Epstein v. Coastal Timber Co. Inc.

• Decision Date: 11 July 2011
• Docket Number: No. 26997.,26997.
• Citation: 75 UCC Rep.Serv.2d 85,393 S.C. 276,711 S.E.2d 912
• Parties: Albert EPSTEIN, Appellant,v.COASTAL TIMBER CO., INC., Respondent.
• Court: South Carolina Supreme Court

393 S.C. 276

711 S.E.2d 912

75 UCC Rep.Serv.2d 85

Albert EPSTEIN, Appellant,

v.COASTAL TIMBER CO., INC., Respondent.

No. 26997.

Supreme Court of South Carolina.

Heard June 9, 2011.Decided July 11, 2011.

Darrell Thomas Johnson, Jr. and Mills L. Morrison, Jr., both of The Law Offices of Darrell Thomas Johnson, Jr., L.L.C., of Hardeeville, for Appellant.Philip C. Thompson, of Thompson & Henry, P.A., of Conway, for Respondent.Justice BEATTY.

Albert Epstein (“Epstein”) brought this action for damages against Coastal Timber Co., Inc. (“Coastal”), alleging Coastal cut and removed standing timber that was subject to mortgages he held on the property. The circuit court found Epstein failed to properly secure an interest in the timber under South Carolina's Uniform Commercial Code (“UCC”). Epstein appeals. We reverse and remand.

I. FACTS

In March 2004, Epstein purchased real property in Horry County from TMAC Investors IX, L.L.C. for $130,000.00. The deed was recorded on April 19, 2004. The area, known as the old Conway Mill site, included just under 120 acres of land and a building of 294,080 square feet.

In May 2006, Epstein sold the property to Ascott Valley Development, L.L.C. for a purchase price of $3.3 million. Ascott was formed by Wynn Housel and Howard B. Schwartz, who intended to develop the property for a residential neighborhood. Their plans were to divide the acreage into two sections according to use: (1) the building and the 45 acres on which it stood would be used to manufacture homes, and (2) the homes would be placed on the remaining wooded portion of the property that measured a little over 70 acres.

As part of the sales arrangement, Epstein provided 100% owner financing. Ascott executed two mortgages and two notes in favor of Epstein, using the property as collateral. The deed and mortgages were signed on May 25, 2006 and filed on June 1, 2006. According to Epstein, he took two mortgages to better secure Ascott's obligations—$2.0 million note secured with a mortgage on the 45 acres, and a $1.3 million note secured by a mortgage on the remaining 70–plus acres. The sum of the two mortgages on the property thus equaled the $3.3 million purchase price.

On June 6, 2006, Ascott executed a “Timber Title” conveying to Coastal for $115,000.00 all merchantable pine timber and all merchantable hardwood of 14 inches “across stump or larger” located on the property. The document called for the timber to be removed within twelve months. Coastal, the purchaser, recorded the Timber Title documenting the sale on June 12, 2006 in the Office of the Horry County Register of Deeds. Coastal thereafter cut and removed the timber and paid Ascott the full proceeds.

Ascott subsequently defaulted on its obligations to Epstein, who brought foreclosure proceedings. During this process, Epstein learned of the removal of the timber.

On April 22, 2009, while the foreclosure against Ascott was still pending, ¹ Epstein filed the current action against Coastal, alleging the timber was cut without his knowledge or permission and that he had received no portion of the proceeds. Epstein asserted his recorded mortgages constituted notice to all parties that he had a lien upon timber on the property, and that his lien was “superior in priority” to the Timber Title and had not been released or waived. Epstein sought damages for the actual value of the timber removed and the diminution of the property's fair market value caused by the removal of timber. He also sought clean-up costs, treble damages, post-judgment interest, and “further relief as may be just and proper.”

Coastal answered and denied liability, asserting Ascott was the owner of the property, that it had paid Ascott for the full value of the timber cut, and there was no agreement between Coastal and Ascott that would permit it to withhold the sales proceeds from Ascott. Coastal also stated Epstein had “assumed the risk that timber on the subject property would be cut and sold when he failed to properly secure the timber as collateral, either through the form of his mortgage or through the use of a security agreement and financing statement.”

