Regions Bank v. DDB of Spartanburg LLC et al
ORDER granting 88 Motion for Summary Judgment. Signed by Honorable J Michelle Childs on 2/24/12.(awil)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
RL REGI Financial, LLC,
DDB of Spartanburg, LLC, Jimmy L.
Davis, L.E. Deavours, a/k/a Loomis Esteze )
Deavours, Jr., Deavours Investments, L.P., )
Cantrell’s Auto Repairs, Inc., and MCC
C.A. No. 7:09-cv-02236-JMC
ORDER AND OPINION
This matter is before the court on Defendant MCC Outdoor, LLC’s (“MCC”) Renewed
Motion for Summary Judgment [Doc. 88]. Based upon the record before the court, MCC’s motion
FACTUAL AND PROCEDURAL BACKGROUND
This case arises from RL REGI Financial, LLC’s (“RL REGI”) efforts to collect amounts due
under a commercial mortgage loan (the “Loan”) that was made to Defendant DDB of Spartanburg,
LLC (“DDB”) by Regions Bank on March 23, 2006, for the purpose of financing the construction
and development of a residential subdivision in Spartanburg County, South Carolina, known as
Orchards at Reidville.1 In its Complaint, RL REGI alleged that its mortgage of a property at 3804
Clemson Boulevard, Anderson, South Carolina owned by Cantrell’s Auto Repairs, Inc.
(“Cantrell’s”), has priority over a lease held by MCC on the same property. MCC filed a
This action was commenced by Regions Bank who subsequently sold its interest in the
Loan to RL REGI. For convenience, the court will reference all pleadings on behalf of the
plaintiff in this case as those of RL REGI.
counterclaim seeking a declaratory judgment that its leasehold interest has priority over the mortgage
interest held by RL REGI.
Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, show that "there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R.
Civ. P. 56(a). To prevail on a motion for summary judgment, the movant must demonstrate that: (1)
there is no genuine issue as to any material fact; and (2) that he is entitled to judgment as a matter
of law. In determining whether a genuine issue has been raised, the court must construe all
inferences and ambiguities against the movant and in favor of the non-moving party. See United
States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The party seeking summary judgment shoulders the initial burden of demonstrating to the
district court that there is no genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). Once the movant has made this threshold demonstration, the non-moving party, to
survive the motion for summary judgment, may not rest on the allegations averred in his pleadings.
Rather, the non-moving party must demonstrate that specific, material facts exist which give rise to
a genuine issue. See id. at 324. Under this standard, the existence of a mere scintilla of evidence in
support of the plaintiff's position is insufficient to withstand the summary judgment motion. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Likewise, conclusory allegations or
denials, without more, are insufficient to preclude the granting of the summary judgment motion.
See Ross v. Commc'ns Satellite Corp., 759 F.2d 355, 365 (4th Cir. 1985). "Only disputes over facts
that might affect the outcome of the suit under the governing law will properly preclude the entry
of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted."
Anderson, 477 U.S. at 248.
MCC contends that its lease on the property at issue in this case is entitled to priority over
RL REGI’s claims against the property because Regions Bank had actual notice of the lease prior
to its acceptance of a mortgage on the property. Specifically, MCC notes that the lease and the
existence of the billboard sign on the property were expressly acknowledged by Regions Bank in an
appraisal report completed prior to the execution of the mortgage.
In South Carolina, the priority of competing interests in real property is governed by statute.
Under S.C. Code Ann. § 30-7-10,
All deeds of conveyance of lands, . . . all mortgages or instruments in writing in the
nature of a mortgage of any real property,. . . all leases or contracts in writing made
between landlord and tenant for a longer period than twelve months, . . . or other
liens on real property created by law or by agreement of the parties and generally all
instruments in writing conveying an interest in real estate required by law to be
recorded in the office of the register of deeds or clerk of court . . . , except as
otherwise provided by statute, are valid so as to affect the rights of subsequent
creditors (whether lien creditors or simple contract creditors), or purchasers for
valuable consideration without notice, only from the day and hour when they are
recorded in the office of the register of deeds or clerk of court of the county in which
the real property affected is situated. 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.
