Bank v. Wingard Properties Inc.

• Decision Date: 22 June 2011
• Docket Number: No. 4846.,4846.
• Citation: 394 S.C. 241,715 S.E.2d 348
• Court: South Carolina Court of Appeals
• Parties: REGIONS BANK, Appellant,v.WINGARD PROPERTIES, INC., James T. Wingard, III, Deborah G. Wingard, Klassic Kitchen Design, Inc., Coastal Closets, LLC, Dean Pappas, and Best–Way Insulation of Fairmont, Inc., Defendants,v.Ray Covington, Intervenor, Respondent.

394 S.C. 241

715 S.E.2d 348

REGIONS BANK, Appellant,

v.WINGARD PROPERTIES, INC., James T. Wingard, III, Deborah G. Wingard, Klassic Kitchen Design, Inc., Coastal Closets, LLC, Dean Pappas, and Best–Way Insulation of Fairmont, Inc., Defendants,

v.Ray Covington, Intervenor, Respondent.

No. 4846.

Court of Appeals of South Carolina.

Submitted April 1, 2011.Decided June 22, 2011.

Demetri K. Koutrakos, Stanley H. McGuffin, Louise M. Johnson, and Lindsey Carlberg Livingston, all of Columbia, for Appellant.Daryl G. Hawkins and Charles E. Usry, both of Columbia, for Respondent.PIEPER, J.

This appeal arises out of a nonjury trial resulting in an order awarding Respondent Ray Covington a first priority equitable lien superior to the mortgage of Appellant Regions Bank. On appeal, Regions Bank argues it should have priority because Covington's deposit check on his contract with Wingard Properties, Inc. (Wingard) was not cashed prior to the recording of Regions Bank's mortgage. We affirm.¹

FACTS

Regions Bank filed a complaint in the circuit court, seeking foreclosure of three different mortgages with Wingard.² As collateral for a $7,000,000 revolving construction loan, Wingard mortgaged Lot 38 at the Village at Grande Dunes in Myrtle Beach to Regions Bank on November 9, 2006. Regions Bank recorded its mortgage on Lot 38 in the Horry County Register of Deeds on November 13, 2006.

Prior to Wingard's mortgage with Regions Bank, Covington entered into a residential home purchase agreement with Wingard for the sale of Lot 38 on September 12, 2006. Covington wrote a check to Wingard for $276,700 on October 20, 2006, as a down payment according to the terms of the purchase agreement. Wingard did not deposit this check in its bank account until November 14, 2006, the day after Regions Bank recorded its mortgage. Covington also wrote a $10,000 check to Grande Dunes Properties on September 3, 2006, which cleared the drawee bank on September 15, 2006. Regions Bank conceded at trial that Covington has an equitable lien with priority over its mortgage as to this $10,000.

Regions Bank required Wingard to sell the unit for each lot as a precondition for the construction loan. According to testimony from Regions Bank employee Stephanie Gates, the bank was aware of the sales contract with Covington before it advanced any funds to Wingard under the construction loan. Further, Regions Bank required Wingard to produce evidence that Covington was qualified to purchase the home. In an undisputed ruling, the trial court found Regions Bank admitted it would not have made the loan without Covington's purchase agreement and $286,700 deposit.

Regions Bank disputes the findings of fact by the trial court concerning the lag between Wingard's receipt of Covington's deposit check on October 20th and deposit of the check on November 14th. Tom Wingard testified he did not recall that Covington's check was not deposited until November 14, 2006, until he reviewed documentation later. Covington testified that he met with Bobby Roberson at BB & T, who represented to him that BB & T would cover the down payment on Lot 38. Covington believed at the time he presented the check to Wingard that the check would be good. Regions Bank presented Covington's bank records from Bank of America, which showed that the account was not adequately funded until November 14, 2006. Covington wrote the check from his Bank of America account, although BB & T was the bank Covington chose to finance his loan.

Regions Bank also disputes that it had full knowledge of the terms of the purchase agreement between Wingard and Covington. Finally, Regions Bank disputes the trial court's finding that the failure to grant Covington a first priority equitable lien would result in a forfeiture. Ultimately, the court found that Covington was entitled to a $286,700 first priority equitable lien superior to Regions Bank's mortgage on Lot 38. Regions Bank filed a motion to alter or amend pursuant to Rule 59(e), SCRCP. The court denied the motion in a written order following a hearing. This appeal followed.

