Kim v. First Intercontinental Bank
326 Ga. App. 424
Ga. Ct. App.2014Background
- Han owned a shopping-center parcel subject to recorded SunTrust security deeds (multiple refinances) before conveying a half-interest to Kim in Jan 2006; those warranty deeds were not recorded until Nov 26, 2008.
- In Aug 2006, Han refinanced with First Intercontinental for $620,000, granting a security deed that mistakenly described an adjoining parcel; First Intercontinental recorded the deed and paid off SunTrust’s liens.
- First Intercontinental had no actual notice of Kim’s (and H&K’s) interests when it advanced funds because their conveyances were unrecorded at that time.
- After recording delays, Kim’s and H&K’s warranty deeds were recorded in Nov 2008; H&K reconveyed to Han and Kim in Jan 2009.
- First Intercontinental sued for reformation of its security deed to correct the legal description and sought equitable subrogation to step into SunTrust’s priority; the trial court granted summary judgment for First Intercontinental.
Issues
| Issue | Plaintiff's Argument (First Intercontinental) | Defendant's Argument (Kim) | Held |
|---|---|---|---|
| entitlement to equitable subrogation | Paid off SunTrust with understanding new loan would have senior priority | Bank was culpably negligent or had notice of Kim’s interest; subrogation would prejudice Kim | Subrogation allowed; bank not chargeable with culpable neglect and Kim’s position remains subordinate |
| scope/amount of subrogation | Subrogation should cover the loan securing SunTrust payoff | Should be full deed amount or contest scope | Limited to amount actually used to satisfy SunTrust liens ($403,610.82 per bank affidavit); remand to specify amount |
| reformation of deed (mutual mistake) | Deed description was a mutual mistake between bank and Han; equity should correct it | Kim not a party to deed, so mistake not mutual; thus cannot be reformed | Reformation permitted; mutual mistake shown as to Han and bank and relief available against successors in privity |
| reformation — notice/innocent purchaser defense | Bank lacked notice of Kim’s interest when loan made | Bank had actual notice (via occupancy) or is estopped; cannot reform to affect Kim | Bank did not have actual notice from tenants; Kim was not an innocent purchaser ahead of SunTrust, so reformation allowed as between parties and their privies |
Key Cases Cited
- Davis v. Johnson, 241 Ga. 436 (sets rule for equitable subrogation when creditor pays off prior lien)
- Chase Manhattan Mtg. Corp. v. Shelton, 290 Ga. 544 (equitable subrogation lets new creditor step into prior creditor's priority)
- Baxter v. Bayview Loan Servicing, 301 Ga. App. 577 (subrogation limited to amount used to satisfy prior encumbrance; purchaser charged with notice of recorded instruments)
- Bankers Trust Co. v. Hardy, 281 Ga. 561 (subrogation cannot prejudice legitimate interests of other lienholders; facts distinguishable)
- DeGolyer v. Green Tree Servicing, 291 Ga. App. 444 (OCGA § 23-2-25 applies to security deeds for reformation)
- Cox v. Zucker, 214 Ga. 44 (a later purchaser who is an innocent purchaser without notice may block reformation)