IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA14-1111 Filed: 7 April 2015
THE BANK OF NEW YORK MELLON F/K/A THE BANK OF NEW YORK AS SUCCESSOR TO JP MORGAN CHASE BANK NATIONAL ASSOCIATION AS TRUSTEE FOR THE BENEFIT OF THE CERTIFICATE OF HOLDERS OF EQUITY ONE ABS, INC. MORTGAGE PASS THROUGH CERTIFICATES SERIES 2003-2
Plaintiff Durham County No. 12 CVS 2253 v.
JUNE WITHERS, CHARLES L. STEEL, IV, SOLELY IN HIS CAPACITY AS GUARDIAN OF THE ESTATE OF JUNE WITHERS, RHONDA WITHERS, MARGARET YOUNG, ROBERT YOUNG, SHELIA SMITH, FAYE KEARNEY, ROBERT KEARNEY, NORTH CAROLINA DEPARTMENT OF REVENUE, BRANCH BANKING AND TRUST COMPANY AND HSBC MORTGAGE SERVICES, INC.
Defendants
Appeal by defendants from an order for summary judgment to quiet title under
the doctrine of equitable subrogation entered 9 May 2014 by Judge Howard E.
Manning, Jr. in Durham County Superior Court. Heard in the Court of Appeals 17
February 2015. BANK OF NEW YORK MELLON V. WITHERS
Opinion of the Court
Ragsdale Liggett, by Dorothy Bass Burch and Ashley H. Campbell, for The Bank of New York Mellon, plaintiff-appellee.
Berman & Associates, by Gary K. Berman, for Margaret Young, Shelia Smith, and Faye Kearney, defendant-appellants.
CALABRIA, Judge.
In 2002, June (“June”) Withers was the sole owner of the property located at
121 West Cornwallis Road in Durham, NC (the “property”). At the time, June and
her daughter, Rhonda (“Rhonda”) Withers, sought a home loan from Popular
Financial Services (“PFS”) to refinance the prior deed of trust on the property from
Accredited Home Lenders (“AHL”). To qualify for the loan, June and Wanda agreed
to two conditions: (1) that PFS would have a first position lien on the property through
a deed of trust executed by June and Rhonda Withers and (2) that June would execute
a quitclaim deed with June as grantor and June and Rhonda as joint tenants.
Accordingly, PFS instructed the closing attorney Natasha Newkirk (“Newkirk”) to
prepare a deed with June as the grantor and June and Rhonda as joint tenants and
to pay the prior deed of trust to AHL in full.
Newkirk prepared a quitclaim deed that not only included June and Rhonda
as grantees, but also mistakenly included June’s three other daughters, Margaret
Young (“Young”), Shelia Smith (“Smith”), and Faye Kearney (“Kearney”). Therefore,
June conveyed an undivided interest to June, Rhonda, Young, Smith, and Kearney
as tenants in common. On 10 January 2003, Newkirk recorded both the erroneous
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quitclaim deed and the deed of trust in Durham County. Therefore, June and Rhonda
shared only a two-fifth interest in the property instead of the entire property.
Newkirk, as directed by PFS, also paid the AHL deed of trust in full. PFS assigned
the PFS deed of trust to the Bank of New York Mellon (“plaintiff”).
On 6 March 2012, plaintiff filed an action against the five tenants seeking,
inter alia, to reform the deed of trust to include the portions of property held by
Young, Smith, and Kearney so as to impose a constructive trust on the entirety of the
property or, in the alternative, to equitably subrogate the deed of trust to the prior
deed of trust held by AHL. June passed away on 28 December 2013. Rhonda
executed a quitclaim deed to plaintiff transferring the entirety of her interest in the
property, including any interest obtained following the passing of her mother, June.
Therefore, the only remaining defendants were Young, Smith, and Kearney.
Plaintiff and the remaining defendants filed motions for summary judgment.
After a hearing, the trial court denied plaintiff’s attempts to reform the deed of trust
and to impose a constructive trust and granted defendants’ motions for summary
judgment on those issues. At the same time, the trial court granted plaintiff’s motion
for summary judgment to quiet title under the legal doctrine of equitable subrogation.
Defendants appeal.
