MI Co., Ltd. v. McLean
| Decision Date | 03 December 1996 |
| Docket Number | No. 2629,2629 |
| Citation | 482 S.E.2d 597,325 S.C. 616 |
| Court | South Carolina Court of Appeals |
| Parties | MI CO., LTD., Respondent, v. Arthur F. McLEAN, Jr., Trustee under Testamentary Trust contained in the Will of Sarah S. McLean, a/k/a Sallie S. Barnwell, Marvin Brownstein, Charles H. Grove, Edith B. Grove, Betty B. Ramage, Mellon Bank, N.A., as Trustee, South Carolina National Bank, Dew Company, Inc., Mount Hope Cemetery, the United States of America by and through the Internal Revenue Service, and South Carolina Tax Commission, C.A. Earthmovers, Inc., Fleet Real Estate Funding Corp., Pee Dee State Bank, and Pelican Companies, Inc., Defendants, of whom Ocean Drive Presbyterian Church as Successor-in-interest to Arthur F. McLean, Jr., Trustee under Testamentary Trust contained in the Will of Sarah S. McLean, a/k/a Sallie S. Barnwell, Charles H. Grove and Edith B. Grove is Appellant. . Heard |
Michael W. Tighe, Louis H. Lang and G. Harold Hanlin, all of Callison, Tighe, Robinson & Hawkins, Columbia, for appellant.
James C. Pike, Jr., of Jeffcoat & Pike, North Myrtle Beach, for respondent.
This is an action involving the foreclosure of various properties. The case was referred to the master-in-equity with direct appeal to the Supreme Court. The appellant, Ocean Drive Presbyterian Church, appeals the order of the master finding that respondent, MI Co., Ltd., is entitled to foreclosure and sale of the property at issue. We affirm.
In 1985, Arthur F. "Joe" McLean and Alex Bosserman approached John F. Cutter about lending some money to McLean. Cutter ultimately agreed to loan McLean $85,000.00. The loan was to be secured by ten lots. Cutter testified that he, McLean and Bosserman were all friends. McLean recommended a corporation be formed through which Cutter would loan McLean the money. Bosserman, an attorney at the time, was working out of an office supplied by McLean. 1 Consequently, he formed the MI Co., Ltd. for the parties, free of charge. MI Co. never had a bank account of any kind, never did any business and never filed any taxes. The money loaned to McLean actually came from a trust fund.
Cutter testified the terms of the loan were that the payments be made monthly for eighteen months at an interest rate of 22 percent. The loan was evidenced by four separate notes as follows:
1. A $25,000.00 note dated March 22, 1985;
2. A $10,000.00 note dated May 16, 1985;
3. A $25,000.00 note dated August 13, 1985; and
4. A $25,000.00 note dated August 13, 1985.
The notes provided for an interest rate of 12 percent. Cutter testified McLean did not want anyone to know he was paying 22 percent. Cutter refused to accept the 12 percent rate. Consequently, the parties entered into separate agreements, on the same days they signed the individual notes, increasing the interest rate to 22 percent.
The notes were also secured by three separate mortgages. Of particular significance to this case is the mortgage dated March 22, 1985 given as security for the March 22 note for $25,000.00. 2 This mortgage covered property in Myrtle Beach described as "Lots 5, 6 and 7 of Block 21 as shown on that certain map of Section Two of Ocean Drive On May 6, 1992, MI Co. brought the present action, filing a lis pendens, summons, and complaint. The complaint alleged McLean had failed to make payments as due and asserted $32,172.77 plus interest was still owed on the March 22, 1985 note. 4 Although there was a satisfaction of mortgage dated June 9, 1989, on record at the R.M.C. office in Horry County purporting to satisfy the March 22, 1985 mortgage, the complaint alleged the satisfaction of mortgage was not authorized nor signed by any of the agents or officers of the corporation. Accordingly, the mortgage remained a lien on the property. At trial, Cutter testified the corporation never released this property from the mortgage.
Estates." Lot number 6 of this property was purchased by Charles and [325 S.C. 621] Edith Grove on October 11, 1989. On May 8, 1992, the Groves sold Lot 6 to Ocean Drive Presbyterian Church. The Church also purchased Lot 7 from the Estate of Sarah McLean shortly thereafter. 3
It is undisputed that the signature of Cutter's sister, Ann Bird, as president and secretary of the corporation, was forged on the mortgage satisfaction document. Bosserman testified that Beth McLean, Joe McLean's wife, actually signed Ann Bird's name to the document and notarized the document under her maiden name of Beth Griffin. Mrs. McLean testified that Ann Bird's name was already signed on the satisfaction documents when Bosserman brought them to her to notarize.
