Byers v. McGuire Properties, Inc.

• Decision Date: 18 May 2009
• Docket Number: No. S09A0695.,S09A0695.
• Citation: 285 Ga. 530,679 S.E.2d 1
• Parties: BYERS et al. v. McGUIRE PROPERTIES, INC. et al.
• Court: Georgia Supreme Court

679 S.E.2d 1

285 Ga. 530

BYERS et al. v. McGUIRE PROPERTIES, INC. et al.

No. S09A0695.

Supreme Court of Georgia.

May 18, 2009.

Reconsideration Denied June 15, 2009.

Beloin, Brown, Blum & Baer, Frederic S. Beloin, Charles W. Brown, Ray B. Gary, Jr., Atlanta, for appellants.

Proctor Hutchins, Robert J. Proctor, Adam C. Caskey, Atlanta, for appellees.

Andersen, Tate & Carr, Thomas T. Tate, Jason W. Blanchard, Lawrenceville, for amici curiae.

CARLEY, Justice.

In January 2000, McGuire Properties, Inc. (McGuire) and its president, George Nemchik, assisted Portfolio Homes Development Company, LLC (PHDC), which had been formed by James O. Sissine, Jr., in obtaining a construction loan from First Capital Bank for development of a 12-lot luxury home subdivision owned by PHDC. McGuire served as manager of PHDC, Nemchik personally guaranteed the loan, and PHDC executed security deeds naming as grantees First Capital and Nemchik. In January 2002, David R. Byers and Sharon L. Byers (Byers) made a lot deposit and, on March 14, 2002, entered into a contract for the purchase of Lot 6 with Portfolio Homes, Inc., which was a separate corporation from PHDC.

On April 5, 2002, McGuire and Nemchik entered into an agreement with PHDC and Sissine to end their business relationship. The agreement provided, among other things, that Nemchik would be released from his guaranty in exchange for cancellation of his security deed and that McGuire's management fee would be evidenced by a promissory note in the amount of $704,000 and secured by a new security deed. That security deed was properly filed for record in Fulton County on April 29, 2002 and, along with three other prior security deeds, encumbered several lots including Lot 6. The McGuire security deed provided that, unless PHDC was in default, McGuire would release lots from the security deed as they were sold, so long as "(x) the proceeds of sale are applied to the senior secured loans ... and (y) such lots are being simultaneously released by such lenders." In May 2002, Byers entered into a contract with PHDC for the purchase of Lot 6. That property was conveyed to Byers at a closing on May 10, 2002. The total purchase price was $695,000, $69,500 of which were previous deposits retained by PHDC and $620,000 of which was paid to First Capital. Byers borrowed $1,530,000 for both the lot purchase and construction of a house from SunTrust Bank and executed a security deed which was subsequently assigned to SunTrust Mortgage, Inc. (SunTrust). Except for McGuire, the holders of all prior security deeds, including First Capital, executed quitclaim deeds releasing Lot 6.

At the time of closing, neither the law firm handling the closing nor the independent title examiner had discovered the McGuire security deed, and neither Byers nor SunTrust Bank were informed of its existence. Sissine executed an affidavit stating that there were no unpaid or unsatisfied security deeds other than those listed in the "Title Commitment." The McGuire security deed was not indexed in the Fulton County records until June 26, 2002 due to a lengthy delay between filing and indexing in that county. Byers completed construction of a house on Lot 6. After PHDC declared bankruptcy in March 2003, McGuire began in July 2003 to advertise Lot 6 for foreclosure pursuant to the power of sale contained in its security deed.

Byers and SunTrust (Appellants) brought suit against McGuire and Nemchik (Appellees) and others, seeking several types of relief, including cancellation of the McGuire security deed based upon alleged fraud, a decree to quiet title, equitable subrogation, and a temporary restraining order to prevent McGuire from proceeding with the foreclosure, the latter of which was granted by a consent order. Appellees answered, and McGuire also counterclaimed, seeking a quiet title decree and other relief. On cross-motions for summary judgment, the trial court entered an extensive order granting summary judgment in favor of Appellees as to the complaint and in favor of McGuire on its quiet title counterclaim. Appellants appealed from this order to the Court of Appeals, which transferred the case to this Court. See Hunstein v. Fiksman, 279 Ga. 559, 560, 615 S.E.2d 526 (2005) (quiet title). Compare Hayes v. EMC Mortgage Corp., 296 Ga.App. 709, 675 S.E.2d 594 (2009) (Case Number A08A2317, decided March 18, 2009) (involving only equitable subrogation and not a quiet title claim). We will first address Appellants' contentions regarding the validity and enforceability of the McGuire security deed and will then address the assertion that the SunTrust security deed has priority over McGuire's by virtue of equitable subrogation.

