Swindler v. Swindler

• Decision Date: 07 July 2003
• Docket Number: No. 3658.,3658.
• Citation: 355 S.C. 245,584 S.E.2d 438
• Court: South Carolina Court of Appeals
• Parties: James R. SWINDLER, Marshalene S. Frady, and Rebecca Spears, Respondents, v. Nancy W. SWINDLER and Commercial Credit Corporation, Defendants, Of whom Nancy W. SWINDLER is Appellant.

355 S.C. 245

584 S.E.2d 438

James R. SWINDLER, Marshalene S. Frady, and Rebecca Spears, Respondents, v. Nancy W. SWINDLER and Commercial Credit Corporation, Defendants, Of whom Nancy W. SWINDLER is Appellant.

No. 3658.

Court of Appeals of South Carolina.

Heard March 11, 2003.

Decided July 7, 2003.

Rehearing Denied August 21, 2003.

David Randolph Whitt, Henry Guyton Murrel, and Pearce W. Fleming, all of Columbia, for Respondents.

Howard S. Sheftman and J. Alton Bivens, both of Columbia, for Appellant.

HOWARD, J.:

In this foreclosure action, we are asked to determine whether a promissory note secured by a real estate mortgage is a negotiable instrument governed by Article 3 of the South Carolina Uniform Commercial Code ("UCC"). James R. Swindler, Marshalene S. Frady, and Rebecca Spears (collectively, "the Swindler Family") brought this action against their sister-in-law, Nancy Swindler ("Nancy"), to foreclose a mortgage encumbering a 54.5-acre tract of land Nancy purchased from their mother, Margaret Swindler ("Margaret"). Nancy asserted various defenses, including that Margaret had renounced the underlying debt by giving Nancy possession of the original Note. The master-in-equity concluded Article 3 of the UCC did not govern the transaction, and therefore, the defense of renunciation under South Carolina Code Annotated section 36-3-605(1) (1976)¹ was not applicable. The master entered a judgment of foreclosure and sale in favor of the Swindler Family. Nancy appeals. We reverse and remand.

FACTS/PROCEDURAL HISTORY

Margaret had four children—the three Respondents to whom we refer as the Swindler Family and a son, Timothy. Timothy was married to Nancy. During Timothy's lifetime, Margaret conveyed a 54.5-acre tract of land to Nancy to be Nancy and Timothy's residence. In return, Nancy executed a note, agreeing to pay Margaret $200,000.00 for the property. The Note was secured by a mortgage covering the property.

After both Margaret and Timothy died, James Swindler attempted to transfer a one-quarter interest in the Note and Mortgage to each member of the Swindler Family in his capacity as personal representative of Margaret's estate. The Swindler Family then demanded payment of $150,000.00 from Nancy, representing three-quarters of the amount due on the Note, and brought this foreclosure action.

Nancy asserted as a defense that Margaret had renounced the debt by delivering the original Note to her. In support of her position, Nancy cited section 36-3-605(1), which states in applicable part: "The holder of an instrument may even without consideration discharge any party ... (b) by renouncing his rights ... by surrender of the instrument to be discharged." (Emphasis added). During the trial, only Nancy testified and presented witnesses. Nancy established the Note and Mortgage had been sent to Margaret before execution, and Margaret delivered the original Note and Mortgage to Nancy and Timothy before her death. The Swindler Family admitted Nancy has possession of the original Note and Mortgage.

The master declined to apply section 36-3-605. He construed South Carolina Code Annotated section 36-3-103(2) (1976),² governing negotiable instruments under Article 3, to superimpose the limitations of Article 9 onto Article 3. Because Article 9 of the UCC, specifically South Carolina Code Annotated section 36-9-104(j) (Supp.2000), excludes from its application "the creation or transfer of an interest in or lien on real estate[,]" the master ruled Article 3 did not apply to notes secured by mortgages on real estate. He also found no evidence existed to prove how Nancy obtained the original Note and Mortgage or to establish Margaret intended Nancy's obligation to be discharged. Therefore, he ruled the Swindler Family was a proper holder of the Note and $150,000.00 was due. The master entered a judgment of foreclosure and sale in favor of the Swindler Family. Nancy filed a motion to alter or amend the judgment, which the master denied. Nancy appeals.

STANDARD OF REVIEW

"An action to foreclose a real estate mortgage is an action in equity." BB & T of South Carolina v. Kidwell, 350 S.C. 382, 387, 565 S.E.2d 316, 319 (Ct.App.2002). On appeal from an action in equity, this Court may "find facts in accordance with its views of the preponderance of the evidence." Townes Assocs., Ltd. v. City of Greenville, 266 S.C. 81, 86, 221 S.E.2d 773, 775 (1976). Furthermore, this Court is not bound by the trial court's legal determinations. I'On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 411, 526 S.E.2d 716, 718-19 (2000).

