Friarsgate, Inc. v. First Federal Sav. and Loan Ass'n of South Carolina, 2287

• Decision Date: 05 October 1994
• Docket Number: No. 2287,2287
• Citation: 317 S.C. 452,454 S.E.2d 901
• Parties: FRIARSGATE, INCORPORATED and Whitehall Developers, Inc., Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA, American Federal Bank, FSB, and James E. Knight, Jr., of whom First Federal Savings and Loan Association of South Carolina and American Federal Bank, FSB, are Respondents. . Heard
• Court: South Carolina Court of Appeals

Page 901

454 S.E.2d 901

317 S.C. 452

FRIARSGATE, INCORPORATED and Whitehall Developers, Inc., Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA, American Federal Bank, FSB, and James E Knight, Jr of whom First Federal Savings and Loan Association of South Carolina and American Federal Bank, FSB, are Respondents.

No. 2287.

Court of Appeals of South Carolina.

Heard Oct. 5, 1994.

Decided Jan. 9, 1995.

Rehearing Denied March 16, 1995.

Certiorari Denied Oct. 20, 1995.

Charles F. Cooper, II of Cooper, Coffas & Megna, Columbia, for appellants.

Deborah R.J. Shupe, Leonard R. Jordan, Jr., and Louis H. Lang and Suzanne A. Hawkins, Columbia, for respondents.

SHAW, Judge:

Friarsgate, Incorporated and Whitehall Developers, Inc. (the sellers) appeal from an order of the master in equity declaring that mortgage liens held by First Federal Savings and Loan Association of South Carolina and American Federal Bank, FSB (the lenders) were entitled to first priority over mortgage liens held by the sellers in property the sellers sold to J.C. Roy Company, Inc. (Roy), a real estate developer. We reverse.

The facts of this case are largely undisputed. Over a period of time, the sellers entered into seven contracts for the sale of seven lots to the J.C. Roy Company, Inc. In each transaction, a standard "Builder Lot Contract" was used which provided in pertinent part as follows:

2. Price and Terms: The purchase price is $______. The Seller acknowledges receipt of an earnest money deposit of $______ to be held by the Seller until closing, with the remainder to be (select one):

/ / Paid at closing ($ ).

/ / Paid, with interest at [rate]%, ON DEMAND, after closing, as evidenced by a demand negotiable promissory note, guaranteed personally by ________________________ and secured by a first lien purchase money mortgage of said lot. Seller may subordinate this mortgage to construction financing upon the payment of $______ to seller to be applied against the purchase price and if the total amount secured by said lot does not exceed 75% of the fair market value of the lot and improvements.

Roy chose the second option for each lot and chose to have the sellers finance part of the purchase price.

The lenders made construction loans to Roy to build houses on the lots purchased from the sellers. The closings on the sale of the lots and on the construction loans occurred simultaneously and were handled by attorney James Knight, who represented the construction lenders in these transactions. The deeds, purchase money notes and mortgages were transmitted to Knight for the closing by the sellers' attorney by letter. ¹

At the closings, Roy paid the amount required in the contracts and gave a note and mortgage to the sellers for the balance due them. Roy also obtained a construction loan from the lenders for each lot and executed a note and a mortgage to secure the loan. Knight recorded the deeds and mortgages for each transaction. Each time, he recorded the lenders' mortgage approximately one minute prior to recording the sellers' mortgage.

Roy subsequently declared bankruptcy. All of the real property securing the indebtedness in this case has been sold, and the parties asked the court to direct disposition of the proceeds in accordance with its determination of the mortgage lien priorities.

The sellers brought this declaratory judgment action seeking an order declaring their mortgages to have priority over those of the lenders. The matter was referred to the master in equity for final judgment, with any appeal directly to the Supreme Court.

Following a hearing, the master found the evidence of the manner of the loan closing showed it was the clear intent of the sellers to receive mortgages subordinate to that of the lenders. He further held the lenders' mortgages were entitled to priority based upon S.C.Code Ann. § 30-7-10 (1991), the recording statute. We disagree.

An action to establish lien priorities is an action in equity. Fibkins v. Fibkins, 303 S.C. 112, 399 S.E.2d 158 (Ct.App.1990). Thus, this court may view the evidence to determine facts in accordance with our own view of the preponderance of the evidence, though we are not required to disregard the findings of the master. Tiger, Inc. v. Fisher Agro, Inc., 301 S.C. 229, 391 S.E.2d 538 (1989); Thomas v. Mitchell, 287 S.C. 35, 336 S.E.2d 154 (Ct.App.1985).

S.C.Code Ann. § 30-7-10 deals, among other things, with the recording of mortgages and provides in pertinent part as follows:

In the case of a subsequent purchaser of real estate, or in the case of a subsequent lien creditor on real estate for valuable consideration without notice, the instrument evidencing the subsequent conveyance or subsequent lien must be filed for record in order for its holder to claim under this section as a subsequent creditor or purchaser for value without notice, and the priority is determined by the time of filing for record.

In our view, this case is controlled by the decision in Crystal Ice Co. of Columbia, Inc. v. First Colonial Corp., 273 S.C. 306, 257 S.E.2d 496 (1979). In that case our Supreme Court held knowledge of the existence of a purchase money mortgage was imputed to another mortgagee, and thus to its assignee, Crystal Ice, through its agent, the closing attorney. Therefore, Crystal Ice was not a "subsequent purchaser without notice" and could not prevail under § 30-7-10 simply because its mortgage was recorded one minute before the purchase money interest. Under common law principles, the purchase money mortgage was entitled to priority because it is deemed in law to have been simultaneously transmitted with the conveyance of the interest in the property to the purchaser. The deed and purchase money mortgage take effect at the same time.

The lenders contend this case is distinguishable from Crystal Ice because in that case the purchase money mortgagee had no notice of the Crystal Ice mortgage. By contrast, they assert the sellers in this case had full knowledge of the construction loan and mortgage. This argument fails because the priority of the purchase money mortgage does not rest on an equitable principle of protecting the purchase money mortgagee from a "secret lien." Crystal Ice makes no mention of whether or not the purchase money mortgagee had knowledge of...