Dodge City of Spartanburg, Inc. v. Jones, 2301

• Decision Date: 04 October 1994
• Docket Number: No. 2301,2301
• Citation: 317 S.C. 491,454 S.E.2d 918
• Court: South Carolina Court of Appeals
• Parties: DODGE CITY OF SPARTANBURG, INC., Appellant, v. Howard C. JONES and Deborah Ann Jones, Defendants, and Carolina Investors, Inc., Respondent. . Heard

Page 918

454 S.E.2d 918

317 S.C. 491

DODGE CITY OF SPARTANBURG, INC., Appellant, v. Howard C. JONES and Deborah Ann Jones, Defendants and Carolina Investors, Inc., Respondent.

No. 2301.

Court of Appeals of South Carolina.

Heard Oct. 4, 1994.

Decided Feb. 13, 1995.

Rehearing Denied March 22, 1995.

Certiorari Denied Feb. 8, 1996.

Judson K. Chapin, III, of Gaines, Walsh & Chapin, and William S. Bean, of Bean & Bean, Spartanburg, for appellant.

Melissa A. Jones, of Adams, Quackenbush, Herring & Stuart, Columbia, for respondent.

SHAW, Judge:

Dodge City of Spartanburg, Inc. (Dodge City) appeals from the trial court's order giving priority over Dodge City's judgment to a subsequent mortgage held by Carolina Investors, Inc. (Carolina). We affirm.

I.

On August 7, 1984, Howard C. and Debbie Ann Jones (the Mortgagors) purchased certain property in Spartanburg County and executed a first mortgage in the amount of $14,360.72 in favor of First Federal Savings and Loan Association (the First Mortgage). The First Mortgage was recorded the same day. On November 6, 1986, the Mortgagors executed a second mortgage in the amount of $13,863.36 (the Second Mortgage) in favor of Carolina. The Second Mortgage was recorded on November 18, 1986. On April 7, 1988, a default judgment in the amount of $5,790.71 (the Judgment) was entered against the Mortgagors in favor of Dodge City, which Judgment became a lien against the property owned by the Mortgagors.

On March 13, 1989, the Mortgagors executed another mortgage in favor of Carolina in the principal amount of $19,274.15 (the Carolina Mortgage), which mortgage was recorded on March 24, 1989. As provided in the disclosure statement given to the Mortgagors, proceeds from the Carolina Mortgage included $7,854.13 to pay off the First Mortgage, and $6,241.38 to pay off the Second Mortgage. The First Mortgage and Second Mortgage were paid and satisfied of record. The person who performed the title search for Carolina failed to discover the Judgment, although the Judgment was properly recorded at the time of the search.

In February 1993, Dodge City sought to enforce the Judgment and moved for a sale of the property. Notice of the sale was given to Carolina. After a motion by Carolina, a consent order was issued staying the sale until the relative priorities of the Carolina Mortgage and the Judgment could be determined. By order dated July 9, 1993, the court held that Carolina was equitably subrogated to the priorities of the First Mortgage and the Second Mortgage. The court held that Carolina was subrogated only "to the extent of the percentage resulting from the ratio of the balance of the first and second mortgages paid and the March 13, 1989 mortgage between [Carolina] and the [Mortgagors] together with attorneys' fees and costs."

Upon motion by Dodge City, the court issued an order clarifying the extent to which the Carolina Mortgage had priority over the Judgment and the effect on the amount subrogated of subsequent payments on the Carolina Mortgage. As to the extent of the subrogation, the court held that as of June 25, 1993, the date of the original hearing, Carolina was equitably subrogated to the rights and priorities of the First and Second Mortgage in the amount of $11,437.63. The court reached this amount by calculating the ratio of the amount of the proceeds used to satisfy the First Mortgage and the Second Mortgage to the total amount of the Carolina Mortgage plus costs. The principal amount of the Carolina Mortgage was $19,274.15, of which $14,095.51 was used to satisfy the First Mortgage and the Second Mortgage, yielding a ratio of seventy-three percent. Carolina was therefore equitably subrogated in an amount equal to 73% of the outstanding amount of the Carolina Mortgage, plus attorneys' fees and costs. As of June 25, 1993, the amount outstanding on the Carolina Mortgage was $14,355.08, and attorneys' fees and costs equalled an additional $1,312.90. The court therefore held that the Carolina Mortgage had priority over the Judgment only to the extent of $11,437.63 [ ($14,355.08 + $1,312.90) X 73%]. The court further held that seventy-three percent of the payments on the Carolina Mortgage made after June 25, 1993 would be applied to reduce the subrogated amount.