DISCUSSION

Among the issues raised on appeal, Nancy asserts the master erred by ruling Article 3 of the UCC does not govern a note secured by a mortgage on real property. Furthermore, pursuant to section 36-3-605(1), Nancy argues a presumption arose that Margaret renounced the debt because Margaret delivered the Note to Nancy prior to her death, and the Swindler family failed to present any evidence to overcome the presumption. We agree with both assertions and reverse the master's order.

I. Applicability of Article 3

"The cardinal rule of statutory construction is to ascertain and effectuate the intent of the legislature." Hawkins v. Bruno Yacht Sales, Inc., 353 S.C. 31, 39, 577 S.E.2d 202, 207 (2003). Moreover, "[w]here the terms of the statute are clear, [this Court] must apply those terms according to their literal meaning." Brown v. S.C. Dep't of Health & Envtl. Control, 348 S.C. 507, 515, 560 S.E.2d 410, 414 (2002); see also Rowe v. Hyatt, 321 S.C. 366, 369, 468 S.E.2d 649, 650 (1996)

(holding when "interpreting a statute, words must be given their plain and ordinary meaning without resorting to subtle or forced construction to limit or expand the statute's operation").

Article 3 applies to negotiable instruments. Thus, as an initial matter, we must determine whether the Note is a negotiable instrument and a "note" as defined by Article 3 of the UCC. If not, then Article 3 would clearly not apply and our inquiry would end.

South Carolina Code Annotated section 36-3-104 (1976) provides:

(1) Any writing to be a negotiable instrument within this chapter must

(a) be signed by the maker or drawer; and

(b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this chapter; and

(c) be payable on demand or at a definite time; and

(d) be payable to order or to bearer.

(5) A writing which complies with the requirements of this section is

...

(d) a "note" if it is a promise other than a certificate of deposit.

Clearly each of these requirements is met in this case. Furthermore, neither party asserts the instrument fails to satisfy the above criteria.

Having determined the Note is a negotiable instrument and a "note," we next consider the master's conclusion Article 3 does not apply to a note secured by a real estate mortgage. In this regard, it appears the master misread section 36-3-103(2). This section states "[t]he provisions of this chapter are subject to the provisions of the chapter on ... secured transactions [ (Article 9)]." The master construed this statute to act as a limitation on the application of Article 3 so as to exclude from coverage a note secured by a real estate mortgage. He bolstered his decision by noting "the existence of S.C.Code § 29-3-330, which expressly provides methods for satisfying a mortgage of real estate."

We conclude the master erred. No provision in Article 3 exists which distinguishes an unsecured note from a note secured by a real estate mortgage. Moreover, no provision in Article 9 excludes a note secured by a real estate mortgage from the application of Article 3. The negotiability of a note is not altered by the execution of a related real estate mortgage. See S.C.Code Ann. § 36-3-119(2) (1976) (stating a note remains subject to the terms of Article 3 irrespective of the occurrence of any other transaction); cf. Int'l Minerals & Chem. Corp. v. Matthews, 71 N.C.App. 209, 321 S.E.2d 545, 547 (1984)

(holding "incorporating into a note the liens that secure its payment" does not affect the applicability of Article 3).

The Official Comment to section 36-3-119(2) states: 5. Subsection (2) rejects decisions which have carried the rule that contemporaneous writings must be read together to the length of holding that a clause in a mortgage affecting a note destroyed the negotiability of the note. The negotiability of an instrument is always to be determined by what appears on the face of the instrument alone .... [If the note] merely refers to a separate agreement or states that it arises out of such an agreement, it is negotiable.

(Emphasis added). Furthermore, any "contemporaneous writing[,] e.g., a chattel mortgage given to secure a negotiable note[,] is not read into the note to destroy its negotiability." Id. reporter's cmt (emphasis added); cf. Burch v. Ashburn, 295 S.C. 274, 278, 368 S.E.2d 82, 84 (Ct.App.1988)

("[T]he contemporaneous execution of the two writings does not affect the note, which is enforceable according to its tenor without regard to any breach of the" other agreement.). Thus, even when executed simultaneously with a mortgage, a note remains subject to the provisions of Article 3. See Northwestern Bank v. Neal, 271 S.C. 544, 546-47, 248 S.E.2d 585, 586 (1978).

Furthermore, we do not agree with the master's construction of sections 36-3-103(2) and 36-9-104(j). We conclude these provisions are unambiguous and clearly state Article 3 governs a note even when secured by a mortgage on real property.

First, the master misquoted section 36-3-103(2) to state Article 3 was subject to the "limitations" of Article 9. However, this section states "[t]he provisions of this chapter are subject to the provisions of the chapter on ... secured transactions [Article 9]" not "limitations of Article 9" as stated in the master's order. (...