769 S.E.2d 663
S.C.2015Background
- In 2007 Buncombe Professional Park, LLC (Buncombe) executed a loan and mortgage with Independence National Bank (Bank); Buncombe's member David DeCarlis personally guaranteed the loan. At closing Bank paid off an existing first mortgage on the property.
- DeCarlis had a 2006 recorded mortgage (then a second mortgage) on the same property; the 2007 closing did not obtain a satisfaction/release/subordination of that 2006 mortgage.
- The same attorney represented both Bank and Buncombe at the 2007 closing; he performed the title search and thus knew of the 2006 mortgage but failed to have it subordinated or released.
- Buncombe defaulted on the 2007 loan; Bank brought foreclosure. The master reformed the mortgages to give Bank priority and, alternatively, held Bank equitably subrogated to the original first mortgage Bank had paid at closing.
- The Court of Appeals reversed, concluding the attorney’s actual knowledge of the 2006 mortgage imputed actual notice to Bank and defeated equitable subrogation. The Supreme Court granted certiorari.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bank is entitled to equitable subrogation to the original first mortgage it paid at closing | Bank: satisfied first mortgage, had direct interest and secondary liability, and only had constructive notice via its closing attorney, so equitable subrogation applies | Buncombe/DeCarlis: Bank had actual notice because its closing attorney (agent) actually knew of DeCarlis' 2006 mortgage, so subrogation is barred | Bank entitled to equitable subrogation: agent's actual knowledge imputed only as constructive notice; constructive notice does not defeat equitable subrogation |
| Whether the attorney’s knowledge imputed actual notice to Bank as principal | Bank: agent’s knowledge imputes only constructive notice, not actual notice that blocks subrogation | Respondents: agent’s actual knowledge is imputed to principal and therefore Bank had actual notice | Court: agent’s knowledge gives principal constructive notice; it does not constitute actual notice for equitable subrogation purposes |
| Whether allowing subrogation would be unjust to DeCarlis | Bank: no injustice—subrogation simply restores priority of the paid-off first mortgage | DeCarlis: allowing subrogation would prejudice his recorded 2006 lien | Court: no injustice shown; equitable subrogation permitted |
| Whether reformation was necessary given subrogation ruling | Bank: subrogation suffices to give priority; reformation unnecessary | Respondents: relied on alternate relief below | Court: did not reach reformation issue because subrogation resolved the dispute |
Key Cases Cited
- Matrix Fin. Serv. Corp. v. Frazer, 394 S.C. 134, 714 S.E.2d 532 (2011) (sets elements for equitable subrogation)
- Dedes v. Strickland, 307 S.C. 155, 414 S.E.2d 134 (1992) (constructive notice does not bar equitable subrogation)
- Crystal Ice Co. of Columbia v. First Colonial Corp., 273 S.C. 306, 257 S.E.2d 496 (agent notice imputes constructive notice to principal)
- Bankers Trust of S.C. v. Bruce, 283 S.C. 408, 323 S.E.2d 523 (agency principles on notice)
- Enterprise Bank v. Fed. Land Bank of Columbia, 139 S.C. 397, 138 S.E. 146 (equitable subrogation principles)
- Pee Dee State Bank v. Prosser, 295 S.C. 229, 367 S.E.2d 708 (constructive vs. actual notice in lien priority)
- United Carolina Bank v. Caroprop, Ltd., 316 S.C. 1, 446 S.E.2d 415 (overruling context; cited for related priority law)