Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.

2d 17,
283 S.C. 134 (S.C. App. 1984)

Page 17

322 S.E.2d 17
283 S.C. 134
LIBERTY LOAN CORPORATION OF DARLINGTON, S.C.,
Respondent,
v.
General Lee MUMFORD, Carrie L. Mumford, Preston Robinson,
Jr., Lillie Mae Robinson, and Aiken-Speir, Inc., Defendants,
of which Aiken-Speir, Inc. is Appellant.
Appeal of AIKEN-SPEIR, INC.
No. 0119.
Court of Appeals of South Carolina.
Heard Jan. 23, 1984.
Decided March 5, 1984.
Reheard June 19, 1984.
Decided Oct. 4, 1984.

Page 18

[283 S.C. 136] Mark W. Buyck, Jr., of Willcox, Hardee, O'Farrell,

McLeod, Buyck & Baker, Florence, for appellant.

Sam B. Mitchell, III, of Myrtle Beach, and Marvin P. Jackson, Jr., Flo-
rence, for respondent.

ON REHEARING

On rehearing, the opinion heretofore issued is withdrawn and this opin-

ion substituted therefor:

Page 19

CURETON, Judge:

This is an appeal from a circuit court order determining that the respon-
dent, Liberty Loan Corporation of Darlington, S.C. (Liberty), had a first lien
on property subsequently mortgaged to the appellant, Aiken-Speir, Inc.
(Aiken-Speir), and permitting Liberty to foreclose its mortgage. 1 We reverse.

On January 9, 1976, defendants Mumford, owners of the subject prop-

erty, executed a mortgage to Aiken-Speir which was duly recorded January
15, 1976, in the office of the Clerk of Court of Florence County. 2

On June 25, 1976, the Mumfords executed a second mortgage to Liberty

which was recorded July 2, 1976, in Mortgage Book A-160 at page 106. It
Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.2d 17,
283 S.C. 134 (S.C. App. 1984)

was indexed in the Mortgagor Index Book under the subindex "Mul" on page
73 rather than subindex "Mum" on page 75.

On December 10, 1976, Aiken-Speir commenced a foreclosure action on

its first mortgage, but did not name Liberty as a party to the suit. Aiken-
Speir became the successful [283 S.C. 137] bidder at the foreclosure sale and
assigned its bid to the Secretary of Housing and Urban Development (HUD)
who took title by deed recorded February 28, 1977.

On April 22, 1977, the clerk of court, at Liberty's request, reindexed Lib-
erty's mortgage from page 73 to the correct page 75. Notations were made on
each affected page to reflect the reindexing. Importantly, an asterisk was
placed on page 75 at the sequential or chronological place on the page that
the entry would have been made if properly subindexed on July 2, 1976.

On August 22, 1977, HUD deeded the property to Preston and Lillie Mae
Robinson. They recorded their deed, then executed a mortgage to Aiken-
Speir which was recorded on September 8, 1977.

On October 20, 1980, Liberty commenced foreclosure of its mortgage

and named Aiken-Speir a party to the action. A dispute arose between these
parties as to the priority of Liberty's mortgage relative to Aiken-Speir's mort-
gage. Aiken-Speir claimed its mortgage had priority because Liberty's mort-
gage was not properly recorded; that HUD therefore took title to the prop-
erty free of Liberty's mortgage lien, and the Robinsons, as successors to
HUD's interest, could mortgage the property to Aiken-Speir free of Liberty's
lien.

Contrary to Aiken-Speir's contentions, Liberty asserted that its mort-

gage lien should have first priority because its lien was properly recorded
and indexed. Liberty argued that the indexing statute required only that its
mortgage be indexed under the letter "M". Any further subindexing, it con-
tended, was only for the convenience of the public and was not required. Ad-
ditionally, it argued that Aiken-Speir had record notice of its lien when
Aiken-Speir took the mortgage from the Robinsons since Aiken-Speir could
have discovered the lien by researching the corrected records.

The circuit court sustained the validity and priority of Liberty's mort-
gage against Aiken-Speir. On appeal the exceptions and additional sustain-
ing grounds raised three issues: (1) whether Liberty's mortgage was validly
indexed so as to constitute a first lien on the property; (2) whether the facts
of this case were sufficient to put Aiken-Speir on actual or constructive no-
tice of Liberty's mortgage; and (3) whether Aiken-Speir had a right to rely on
the state of title at the time HUD purchased at the foreclosure sale. We [283
S.C. 138] address these issues seriatim. We do not address Aiken-Speir's ad-
Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.2d 17,
283 S.C. 134 (S.C. App. 1984)

ditional claim that the lis pendens statute precludes Liberty from enforcing
its mortgage, because that issue

Page 20

was raised for the first time in Aiken-Speir's petition for rehearing.

I.

