741 S.E.2d 572
S.C. Ct. App.2013Background
- Buncombe obtained a $1.65 million commercial loan from Independence, with DeCarlis as guarantor, secured by approximately 4.9 acres in Greenville County.
- Independence’s loan was intended to satisfy a first mortgage held by First National Bank; DeCarlis also held a second mortgage on the same Greenville property.
- At closing, the lender required a first-priority mortgage; the title work disclosed DeCarlis’s lien, but DeCarlis did not subordinate or have his mortgage released at closing.
- Dugas, the closing attorney for all parties, knew of DeCarlis’s mortgage but did not obtain a release or subordination; Independence’s mortgage was recorded September 26, 2007.
- The loan’s maturity was initially March 25, 2009, later extended to March 25, 2010; Independence sought foreclosure after the debt remained unpaid and discovered DeCarlis’s open lien.
- Independence sought reformation of its mortgage to reflect the intended first-priority position and, alternatively, equitable subrogation; the Master granted these but the appellate court reverses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Priority of liens given filing times | DeCarlis’s lien was filed first and is superior under § 30-7-10. | Independence’s reformed mortgage or equitable subrogation should control priority. | Reformation and equitable subrogation not warranted; priority based on record and non-formation remedies. |
| Validity of reformation to give Independence a first lien | Mutual mistake intended first mortgage; reformation appropriate. | No meeting of the minds; reformation improper because it alters parties. | Reformation improper; cannot add DeCarlis as a party or alter intent via reformation. |
| Equitable subrogation as a remedy | Independence should be subrogated to First National’s mortgage. | Independence lacked notice and equitable subrogation is unavailable here. | Equitable subrogation not appropriate; actual notice to Independence through its agent-Dugas established. |
| Notice and agency implications | Agency may impute notice to Independence; Dugas knew of DeCarlis’s lien. | Independence cannot be charged with Dugas’s knowledge as its agent. | Actual notice found via agency theory; note to Dugas equates to notice to Independence. |
Key Cases Cited
- SunTrust Bank v. Bryant, 392 S.C. 264 (Ct.App.2011) (equitable standard: preponderance of the evidence)
- Fibkins v. Fibkins, 303 S.C. 112 (1960s) (equity standard for lien priority and related relief)
- George v. Empire Fire & Marine Ins. Co., 344 S.C. 582 (2001) (mutual mistake and reformation principles)
- Crosby v. Protective Life Ins. Co., 293 S.C. 203 (Ct.App.1987) (reformation requires clear and convincing evidence)
- Crewe v. Blackmon, 289 S.C. 229 (Ct.App.1986) (reformation of instruments; party interests)
- Dedes v. Strickland, 307 S.C. 155 (1992) (requirements for equitable subrogation)
- Spence v. Spence, 368 S.C. 106 (2006) (actual notice in real estate transactions)
- Pee Dee State Bank v. Prosser, 295 S.C. 229 (1988) (constructive vs. actual notice in equity)
- United Carolina Bank v. Caroprop, Ltd., 316 S.C. 1 (1994) (notice standards in real property liens)
- Nationwide Mut. Ins. Co. v. Prioleau, 359 S.C. 238 (Ct.App.2004) (agency notice principle)