Id. (emphasis added). South Carolina’s “race-notice” recording statute seeks to protect any interest
acquired without notice of a prior interest, provided that the subsequent interest is recorded before
the recording of the prior interest. See Spence v. Spence, 368 S.C. 106, 118, 628 S.E.2d 869, 875
(2006). However, a purchaser or creditor acquiring an interest in real property may be charged with
knowledge of the rights of another in the property through actual or constructive notice. See id.
Where the purchaser or creditor has knowledge of the prior interests, the statute does not provide
protections from the effects of such prior interests. See id (citing Tauber v. Com. ex rel. Kilgore, 263
Va. 520, 562 S.E.2d 118, 127 (2002) (purchaser of real property is bound by both actual and
constructive notice and has no right to shut his eyes or ears to the inlet of information, and then say
he is a bona fide purchaser for value without notice)); see also Regions Bank v. Wingard Properties,
Inc., 394 S.C. 241, 255, 715 S.E.2d 348, 355 (Ct. App. 2011) (noting that the purpose of the
recording statute is to protect those who acquire a subsequent interest without notice, and that the
holder of a subsequent interest who has actual notice of a prior interest cannot prevail under the
recording statute by virtue of filing first).
[A] purchaser of [or creditor with an interest in] real property has actual notice of a
title defect or other claim, lien, or interest adverse to his own in a particular property
when he actually knows about the defect or claim, or when a reasonable person, if
made aware of the same information known to the buyer, would be charged with
actual notice of the defect or claim. Actual notice may consist of facts or conditions
observed by a prospective purchaser as well as information conveyed orally or in
writing to him.
Spence, at 118, 628 S.E.2d at 875. “However, constructive or inquiry notice in the context of a real
estate transaction often is grounded in an examination of the public record because it is the proper
recording of documents asserting an interest or claim in real property which gives constructive notice
to the world.” Id. at 119, 628 S.E.2d at 876. “Constructive or inquiry notice in the context of a real
estate transaction also may arise when a party becomes aware or should have become aware of
certain facts which, if investigated, would reveal the claim of another. The party will be charged by
operation of law with all knowledge that an investigation by a reasonably cautious and prudent
purchaser would have revealed.” Id. at 120, 628 S.E.2d at 876.
It is undisputed that Regions Bank commissioned and received an appraisal on the Cantrell’s
property prior to taking a mortgage on the property to secure the Loan. It is further undisputed that
the letter accompanying the appraisal report, which is addressed directly to an employee of Regions
Bank, indicates that there is a “leased billboard space” on the property and describes the property as
a “Leased Fee estate.” See Appraisal Cover Letter, at 2 [Doc.41-1, at 3]. The appraisal expressly
defines the term “lease” as “a written contract in which the rights to use and occupancy [sic] land
or structures are transferred by the owner to another for a specified period of time in return for a
specified rent.” See Appraisal Report, at 10 [Doc. 41-4, at 3]. The appraisal also defines “leased fee
interest” as “an ownership interest held by a landlord with the rights of use and occupancy conveyed
by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by
contract terms contained within the lease.” Id. Additionally, the appraisal references the leased
billboard space several times within the document and specifically notes that the appraiser
considered the actual rent of four thousand dollars per year from the leased billboard site in valuing
the property. Id, at 102 [Doc. 41-9, at 9].
