Perpetual Federal Sav. and Loan Ass'n v. Willingham

• Decision Date: 17 February 1988
• Docket Number: No. 1179,1179
• Citation: 370 S.E.2d 286,296 S.C. 24
• Court: South Carolina Court of Appeals
• Parties: PERPETUAL FEDERAL SAVINGS AND LOAN ASSOCIATION, a corporation organized under the Laws of the United States of America, Appellant, v. F. Marshall WILLINGHAM, Jr., Judy W. Willingham, Southern Bank and Trust Company and Bankers Trust of South Carolina, of which Southern Bank and Trust Company and Bankers Trust of South Carolina are Respondents. . Heard

Page 286

370 S.E.2d 286

296 S.C. 24

PERPETUAL FEDERAL SAVINGS AND LOAN ASSOCIATION, a corporation organized under the Laws of the United States of America, Appellant, v. F. Marshall WILLINGHAM, Jr., Judy W. Willingham, Southern Bank and Trust Company and Bankers Trust of South Carolina of which Southern Bank and Trust Company and Bankers Trust of South Carolina are Respondents.

No. 1179.

Court of Appeals of South Carolina.

Heard Feb. 17, 1988.

Decided June 27, 1988.

Harold P. Threlkeld, Anderson, for appellant.

O.G. Calhoun of Haynsworth, Perry, Bryant, Marion & Johnstone, Greenville, for respondents.

BELL, Judge:

Perpetual Federal Savings and Loan Association brought this action to foreclose a mortgage on certain real property of F. Marshall Willingham and Judy W. Willingham. As an incident to the foreclosure, Perpetual also sought to enforce payment of a separate debt represented by a note and Real Property Agreement executed by the Willinghams. Southern Bank and Trust Company and Bankers Trust of South Carolina, the holders of junior mortgages on the same realty, were joined as parties to the foreclosure. Southern and Bankers cross claimed for foreclosure of their respective mortgages, admitting that Perpetual held the first mortgage on the property, but asserting the priority of their mortgages over the Real Property Agreement. The master found that the debt of each creditor was proved and entered judgment against the Willinghams for the respective amounts. After the foreclosure sale, the master paid Perpetual's first mortgage, the expenses of sale, and attorneys' fees. A residual amount of $15,137.00 remained to be applied to the other debts. The master determined that the mortgages of Southern and Bankers held priority over Perpetual's Real Property Agreement. He ordered that the debt of Southern be paid in full and that a remaining balance of $3,524.92 be applied to Bankers' outstanding debt of $13,304.61. On appeal the circuit court affirmed the judgment of the master. Perpetual appeals from the decision of the circuit court. We affirm.

The question presented for our decision is whether the Real Property Agreement created a security interest in the Willingham's property. Unless it did, the ruling of the circuit court was correct.

Perpetual concedes that the Real Property Agreement does not constitute a legal or equitable mortgage of the property. However, it claims the instrument is "in the nature of a mortgage" or creates an equitable lien on the property. To support this position, Perpetual relies on two clauses in the instrument. The first is a negative covenant that the Willinghams will not sell the property and will refrain from creating any lien or encumbrance on the property until the debt is paid in full. The second clause is a covenant to assign the rents and profits of the property to Perpetual in the event of a default.

The Agreement is cast entirely in the language of a covenant. The Willinghams merely promise to do or not to do certain things. There is no language of grant or conveyance in the instrument. Nothing suggests the Willinghams are giving Perpetual rights in the property itself. The words "mortgage," "security," and "security interest" do not appear in the instrument. The word "lien" is used only once--where the Willinghams covenant that they will not place any lien or encumbrance on the property. In other words, the instrument expresses no intention to create an interest in the property.

I.

An instrument creating mere contractual rights is not an instrument in the nature of a mortgage. Arthur v. Screven, 39 S.C. 77, 17 S.E. 640 (1893). The parties must intend to create a mortgage for a writing to be an instrument in the nature of a mortgage. Thompson v. Hudgens, 161 S.C. 450, 159 S.E. 807 (1931). In this case, the document grants no rights in the property itself. Moreover, Perpetual admits that it did not intend the Real Property Agreement to be a mortgage. Accordingly, we hold that the Agreement is not an instrument in the nature of a mortgage.

II.

For an equitable lien to arise, there must be a debt owing from one person to another, specific property to which the debt attaches, and an intent, expressed or implied, that the property serve as security for the payment of the debt. Carolina Attractions, Inc. v. Courtney, 287 S.C. 140, 337 S.E.2d 244 (Ct.App.1985).

The creation of a lien is an affirmative act. The intent to create a lien cannot be implied from an express negative. Equitable Trust Co. v. Imbesi, 287 Md. 249, 412 A.2d 96 (1980); Knott v. Manufacturing Co., 30 W.Va. 790, 5 S.E. 266 (1888). A covenant not to encumber or transfer property does not create an equitable lien on the property. Equitable Trust Co. v. Imbesi, supra; Knott v. Manufacturing Co., supra; Manatee Federal Savings and Loan Association v. Pace, 378 So.2d 95 (Fla.App.1979); Weaver v. Tri City Credit Bureau, 27 Ariz.App. 640, 557 P.2d...