1. [I]n the absence of fraud, a deed which, on its face, complies with all statutory requirements is entitled to be recorded, and once accepted and filed with the clerk of court for record, provides constructive notice to the world of its existence. ... [Appellants are] in no better position because [they] closed on [the] property after the [McGuire security] deed was filed with the clerk of court, but before the deed was indexed.... "`(A) deed takes effect, as against the interests of third persons without notice, from the time it is "filed for record in the clerk's office; ..." (A)ll that is required of the grantee and all that he can do is to file his deed for record.'" [Cit.]

Leeds Bldg. Products v. Sears Mortgage Corp., 267 Ga. 300, 302 (1), (2), 477 S.E.2d 565 (267 Ga. 300, 477 S.E.2d 565) (1996). However, Appellants contend that McGuire is not protected by having recorded its security deed prior to Byers' bona fide purchase of Lot 6 for value, because the record contains evidence of fraud by Appellees which brings this case within the express exception to the holding of Leeds. Appellants rely on evidence that, after Appellees knew that PHDC was having serious financial difficulties, they took the security deed when the lot was already under contract without notifying the purchasers, waited until shortly before the closing to file the security deed when the delay in indexing made it impossible for it to be discovered in a title examination, confirmed the payout to First Capital after the closing, and waited until the house was built before threatening to foreclose on one lot for the entire debt. Appellants argue that this evidence shows at least constructive fraud or a fraud by silence which pursuant to OCGA § 51-6-4(b) equitably estops Appellees from claiming any interest in Lot 6.

"Constructive fraud consists of any act of omission or commission, contrary to legal or equitable duty, trust, or confidence justly reposed, which is contrary to good conscience and operates to the injury of another." OCGA § 23-2-51(b). OCGA § 51-6-4 "puts acts of omission, where it is one's duty to interfere, on the same footing as acts of commission." Markham v. O'Connor, 52 Ga. 183, 197(1) (1874). "One who silently stands by and permits another to purchase his property, without disclosing his title, is guilty of such a fraud as estops him from subsequently setting up such title against the purchaser." OCGA § 51-6-4(b). Accordingly,

[i]n the case where one, in the presence of the true owner, and with his knowledge, sets up a title to property and sells it to another, there is a direct denial of the true owner's right. The sale, without more, is antagonistic to the title of the true owner. And if he stand silently by and permit the sale without announcing his right, he is estopped.... But when the right set up is only a lien or incumbrance, the simple sale of the title is not inconsistent with the lien; mere silence, in the presence of such an act, will not estop; one is not bound upon all occasions to give warning to incautious people.

Markham v. O'Connor, supra at 198(1). Thus, even if Appellees knew at all times that PHDC was in financial trouble and that Byers would soon be purchasing Lot 6 despite the failure of PHDC as owner to execute the March 14 contract, that knowledge alone would hardly estop McGuire from claiming an interest in that lot pursuant to its security deed. Appellees had "a right to assume, if nothing appear to the contrary, that the purchaser[s] [have] been informed of the lien, [have] examined the record, and that the sale and purchase are in view of the truth of the case." Markham v. O'Connor, supra. Compare Shellnut v. Shellnut, 188 Ga. 306, 309(3), 3 S.E.2d 900 (1939) (finding that security deed was fraudulent supported by evidence that grantee knew that vendee had already fully paid the purchase money and become entitled to conveyance of the property). Before an equitable estoppel can arise, "there must generally be some intended deception in the conduct or declarations of the party to be estopped, or such gross negligence as to amount to constructive fraud, by which another has been misled to his injury." OCGA § 24-4-27. Citing Markham and other authorities, the Supreme Court of the United States explained them as recognizing

a distinction between mere silence and a deceptive silence accompanied by an intention to defraud, which amounts to a positive beguilement. [Cits.] ... No duty to speak arises from the mere fact that a man is aware that another may take an action prejudicial to himself if the real facts are not disclosed. [Cit.]

Wiser v. Lawler, 189 U.S. 260, 271, 23 S.Ct. 624, 47 L.Ed. 802 (1903).

"Acquiescence or silence, when the circumstances require an answer, a denial, or other conduct, may amount to an admission." OCGA § 24-3-36. Thus,

[w]hen a mortgagee is present at an auction sale of the property by the mortgagor, and it is announced at the sale by the auctioneer that the title is perfect and clear, or unincumbered, and he fails to make any correction of said announcement, and a purchaser buys under the impression that he is getting an unincumbered title, and takes a deed, and pays his money under such impression, the mortgagee is estopped from...