Section 30-7-10, Code of Laws of South Carolina, 1976, requires that

mortgages be recorded before they "shall be valid so as to affect the rights of
subsequent creditors (whether lien creditors or simple contract creditors) or
purchasers for valuable consideration without notice ...." Bradley v. Guess,
165 S.C. 161, 163 S.E. 466 (1932); Gregory v. Ducker, 31 S.C. 141, 9 S.E. 780
(1889). Likewise, Section 30-9-40 of the Code provides that indexing consti-
tutes an "integral, necessary and inseparable part of the recordation of [a]
deed, [or] mortgage ... but the recordation of a deed, mortgage or other writ-
ten instrument shall not be notice as to the purport and effect thereof unless
the filing of the instrument for record be entered as required hereby in the
indexes."

The trial court found that Liberty's mortgage was properly indexed. Its
order was premised primarily upon the North Carolina case of Clement v.
Harrison, 193 N.C. 825, 138 S.E. 308 (1927), which held in pertinent part:

The deed of trust in controversy was properly registered in a book con-

taining real estate conveyances. It was indexed and cross-indexed under the
letter "H," which is the "appropriate letter of the alphabet," and the cross-in-
dex referred to the page, title, or number of the book in which the instru-
ment had been duly registered. The statute, upon its face, apparently, does
not contemplate the division of the index into subheads. This division of the
index into subheads has been installed in many counties for the convenience
of parties who are compelled to examine the public records. Undoubtedly
the method of subdividing the index is modern and efficient, and relieves the
members of the profession, particularly, from a vast amount of unnecessary
labor in passing upon titles; but, under the statute, as written, the only re-
quirement is that the instrument should be indexed and cross-indexed un-
der the "appropriate letter of the alphabet." This has [283 S.C. 139] been
done. As to whether the statute should be amended so as to include "catch-
heads" or subdivisions of the appropriate letter is not a matter for us to de-
termine. It is our duty to construe the law as it is written.

We think the reasoning in Clement is inapplicable to the facts of this

case. The North Carolina court made it clear that it was strictly construing
the North Carolina statute which required only that the grantor's name be
placed under the appropriate letter of the alphabet. 3 Our statute requires
Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.2d 17,
283 S.C. 134 (S.C. App. 1984)

that the indexes be kept by "alphabetical arrangement." There is an impor-

tant difference in the requirements of the two statutes.

While we have been unable to locate a case that defines "alphabetical ar-
rangement," we think that this arrangement demands the consideration of
not only the first letter of a name, but the exact arrangement and sequence
of all letters of the name. Thus, where the clerk of court provides for
subindexing of deeds or mortgages, a document is not properly indexed un-
less it appears in alphabetical arrangement under the proper subindex. For
this reason we hold that Liberty's mortgage was not properly indexed before
title passed out of the Mumfords.

II.

Since Liberty's mortgage was not properly indexed, it was not properly
recorded. Section 30-7-10, Code of Laws of

Page 21

South Carolina, 1976, and the cases interpreting that section since it was
amended in 1925 clearly require a mortgage to be properly recorded before
it will furnish constructive notice to subsequent purchasers and lien holders.
Bradley v. Guess, supra; Gregory v. Ducker, supra. Pre-1925 cases holding
that an improperly indexed deed still operates as constructive notice are no
longer the law in this jurisdiction. See Armstrong v. Austin, 45 S.C. 69, 22
S.E. 763 (1895); [283 S.C. 140] Greenwood Loan & Guarantee Association v.
Childs, 67 S.C. 251, 45 S.E. 167 (1903); Mitchell v. Cleveland, 76 S.C. 432, 57
S.E. 33 (1907).

III.

Even though Liberty's lien was not properly indexed, Liberty neverthe-
less argues that HUD and its successors in interest and those claiming under
these successors had inquiry notice of its lien. We disagree. Because Lib-
erty's lien was not properly recorded until April 22, 1977, HUD became a
bona fide purchaser for value without notice when it received title to the
property on February 28, 1977. Cruger v. Daniel, 16 S.C.Eq. 157 (1841);
Archer v. Kelley, 194 Ga. 117, 21 S.E.2d 51 (1942); 92 C.J.S. Vendor and Pur-
chaser Section 322 (1955). HUD's successors in interest thereafter stood in
the same position as HUD even if they had notice of Liberty's lien. Goodwin
v. Harrison, 231 S.C. 243, 98 S.E.2d 255 (1957); Southern Railway Co. v.
Carroll, 86 S.C. 56, 67 S.E. 4 (1910); Foster v. Bailey, 82 S.C. 378, 64 S.E.
423 (1909); 77 C.J.S. Sales Section 296 (1952). As stated in Foster v. Bailey,
supra, "whenever in a succession of purchasers you reach one who is inno-
cent and purchases in ignorance, the title is thenceforth sanctified." Id. at
382, 64 S.E. 423.
Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.2d 17,
283 S.C. 134 (S.C. App. 1984)

The Robinsons, as successors in interest to HUD's bona fide title, took

the property free of Liberty's lien and could therefore mortgage the property
to Aiken-Speir free of such lien. The fact that Aiken-Speir could have discov-
ered Liberty's reindexed lien in September, 1977, when it received its mort-
gage from the Robinsons is of no significance. It had a right to rely on the
state of title as it existed when HUD purchased the property at the foreclo-
sure sale. Thereafter, only such encumbrances placed against the property
by owners within the chain of title would affect Aiken-Speir's lien.