STANDARD OF REVIEW

A mortgage foreclosure is an action in equity. Hayne Fed. Credit Union v. Bailey, 327 S.C. 242, 248, 489 S.E.2d 472, 475 (1997). We review factual findings and legal conclusions in an equitable action de novo. Lewis v. Lewis, 392 S.C. 381, 388–89, 709 S.E.2d 650, 653–54 (2011). However, this de novo review does not require an appellate court to disregard the findings of the trial court or to ignore the fact that the trial court is in the better position to assess the credibility of the witnesses. Pinckney v. Warren, 344 S.C. 382, 387, 544 S.E.2d 620, 623 (2001). Moreover, the appellant is not relieved of the burden of convincing the appellate court that the trial court committed error in its findings. Id. at 387–88, 544 S.E.2d at 623. Consequently, we will affirm the findings of the trial court in an equity case unless the appellant satisfies this court that the preponderance of the evidence is against the findings of the trial court. Lewis at 388–89, 709 S.E.2d at 653–54.

ANALYSIS

Equitable maxims are not binding legal precedent but represent notions and concepts of equity in various situations. See Russell L. Weaver, et al., Principles of Remedies Law 8 (2007) (“[Equity courts] ... began to develop ‘rules' or ‘maxims' governing equitable relief. Although these ‘maxims' were generalizations of experience based on the results of prior cases, they eventually developed into a loose set of ‘rules' designed to bring some coherency to the body of decided cases and some consistency to future decisions.”). Maxims developed, at least in part, to reflect the attempt by the courts of equity to create guiding principles, in the same way that the legal courts developed binding precedent. See, e.g., Swetland v. Curtiss Airports Corp., 41 F.2d 929, 936 (D.Ohio 1930) (“Maxims are but attempted general statements of rules of law. The judicial process is the continuous effort on the part of the courts to state accurately these general rules, with their proper and necessary limitations and exceptions.”). “Even today, it is not unusual to find judges citing and applying these ancient maxims (much like modern courts use cases as precedent) in deciding whether or not to grant equitable relief.” Russell L. Weaver, et al., Remedies: Cases, Practical Problems, & Exercises 10 (2004). Thus, we view maxims only as offers of guidance in equitable cases. See, e.g., Brown v. Plata, ––– U.S. ––––, 131 S.Ct. 1910, 1944, 179 L.Ed.2d 969 (2011) (discussing courts' substantial flexibility when deciding cases in equity, stating “[o]nce invoked, the scope of a district court's equitable powers is broad, for breadth and flexibility are inherent in equitable remedies.”) (internal citation and quotation marks omitted).

In deciding whether a party is entitled to a first priority equitable lien, courts are confronted with the interplay between equitable maxims and principles. This case involves the consideration and balancing of several equitable maxims: equity regards as done that which ought to have been done; equity applies substance over form; equity abhors a forfeiture; equity follows the law; and one who seeks equity must do equity. The trial court reviewed substance over form in determining what ought to be done in this case by awarding Covington priority over Regions Bank's mortgage because the bank had knowledge of Covington's interest in Lot 38 before it recorded its mortgage.

On the other hand, Regions Bank argues Covington should not be allowed to claim an equitable lien superior to its own mortgage, even though Covington tendered a check prior to the date Regions Bank recorded its mortgage, because Covington knew that his account did not contain sufficient funds. Regions Bank asks the court to distinguish Covington's claim from the facts in South Carolina Federal Savings Bank v. San–A–Bel Corporation, 307 S.C. 76, 413 S.E.2d 852 (Ct.App.1992), because Covington is an experienced real estate broker who should have known his account did not contain sufficient funds to cover his down payment check. Covington claims Regions Bank's mortgage is subject to Covington's known equity in the property.

“For an equitable lien to arise, there must be a debt, specific property to which the debt attaches, and an expressed or implied intent that the property serve as security for payment of the debt.” First Fed. Sav. & Loan Ass'n of S.C. v. Finn, 300 S.C. 228, 231, 387 S.E.2d 253, 254 (1989). An equitable lien is a “mere floating equity until a judgment or decree subjecting the property to the payment of the debt or claim is rendered.” Horry Cnty. v. Ray, 382 S.C. 76, 83–84, 674 S.E.2d 519, 524 (Ct.App.2009) (internal citation and quotation marks omitted). Even though an equitable lien is not judicially recognized until a judgment is entered declaring its existence, the lien relates back to the time it was created by the conduct of the parties. Id. at 84, 674 S.E.2d at 524. Whether an equitable lien exists that would take priority over a mortgage must be considered in conjunction with other well-recognized equitable principles. Id. Equitable liens must rest on an express or implied contract; moral obligations do not sustain equitable liens. Carolina Attractions, Inc. v. Courtney, 287 S.C. 140, 145, 337 S.E.2d 244, 247 (Ct.App.1985).

One of the cases relied upon by the trial court in awarding an equitable lien, San–A–Bel, is factually similar to the matter at hand. In San–A–Bel, this court found that purchasers of existing contracts for as yet unconstructed condominium units in a residential development project defeated the mortgage lien priority of the bank because the contracts of sale between the developer and the purchasers existed before the bank made a construction loan. 307 S.C. 76, 79, 413 S.E.2d 852, 854. The court reasoned that the bank had notice of the equitable interest that the...