Coastal thereafter moved for summary judgment, asserting South Carolina's UCC now provides that a contract for the sale of standing timber is a sale of goods, not realty, and that Epstein's two mortgages do not cover the timber because they do not meet UCC requirements for creating a security interest. Specifically, the mortgages do not provide a description of the collateral as being standing timber or timber to be cut.

Epstein moved for partial summary judgment, arguing the timber was encumbered by his mortgages because the timber was not expressly excluded. Epstein argued, “It is black letter law that standing timber is a part of real property until it is severed.”

The circuit court granted Coastal's motion for summary judgment and denied Epstein's motion. The circuit court found the UCC was controlling and that Epstein's mortgages did not meet the requirements to maintain a security interest in the timber under the UCC. Epstein made a Rule 59(e), SCRCP motion, which was denied.

Epstein appealed to the Court of Appeals. This Court issued an order certifying the case for its review pursuant to Rule 204(b), SCACR.

II. STANDARD OF REVIEW

A trial court may grant a party's motion for summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Rule 56(c), SCRCP.

In determining whether any triable issues of fact exist, the trial court must view the evidence and all reasonable inferences that may be drawn therefrom in the light most favorable to the party opposing the motion. Hooper v. Ebenezer Senior Servs. & Rehab. Ctr., 386 S.C. 108, 687 S.E.2d 29 (2009). An appellate court applies the same standard used by the trial court under Rule 56(c) when reviewing the grant of a motion for summary judgment. Id.

III. LAW/ANALYSIS

On appeal, Epstein argues the circuit court erred in granting summary judgment to Coastal after finding his mortgages did not constitute a lien on the standing timber cut by Coastal.

In South Carolina, standing timber has historically been defined as “a part of the realty, as much so as the soil itself.” First Carolinas Joint Stock Land Bank of Columbia v. N.Y. Title & Mortgage Co., 172 S.C. 446, 450, 174 S.E. 406, 408 (1934) (citation omitted); see also D.W. Alderman & Sons Co. v. Kirven, 209 S.C. 446, 455, 40 S.E.2d 791, 794 (1946) (“We have held ... that trees growing upon lands are a part of the realty, and continue to be realty until severed from the soil.”). “The conveyance of timber land without reservation or exception of timber carries the timber.” First Carolinas, 172 S.C. at 450, 174 S.E. at 408 (citation omitted).

The mortgagor of land is the owner in fee and has title to the land so mortgaged, but the mortgagee has a lien upon the land to secure his debt. Simms v. Kearse, 42 S.C. 43, 20 S.E. 19 (1894); see also S.C.Code Ann. § 29–3–10 (2007) (stating “the mortgagor shall be deemed the owner of the land and the mortgagee as owner of the money lent or due”). A mortgage on real property includes the standing timber unless it has been excepted from the mortgage. See First Carolinas, 172 S.C. at 450, 174 S.E. at 407–08 (“Growing timber constitutes a portion of the realty embraced by a mortgage on the land unless expressly or impliedly excepted.” (citation omitted)); see also 59 C.J.S. Mortgages § 236 (2009) (“As a general rule, crops, timber, and nursery stock growing on mortgaged land are covered by the mortgage unless expressly or impliedly excepted therefrom.”).

The circuit court, while recognizing these general principles, found the South Carolina cases classifying timber as realty predated the 1988 amendment to section 36–2–107 in the UCC, particularly subsection (2), which the court found “transformed timber from realty to goods.” Section 36–2–107 provides in full as follows:

§ 36–2–107. Goods to be severed from realty; recording.

(1) A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this chapter if they are to be severed by the seller, but until severance, a purported present sale, which is not effective as a transfer of an interest in land, is effective only as a contract to sell.

(2) A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this chapter whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance.

(3) The provisions of this section are subject to any third-party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale.

S.C.Code Ann. § 36–2–107 (2003) (emphasis added). The South Carolina Reporter's Comments following section 36–2–107 explain the purpose for the 1988 revision of the statute was to facilitate the financing of timber transactions and to provide a method for noticing the sale in the real estate records:

Several timber-growing states changed the 1962 Text to make timber to be cut under a contract of severance qualify as goods, regardless of the question who is to sever them. The section is revised to adopt this change. Financing of the transaction is facilitated if the timber is treated as...