordination may be possible)
- Handler Const. Inc. v. CoreStates Bank, N.A., 633 A.2d 356 (Del. 1993) (constructive notice via timely recording promotes reliability of priority system)
- GMG Capital Investments, LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776 (Del. 2012) (public-recording system and priority implications refined)
- Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997) (parol evidence limits on contract interpretation; extrinsic evidence context-specific)