At trial, Cutter introduced a ledger showing total payments of $46,089.00 by McLean from March, 1985 through August, 1989. McLean claimed he made additional payments of around $76,440.00 during this period of time and payments totaling $18,700.00 from May, 1990, to January, 1991. The discrepancies were largely due to the fact that McLean alleged he made several large payments in cash, he paid people designated by Cutter instead of paying Cutter directly in some instances, and a payment of $16,000.00 from a real estate closing was to be made through Bosserman. The record does not indicate why many of the payments were in cash. As to the payments which were not made to Cutter, McLean testified that one payment was made to another individual at Cutter's request. He further stated that, at a certain point, "communications with John Cutter were violent" and that Cutter was calling him in the middle of the night, threatening to kill McLean and his family. 5 He therefore began making payments to Cutter's father, Ervin Cutter. He also claimed to make payments to two of Cutter's brothers-in-law.
On November 16, 1994, the master issued his order finding that MI Co. had advanced McLean $85,000.00, that the interest rate was 22 percent, and that McLean should be given a credit of $40,341.00 for the payments in dispute. He further found that the releases and satisfactions were not executed by the corporation or its agents but were forgeries and did not effectively release any of the property from the mortgages. He noted the plaintiff had specifically waived deficiency judgment and determined the corporation was entitled to foreclosure of the mortgages and sale of the property. The Church filed a motion to alter or amend judgment, asserting, among other things, that the court failed to rule on the issue of the effect of the foreclosure action on the defendants who purchased the property relying on the public records. On May 24, 1995, the master issued an amended order finding it was stipulated It is the specific finding of this Court that notwithstanding such reliance upon the public record, the Plaintiff's mortgage must be given priority. It is the general rule that where the equities as between two competing claimants are balanced as is the case in this fact situation, then the first in time on the record shall prevail.... All are innocent parties with relation to the prime Defendant. Thus, the mortgages of the Plaintiff, being first in time, have priority.
the defendants had relied on the public records and forged releases and satisfactions in purchasing the property. He further found as follows:
ISSUES
The Church raises three issues on appeal:
1. Did the master err in setting aside the mortgage releases based on forgery of the document when such action would result in grievous harm to an innocent third party?
2. Did the master err in accepting any of the evidence presented by either the mortgagee/lender or the borrower when neither presented credible evidence and where the burden would fall on an innocent third party?
3. Did the master err in concluding the appropriate interest rate was 22 percent where the mortgage only referenced the note bearing a rate of 12 percent, and the agreement purporting to raise the rate to 22 percent was not signed by the mortgagor?
An action to foreclose a real estate mortgage is one in equity. Dockside Association, Inc., v. Detyens, 294 S.C. 86, 362 S.E.2d 874 (1987). In equity cases, we may find facts in accordance with our own view of the evidence. Id.
The appellant first contends the master erred in setting aside the mortgage satisfaction because it would result in harm to an innocent third party. The appellant argues that the mortgagee, MI Co., was neither an innocent party nor without fault or negligence. It asserts that MI Co. is really a sham corporation whose main witness is a convicted felon, and that MI Co. failed to take action on the note until more than five years after it became due. Accordingly, it would be inequitable to set aside the mortgage satisfaction.
Generally, a fraudulent satisfaction will not prevent a mortgagee from foreclosing a mortgage. Pilkington v. McBain, 274 S.C. 312, 262 S.E.2d 916 (1980). Research reveals no recent South Carolina case law addressing the effect of a fraudulent satisfaction on an innocent third party who subsequently takes an interest in the mortgaged property. However, in the 1884 case of City Council of Charleston v. Ryan, 22 S.C. 339 (1884), the court held, where the mortgagee endorsed his name in blank on the back of the mortgage and a satisfaction was thereafter written above his signature, the mortgagee must bear the consequences of the act made possible through his negligence, and an innocent subsequent purchaser would be protected. The court noted the well settled principle of equity "that where one of two innocent parties must suffer loss, it must fall on the party who, by incautious and misplaced confidence, has occasioned it or placed it in the power of a third party to perpetrate the fraud by which the loss has happened." 22 S.C. at 356. Further, in the 1930 case of Young v. Pitts, 155 S.C. 414, 152 S.E. 640 (1...
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