On appeal, defendants argue the trial court erred in granting summary
judgment on the equitable subrogation claim for three reasons. First, defendants
contend that plaintiff and defendants never agreed that Newkirk would use the funds
-3- BANK OF NEW YORK MELLON V. WITHERS
to pay the prior deed of trust to AHL in full. Second, defendants maintain that
plaintiff was not “excusably ignorant” of Newkirk’s mistake. Third, defendants claim
plaintiff had an adequate remedy at law.
The standard of review for summary judgment is de novo. In re Will of Jones,
362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008). Summary judgment will be upheld
when the record indicates that there is no genuine issue of material fact and a party
is entitled to judgment as a matter of law. Forbis v. Neal, 361 N.C. 519, 523–24, 649
S.E.2d 382, 385 (2007) (citations and quotations omitted).
Equitable subrogation is a
general rule [that] one who furnishes money for the purpose of paying off an encumbrance on real or personal property, at the instance either of the owner of the property or of the holder of the encumbrance, either upon the express understanding or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, will be subrogated to the rights of the prior lienholder as against the holder of an intervening lien, of which the lender was excusably ignorant.
Peek v. Wachovia Bank & Trust Co., 242 N.C. 1, 15, 86 S.E.2d 745, 755 (1955). It
applies “when one person has been compelled to pay a debt which ought to have been
paid by another and for which the other was primarily liable.” Trustees of Garden of
Prayer Baptist Church v. Geraldco Builders, Inc., 78 N.C. App. 108, 114, 336 S.E.2d
694, 697–98 (1985) (citations omitted).
-4- BANK OF NEW YORK MELLON V. WITHERS
Equitable subrogation is based in equity and the purpose is “the doing of
complete, essential, and perfect justice between all the parties without regard to form,
and its object is the prevention of injustice.” Journal Pub. Co. v. Barber, 165 N.C. 478,
487–88, 81 S.E. 694, 698 (1914). “When the equities of a case favor equitable
subrogation, the party in whose favor the right of subrogation exists is entitled to all
of the remedies and security which the creditor had against the person whose debt
was paid.” Am. Gen. Fin. Servs., Inc. v. Barnes, 175 N.C. App. 406, 409, 623 S.E.2d
617, 619 (2006) (citing Trustees of Garden of Prayer Baptist Church, 78 N.C. App. at
114, 336 S.E.2d at 698) (quotations omitted). The doctrine of equitable subrogation
requires “both that the money should have been advanced for the purpose of
discharging the prior encumbrance, and that [such money] should have actually been
so applied.” Peek, 242 N.C. at 15–16, 86 S.E.2d at 756 (internal quotations and
citations omitted).
In the present case, plaintiff’s predecessor in interest, PFS, loaned June and
Rhonda Withers $63,425.00 to pay the prior deed of trust to AHL in full for the
property at 121 West Cornwallis Road in exchange for a first position lien on that
property. PFS provided the funds, directed the closing attorney to pay the prior deed
of trust in full, and the closing attorney followed their directions regarding using the
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IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA14-1111 Filed: 7 April 2015
THE BANK OF NEW YORK MELLON F/K/A THE BANK OF NEW YORK AS SUCCESSOR TO JP MORGAN CHASE BANK NATIONAL ASSOCIATION AS TRUSTEE FOR THE BENEFIT OF THE CERTIFICATE OF HOLDERS OF EQUITY ONE ABS, INC. MORTGAGE PASS THROUGH CERTIFICATES SERIES 2003-2
Plaintiff Durham County No. 12 CVS 2253 v.
JUNE WITHERS, CHARLES L. STEEL, IV, SOLELY IN HIS CAPACITY AS GUARDIAN OF THE ESTATE OF JUNE WITHERS, RHONDA WITHERS, MARGARET YOUNG, ROBERT YOUNG, SHELIA SMITH, FAYE KEARNEY, ROBERT KEARNEY, NORTH CAROLINA DEPARTMENT OF REVENUE, BRANCH BANKING AND TRUST COMPANY AND HSBC MORTGAGE SERVICES, INC.
Defendants
Appeal by defendants from an order for summary judgment to quiet title under
the doctrine of equitable subrogation entered 9 May 2014 by Judge Howard E.
Manning, Jr. in Durham County Superior Court. Heard in the Court of Appeals 17
February 2015. BANK OF NEW YORK MELLON V. WITHERS
Opinion of the Court
Ragsdale Liggett, by Dorothy Bass Burch and Ashley H. Campbell, for The Bank of New York Mellon, plaintiff-appellee.