Although Regions Bank’s representative, Rand Peterson, acknowledges that Regions Bank
received the appraisal and that someone at Regions Bank likely reviewed it prior to the Loan
transaction, RL REGI contends that Regions Bank cannot be charged with knowledge of MCC’s
leasehold interest in the Cantrell’s property at the time Regions Bank took the mortgage on the
property. However, because it is undisputed that Regions Bank received the appraisal report which
clearly indicated the existence of a “leased billboard site” on the property, Regions Bank and RL
REGI are charged with actual notice, under South Carolina law, by virtue of the information which
was conveyed to them in writing concerning the leased billboard space. See Spence, at 118, 628
S.E.2d at 875. Furthermore, under South Carolina law, Regions Bank and RL REGI had
constructive knowledge of the existence of the leasehold interest. Despite RL REGI’s, arguments
to the contrary, the appraisal was sufficient to inform Regions Bank of facts which would have
revealed the interest. The fact that Regions Bank did not undertake any investigation regarding the
lease noted in the appraisal does not save the argument. The appraisal clearly indicated that a leased
billboard site existed on the property and referenced the actual rental rate. Even the most cursory
inquiry, had Regions Bank made any, would have further revealed the extent of the interest. Because
the appraisal was sufficient to give Regions Bank and RL REGI notice of the leasehold interest, the
court finds that MCC’s lease has priority over the mortgage held by RL REGI on the Cantrell’s
RL REGI contends that, even if the appraisal provided notice of the leasehold interest, the
unrecorded leases are not valid because they were not executed in the name of Cantrell’s, but instead
by the sole shareholders of Cantrell’s. However, it is well established that a corporation may only
act through its agents. See Chapman-Storm Lumber Corp. v. Minnesota-South Carolina Land &
Timber Co., 183 S.C. 31, 190 S.E. 117, 118 (1937). Furthermore, a contract entered into by an
officer or shareholder of a corporation on behalf of the corporation is binding on the corporation.
See Olin Mathieson Chemical Corp. v. Planters Corp., 236 S.C. 318, 324, 114 S.E.2d 321, 324
(1960). This is particularly so where the corporation accepts the beneficial interest of such
transaction. See L.F.S. Corp. v. Kennedy, 287 S.C. 162, 164, 337 S.E.2d 209, 210 (1985).
The evidence in this case establishes that the shareholders entered into the unrecorded leases
for the benefit of Cantrell’s and that Cantrell’s ratified their actions by accepting the benefits of the
leases. Therefore, the unrecorded leases were valid and the court finds RL REGI’s arguments on this
point without merit.
RL REGI further argues that the unrecorded lease dated May of 2000 cannot be used to
establish priority over its mortgage because the unrecorded lease was terminated and superceded by
a recorded lease dated April of 2007. The parties have not cited, and the court did not find, any
authority applying South Carolina law to this issue. However, it is generally accepted that a renewal
or extension of an obligation or interest will not result in a loss of priority absent material prejudice
to the junior interest holders. See 55 Am. Jur. 2d Mortgages § 288; Restatement (Third) of Property:
Mortgages § 7.3 (1997).
In this case, Regions Bank took its mortgage subject to the May of 2000 lease which provided
for an initial term of fifteen years and automatic renewals on an annual basis thereafter unless one
of the parties to the lease provided the other with notice of termination. The May of 2000 lease
further provided an annual rental rate for the last five years of the initial term in the amount of four
thousand five hundred dollars. See [Doc. 41-10]. Cantrell’s and MCC entered into a subsequent
lease agreement dated April of 2007. The April of 2007 lease provides for an initial lease term of
ten years with optional yearly extensions not to exceed ten additional years. The April of 2007 lease
does not mention the May of 2000 lease. However, the rental rate is the same as the effective rate
contained in the May of 2000 lease. Also, while the April of 2007 lease does specifically exclude
any prior oral or verbal agreements between the parties, it does not indicate either party’s intention
to exclude any prior written agreements between the parties. See [Doc. 39-7].
The only evidence in the record indicates that the April of 2007 lease was merely an
extension of the May of 2000 lease. Because the May of 2000 lease contained an evergreen renewal
clause and the April of 2007 lease provides for a definite term not to exceed twenty years, the court
finds that RL REGI has not been materially prejudiced by such extension. Had Cantrell’s and MCC
not extended their agreement under the April of 2007 lease, RL REGI could have arguably been
subject to continuous extensions of the May of 2000 lease in perpetuity.
Accordingly, the court
finds RL REGI’s argument that the unrecorded May of 2000 lease was terminated and superceded
by a recorded lease dated April of 2007 unpersuasive.
For the foregoing reasons, Defendant MCC Outdoor, LLC’s Renewed Motion for Summary
Judgment [Doc. 88] is GRANTED and the court hereby determines that Defendant MCC Outdoor,
LLC’s leasehold interest in the subject property retains priority over the mortgage interest asserted
by Plaintiff RL REGI Financial, LLC, as successor in interest to Regions Bank.
IT IS SO ORDERED.
United States District Judge
February 24, 2012
Greenville, South Carolina