First Palmetto Savings Bank v. Patel, 3286.
| Decision Date | 16 January 2001 |
| Docket Number | No. 3286.,3286. |
| Citation | 543 S.E.2d 241,344 S.C. 179 |
| Parties | FIRST PALMETTO SAVINGS BANK, F.S.B., Appellant, v. Pradipkumar I. PATEL, and Branch Banking & Trust Company of South Carolina ("BB & T") and Bhupendra G. Patel, Defendants, of Whom Branch Banking and Trust Company of South Carolina ("BB & T") and Bhupendra R. Patel are, Respondents. |
| Court | South Carolina Court of Appeals |
Thomas E. Player, Jr., Player & McMillian, J. Kennedy DuBose, Jr., DuBose & Cushman, Camden, for appellant.
James O. Spence, Dooley, Dooley & Spence, Lexington, B. Michael Brackett, Rogers, Townsend & Thomas, Columbia, for respondents.
In this foreclosure action the master-in-equity set aside the satisfaction of a mortgage held by Bhupendra Patel, restoring it to first priority, and granted foreclosure. First Palmetto Savings Bank appeals. We reverse and remand.1
On May 1, 1989, Bhupendra Patel sold the Sumter Tourist Lodge (the Property) to Nagarbhai K. Patel.2 In consideration, Nagarbhai executed a promissory note in favor of Bhupendra in the amount of $260,000.00, secured by a wraparound mortgage on the Property. The wrap mortgage was subordinate to a mortgage given by Bhupendra to Fred and E.W. Gee. Nagarbhai subsequently sold the Property to his son, Pradipkumar Patel. With Bhupendra's consent, Pradipkumar assumed payments on the note and the wrap mortgage Nagarbhai had given to Bhupendra.
On February 24, 1988, Bhupendra borrowed $100,000.00 from the National Bank of South Carolina (NBSC). As security for the loan, Bhupendra executed and delivered to NBSC a promissory note together with a subordination and collateral assignment of the wrap mortgage. To further secure the debt, Pradipkumar, then the owner of the Property, executed a real estate mortgage conveying a lien to NBSC.
Ken Hamilton served as the closing attorney for Bhupendra, as borrower, and NBSC, as lender. Hamilton witnessed the execution of the subordination and collateral assignment of the wrap mortgage and recorded the document in the public records. Following this transaction, the first mortgage lien on the Property was held by Fred and E.W. Gee; the second, by NBSC pursuant to the mortgage executed by Pradipkumar; and the third, by Bhupendra, subject to the subordination and collateral assignment to NBSC.
In January 1994, Bhupendra satisfied the obligation to Fred and E.W. Gee. That mortgage was subsequently marked paid and cancelled of record. Bhupendra also repaid the loan from NBSC, satisfying the mortgage given by Pradipkumar to secure the debt. Bhupendra, however, neglected to contact NBSC concerning the reassignment of the wrap mortgage he had assigned as collateral. Following the January 1994, repayments, the wrap mortgage from Nagarbhai to Bhupendra was the first and senior lien on the Property.
In March 1996, Pradipkumar arranged to receive a loan from First Palmetto Savings Bank (First Palmetto). As security for the loan, First Palmetto required a primary lien on the Property. Ken Hamilton served as the closing attorney for the transaction. Hamilton's title search revealed the outstanding wrap mortgage from Nagarbhai to Bhupendra, which had been assigned to NBSC. Hamilton contacted NBSC and requested that it determine the status of the mortgage, which Pradipkumar asserted had been satisfied some time earlier. Neither Hamilton nor NBSC discovered that it was a collateral rather than absolute assignment.
On April 30, 1996, without the knowledge or consent of Bhupendra, an officer of NBSC executed a Satisfaction of Lost or Destroyed Mortgage declaring the wrap mortgage paid in full and authorizing the Register of Mesne Conveyances to cancel it from the records.3 Pradipkumar refinanced the mortgage with a loan of $200,000.00 from First Palmetto in October 1996. Hamilton again served as the closing attorney.
In February 1998, First Palmetto brought a foreclosure action against Pradipkumar, asserting its mortgage was the primary lien on the Property. Bhupendra filed an answer in the action and asserted counterclaims and crossclaims to set aside NBSC's mistaken satisfaction of the wrap mortgage, restore it to first priority, and foreclose. The action was referred to the master-in-equity for final judgment with any appeal to be directly to the South Carolina Supreme Court. The master concluded:
[A]ttorney Hamilton was attorney and agent for [First Palmetto] and ... had knowledge of the true facts regarding the nature of Bhupendra Patel's subordination and assignment of mortgage from the former transaction, or obtained sufficient knowledge of facts during the course of the second and third loan closing transactions to have placed him on inquiry notice to further investigate the nature of the assignment. Therefore, attorney Hamilton's knowledge is imputed to [First Palmetto] and [First Palmetto] is not an innocent third party who would be prejudiced by the restoration of Defendant Bhupendra Patel's mortgage to its rightful priority.
The master then canceled the mistaken satisfaction, restored and reinstated Bhupendra's wrap mortgage to first priority, and granted foreclosure. The master also found that Bhupendra's failure to seek re-assignment of the wrap mortgage was not the proximate cause of the mistaken satisfaction. This appeal followed.
An action to foreclose a real estate mortgage is one in equity.4 As such, this court may find facts in accordance with its own view of the preponderance of the evidence.5
First Palmetto initially argues the master erred in imputing to it knowledge obtained by Hamilton in the February, 1988 loan closing concerning the collateral nature of the wrap mortgage. We agree.
Equitable principles may be applied to cancel a mortgage satisfaction.6 Specifically, "`when the legal rights of the parties have been changed by mistake, equity restores them to their former condition, when it can be done without interfering with any new rights acquired on the faith and strength of the altered condition of the legal rights, and without doing injustice to other parties.'"7 Thus, a mortgage that has been mistakenly satisfied may be reinstated only where there is no third party who, without notice of the mistake, subsequently and in good faith acquires an interest in the property.8
The master found that as a result of Hamilton's involvement in the February, 1988 loan closing he obtained knowledge of the true collateral nature of the assignment. The master then found that this knowledge was imputed to First Palmetto as a result of the principal-agent relationship formed in March, 1996.
Generally a principal is charged with the knowledge an agent acquired prior to the formation of the agency only when it is clearly shown that the knowledge was in the mind of the agent...
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