Berman & Associates, by Gary K. Berman, for Margaret Young, Shelia Smith, and Faye Kearney, defendant-appellants.
CALABRIA, Judge.
In 2002, June (“June”) Withers was the sole owner of the property located at
121 West Cornwallis Road in Durham, NC (the “property”). At the time, June and
her daughter, Rhonda (“Rhonda”) Withers, sought a home loan from Popular
Financial Services (“PFS”) to refinance the prior deed of trust on the property from
Accredited Home Lenders (“AHL”). To qualify for the loan, June and Wanda agreed
to two conditions: (1) that PFS would have a first position lien on the property through
a deed of trust executed by June and Rhonda Withers and (2) that June would execute
a quitclaim deed with June as grantor and June and Rhonda as joint tenants.
Accordingly, PFS instructed the closing attorney Natasha Newkirk (“Newkirk”) to
prepare a deed with June as the grantor and June and Rhonda as joint tenants and
to pay the prior deed of trust to AHL in full.
Newkirk prepared a quitclaim deed that not only included June and Rhonda
as grantees, but also mistakenly included June’s three other daughters, Margaret
Young (“Young”), Shelia Smith (“Smith”), and Faye Kearney (“Kearney”). Therefore,
June conveyed an undivided interest to June, Rhonda, Young, Smith, and Kearney
as tenants in common. On 10 January 2003, Newkirk recorded both the erroneous
-2- BANK OF NEW YORK MELLON V. WITHERS
quitclaim deed and the deed of trust in Durham County. Therefore, June and Rhonda
shared only a two-fifth interest in the property instead of the entire property.
Newkirk, as directed by PFS, also paid the AHL deed of trust in full. PFS assigned
the PFS deed of trust to the Bank of New York Mellon (“plaintiff”).
On 6 March 2012, plaintiff filed an action against the five tenants seeking,
inter alia, to reform the deed of trust to include the portions of property held by
Young, Smith, and Kearney so as to impose a constructive trust on the entirety of the
property or, in the alternative, to equitably subrogate the deed of trust to the prior
deed of trust held by AHL. June passed away on 28 December 2013. Rhonda
executed a quitclaim deed to plaintiff transferring the entirety of her interest in the
property, including any interest obtained following the passing of her mother, June.
Therefore, the only remaining defendants were Young, Smith, and Kearney.
Plaintiff and the remaining defendants filed motions for summary judgment.
After a hearing, the trial court denied plaintiff’s attempts to reform the deed of trust
and to impose a constructive trust and granted defendants’ motions for summary
judgment on those issues. At the same time, the trial court granted plaintiff’s motion
for summary judgment to quiet title under the legal doctrine of equitable subrogation.
Defendants appeal.
On appeal, defendants argue the trial court erred in granting summary
judgment on the equitable subrogation claim for three reasons. First, defendants
contend that plaintiff and defendants never agreed that Newkirk would use the funds
-3- BANK OF NEW YORK MELLON V. WITHERS
to pay the prior deed of trust to AHL in full. Second, defendants maintain that
plaintiff was not “excusably ignorant” of Newkirk’s mistake. Third, defendants claim
plaintiff had an adequate remedy at law.
The standard of review for summary judgment is de novo. In re Will of Jones,
362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008). Summary judgment will be upheld
when the record indicates that there is no genuine issue of material fact and a party
is entitled to judgment as a matter of law. Forbis v. Neal, 361 N.C. 519, 523–24, 649
S.E.2d 382, 385 (2007) (citations and quotations omitted).
Equitable subrogation is a
general rule [that] one who furnishes money for the purpose of paying off an encumbrance on real or personal property, at the instance either of the owner of the property or of the holder of the encumbrance, either upon the express understanding or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, will be subrogated to the rights of the prior lienholder as against the holder of an intervening lien, of which the lender was excusably ignorant.
Peek v. Wachovia Bank & Trust Co., 242 N.C. 1, 15, 86 S.E.2d 745, 755 (1955). It
applies “when one person has been compelled to pay a debt which ought to have been
paid by another and for which the other was primarily liable.” Trustees of Garden of
Prayer Baptist Church v. Geraldco Builders, Inc., 78 N.C. App. 108, 114, 336 S.E.2d
694, 697–98 (1985) (citations omitted).
