The Bank of New York Mellon v. Withers

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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Opinion of the Court

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

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Opinion of the Court

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).

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Opinion of the Court

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

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Opinion of the Court

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

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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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