The Bank of New York Mellon v. Withers, 771 S.E.2d 762

June Withers owned 121 West Cornwallis Road. In 2002 she and daughter Rhonda sought a refinance from Popular Financial Services (PFS) to pay off an existing deed of trust held by Accredited Home Lenders (AHL).
PFS required (1) a deed of trust giving PFS a first lien on the property and (2) a quitclaim deed conveying the property to June and Rhonda as joint tenants; PFS funded payment of the AHL lien and instructed the closing attorney to pay AHL in full.
Closing attorney Natasha Newkirk mistakenly prepared and recorded a quitclaim deed adding June’s three other daughters (Margaret Young, Shelia Smith, and Faye Kearney) as co-grantees, creating tenants in common; the PFS deed of trust therefore secured only two-fifths of the property.
PFS assigned its deed of trust to The Bank of New York Mellon (plaintiff). Plaintiff sued in 2012 seeking reformation/constructive trust or, alternatively, equitable subrogation to place plaintiff in AHL’s prior-lien position. June died in 2013; Rhonda quitclaimed her interest to plaintiff; remaining defendants were Young, Smith, and Kearney.
The trial court denied reformation and constructive trust claims, but granted plaintiff summary judgment on equitable subrogation to quiet title, and defendants appealed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether equitable subrogation applies so plaintiff takes the prior AHL lien position	PFS advanced funds to pay AHL and intended to take a first lien; attorney mistake should not defeat that agreed purpose	Attorney’s mistake prevented PFS from receiving a first lien on entire property; plaintiff should not be subrogated over intervening interests	Court: Yes. Equitable subrogation applies as a matter of law because funds were advanced to pay prior encumbrance and were so applied.
Whether plaintiff was excusably ignorant of the intervening interest	PFS (and successor) were excusably ignorant of the closing attorney’s deed error	Defendants argue plaintiff was not excusably ignorant of the mistake	Court: Plaintiff was excusably ignorant; the attorney’s error cannot defeat subrogation.
Whether adequate legal remedies preclude equitable relief	Monetary damages are inadequate because real property is unique; equity supplements law	Defendants contend there are adequate remedies at law and equity should not apply	Court: Remedies at law are inadequate for protecting a first lien on unique land; equity applies.

Peek v. Wachovia Bank & Trust Co., 242 N.C. 1 (1955) (defines equitable subrogation elements)
Trustees of Garden of Prayer Baptist Church v. Geraldco Builders, Inc., 78 N.C. App. 108 (1985) (equitable subrogation where one pays a debt another was primarily liable for)
Journal Pub. Co. v. Barber, 165 N.C. 478 (1914) (equity’s purpose is to prevent injustice and secure complete justice)
Am. Gen. Fin. Servs., Inc. v. Barnes, 175 N.C. App. 406 (2006) (party entitled to remedies and security of the creditor when subrogated)
Daugherty v. Cherry Hospital, 195 N.C. 97 (2009) (equity not available when a full and complete remedy at law exists)
Powell v. City of Newton, 364 N.C. 562 (2010) (land is unique; damages may be inadequate remedy)