-4- BANK OF NEW YORK MELLON V. WITHERS
Equitable subrogation is based in equity and the purpose is “the doing of
complete, essential, and perfect justice between all the parties without regard to form,
and its object is the prevention of injustice.” Journal Pub. Co. v. Barber, 165 N.C. 478,
487–88, 81 S.E. 694, 698 (1914). “When the equities of a case favor equitable
subrogation, the party in whose favor the right of subrogation exists is entitled to all
of the remedies and security which the creditor had against the person whose debt
was paid.” Am. Gen. Fin. Servs., Inc. v. Barnes, 175 N.C. App. 406, 409, 623 S.E.2d
617, 619 (2006) (citing Trustees of Garden of Prayer Baptist Church, 78 N.C. App. at
114, 336 S.E.2d at 698) (quotations omitted). The doctrine of equitable subrogation
requires “both that the money should have been advanced for the purpose of
discharging the prior encumbrance, and that [such money] should have actually been
so applied.” Peek, 242 N.C. at 15–16, 86 S.E.2d at 756 (internal quotations and
citations omitted).
In the present case, plaintiff’s predecessor in interest, PFS, loaned June and
Rhonda Withers $63,425.00 to pay the prior deed of trust to AHL in full for the
property at 121 West Cornwallis Road in exchange for a first position lien on that
property. PFS provided the funds, directed the closing attorney to pay the prior deed
of trust in full, and the closing attorney followed their directions regarding using the
funds to pay the prior deed of trust to AHL in full. As part of the transaction, PFS
required June to execute a quitclaim deed transferring the property to June and
Rhonda as joint tenants. The closing attorney failed to follow PFS’ instructions and
-5- BANK OF NEW YORK MELLON V. WITHERS
mistakenly prepared the quitclaim deed with June as grantor and all three
daughters, along with June and Rhonda, as joint tenants. When the closing attorney
prepared the quitclaim deed, she directly contradicted PFS’ instructions. As a result
of this oversight, the deed of trust from PFS secured only two-fifths of the property,
instead of the entire property. Since equity requires that the funds were advanced
for the purpose of discharging the prior encumbrance, equity would not allow the
attorney’s mistake to defeat the agreed purpose of the transaction, which was to
secure a loan by granting a first position lien on the property at 121 Cornwallis Road.
Therefore, as a matter of law, the trial court correctly applied the doctrine of equitable
subrogation to allow PFS, and its successor in interest, plaintiff, to an equitable
subrogation of their rights to AHL to claim a first position lien on the entire property.
Defendants contend that despite satisfying all the requirements of equitable
subrogation, plaintiffs should not receive an equitable benefit because there are
adequate remedies at law. According to defendants, equity does not apply when the
party seeking equity has a full and complete remedy at law. Daugherty v. Cherry
Hospital, 195 N.C. 97, 102, 670 S.E.2d 915, 919 (2009) (citations and quotations
omitted). As a general rule, “[e]quity supplements the law. Its office is to supply
defects in the law where, by reason of its universality, it is deficient, to the end that
rights may be protected and justice may be done as between litigants.” Town of
Zebulon v. Dawson, 216 N.C. 520, 522, 5 S.E.2d 535, 537 (1939). However, the
remedies defendants identify are inadequate because of the failure to account for the
-6- BANK OF NEW YORK MELLON V. WITHERS
unique nature of real property. According to the Supreme Court of North Carolina,
“[l]and is an extremely important and long-valued asset in this state and throughout
this country.” Powell v. City of Newton, 364 N.C. 562, 572, 703 S.E.2d 723, 730 (2010)
(Martin, J. concurring). In fact, “it has long been established, both in this state and
throughout this country, that land is a special and unique asset . . . .” Id. at 573–74,
703 S.E.2d at 731 (Hudson, J. dissenting). Due to land’s unique nature, damage
claims against individuals are an inadequate substitute for a first position lien on
real property.
Since land is unique and the remedies at law identified by defendants are
inadequate, the doctrine of equitable subrogation applies. Therefore, as a matter of
law, the trial court correctly concluded that plaintiff was entitled to equitable
subrogation. The trial court correctly granted summary judgment in favor of plaintiff
since it was entitled to judgment as a matter of law and no issues of material fact
existed. Accordingly, we affirm the trial court’s judgment.
Affirmed.
Judges McCullough and Dietz concur.
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