On appeal, Dodge City argues alternatively that Carolina is not entitled to equitable subrogation; or, if equitable subrogation is appropriate, it is appropriate only as to the First Mortgage. Dodge City also contends that Carolina's attorneys' fees and costs should not be included in the amount subrogated and should not have priority over the Judgment, and that the full amount of payments made on the Carolina Mortgage should reduce the amount subrogated.

II.

Through the doctrine of equitable subrogation, a subsequent creditor can assume the rights and priority of a prior creditor. A party may be equitably subrogated to the rights of an earlier creditor if: (1) the party claiming subrogation has paid the debt owed to the earlier creditor; (2) the party was not a volunteer but had a direct interest in the discharge of the debt or lien; (3) the party was secondarily liable for the debt or for the discharge of the lien; and (4) no injustice will be done to the other party by the allowance of the equity. Dedes v. Strickland, --- S.C. ----, 414 S.E.2d 134 (1992); Pee Dee State Bank v. Prosser, 295 S.C. 229, 367 S.E.2d 708 (Ct.App.1988), overruled in part on other grounds, United Carolina Bank v. Caroprop, Ltd., --- S.C. ----, 446 S.E.2d 415 (1994). The party claiming subrogation must not have actual knowledge of any intervening lien creditors. Strickland, 414 S.E.2d at 136.

As to the First Mortgage, our analysis in Pee Dee, supra, makes clear that equitable subrogation was appropriate. In Pee Dee, Universal loaned money to the mortgagor. A portion of the loan proceeds was earmarked for the satisfaction of the first mortgage. Universal had no actual knowledge of an intervening mortgage. Under these facts, this Court held that Universal was subrogated to the position of the first mortgagee. 367 S.E.2d at 713. This Court held that, because a portion of the loan proceeds were earmarked to satisfy the first mortgage and because the Universal mortgage recited it was to be a first mortgage, Universal had a legal obligation to satisfy the first mortgage and was not a volunteer. For this same reason, Universal was secondarily liable on the first mortgage. Moreover, subrogating Universal to the position of the first mortgage caused no injustice to the intervening mortgagee, because it was a second mortgage before and after the subrogation. Id. at 712-13. Here, just as in Pee Dee, Carolina, a subsequent mortgagee with no actual knowledge ¹ of an intervening lien, loaned money to the Mortgagors, a portion of which money was to be used to satisfy the First Mortgage. No injustice is worked upon Dodge City because it is in essentially the same position as it was at the time the Judgment was filed. See United Carolina Bank v. Caroprop Ltd., --- S.C. ----, 446 S.E.2d 415 (1994) (no injustice when intervening mortgagee had same priority before and after subrogation). Therefore, Carolina is equitably subrogated to the First Mortgage.

The Second Mortgage, however, merits separate treatment because the Second Mortgage was held by Carolina itself. The disclosure statement provided that a portion of the Carolina Mortgage loan proceeds were to be used to satisfy the First Mortgage and the Second Mortgage. In Pee Dee, a settlement statement indicated that a portion of Universal's loan was used to satisfy the existing mortgage. Pee Dee, 367 S.E.2d at 710. On these facts, we held that Universal was legally obligated to satisfy the mortgage, and was therefore secondarily liable on the mortgage. Id. Likewise, Carolina was legally obligated to satisfy the Second Mortgage as stated on its disclosure statement. If Carolina had not satisfied the mortgage, the Mortgagors would have had recourse...