Accordingly, the order of the trial court is

REVERSED.

BELL, J., concurs.

SHAW, J., dissents.

SHAW, Judge (dissenting):

[283 S.C. 141] In its brief and at the initial hearing of this case, Aiken-
Speir argued not only that the original indexing was improper and that it
could rely on the proper recording of mortgages under the sub-indexes of
each letter of the alphabet but also that it had no duty to conduct another ti-
tle examination before accepting a mortgage on the property on September
7, 1977. This court then held Aiken-Speir could have, by the exercise of due
diligence, discovered the properly re-indexed mortgage and thus had record
notice of its existence. See Liberty Loan v. Aiken-Speir, 322 S.E.2d 17
(S.C.App.1984).

Following the issuance of that opinion, Aiken-Speir petitioned for a re-

hearing, contending the lis pendens statute, Section 15-11-20 of the 1976
South Carolina Code of Laws, governed the outcome of this case. This peti-
tion was granted despite the fact this statute, and the issues raised thereby,
was not pled at the trial level nor raised by exception on appeal. Trial courts
are obligated to construe the pleading liberally to discern issues marginally
pled so that substantial justice is done between the parties. Manning v. Dial,
271 S.C. 79, 245 S.E.2d 120 (1978). However, this court is bound by the
record and exceptions. Issues not raised at the trial and not timely preserved
by a proper exception cannot be considered for the first time on appeal.
Whittington v. Ranger Insurance Co., 261 S.C. 582, 201 S.E.2d 620 (1973);
Murphy v. Hagan, 275

Page 22
Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.2d 17,
283 S.C. 134 (S.C. App. 1984)

S.C. 334, 271 S.E.2d 311 (1980); Crocker v. Crocker, 314 S.E.2d 343
(S.C.App.1984); Todd's Ice Cream v. South Carolina Employment Security
Commission, 315 S.E.2d 373 (S.C.App.1984).

The majority opinion does violence to the above well settled rule of law.
Also, the petition for rehearing was granted in violation of an equally well
settled rule. It is firmly established that if questions presented by the peti-
tion for rehearing were not properly raised by any exception on appeal, they
cannot be considered on rehearing. Jennings v. Clover Leaf Life & Casualty
Co., 146 S.C. 41, 143 S.E. 668 (1928); Darby v. Southern Ry. Co., 194 S.C.
421, 10 S.E.2d 465 (1940); Rogers v. Rogers, 221 S.C. 360, 70 S.E.2d 637
(1952). The theory upon which a case is tried cannot be changed for the pur-
poses of appeal. Bramlet v. Young, 229 S.C. 519, 93 S.E.2d 873 (1956);
Reaves v. Stone, 231 S.C. 628, 99 S.E.2d 729 (1957).

Here, the petition for rehearing was based on a statute not raised nor
considered at the trial nor preserved by exception [283 S.C. 142] on appeal.
Yet, the petition was granted. Incredibly, the majority opinion makes no
mention of Section 15-11-20 which, admittedly, would have been relevant
had it been raised at the trial level. It is a denial of justice to Liberty Loan to
allow a rehearing based on a statute asserted for the first time in the petition
therefor and then to reverse the decision on other grounds.

The "other grounds" on which the majority opinion is based were also
not litigated at the trial nor raised on appeal. The cases cited for the proposi-
tion that "whenever in a succession of purchasers you reach one who is inno-
cent and purchases in ignorance, the title is therefore sanctified" all involve
mortgages or deeds unrecorded at the time of the subsequent transaction.
That simply is not the situation here. Liberty Loan's mortgage was recorded,
albeit improperly. There is a great difference between an unrecorded mort-
gage and an improperly recorded one. The neglect of a party in failing to
record is readily distinguishable from the negligence of the Clerk of Court in
improperly recording. This notwithstanding, had Aiken-Speir conducted a
title search when it received its mortgage, the prior lien would have been
discovered.

It is grossly unfair to twice place Liberty Loan in the position of having

to meet a defense not raised at the trial. Liberty Loan never had the opportu-
nity to contest the grounds relied on in the majority opinion. Accordingly, I
would affirm.

---------------

1 General Lee and Carrie L. Mumford, Preston Robinson, Jr. and Lillie Mae
Robinson were defendants at trial but are not appellants.
Liberty Loan Corp. of Darlington, S.C. v. Mumford, 322 S.E.2d 17,
283 S.C. 134 (S.C. App. 1984)

2 The Clerk of Court for Florence County maintains a direct index of the
names of mortgagors and a cross-index of the names of mortgagees. The
names of these parties are listed in an alphabetical index which is broken
down in subindexes under several letters of the alphabet.

3 See 1924 North Carolina Consolidated Statute Section 3561 (Supp.1927).

We note that in 1929 the North Carolina General Assembly responded to the
implicit invitation of the Clement court by amending its statute to mandate
that where "there has been installed an indexing system having subdivisions
of several letters of the alphabet, a registered instrument shall be deemed to
be properly indexed only when the same shall have been indexed under the
correct subdivision of the appropriate letter of the alphabet." 1929
N.C.Sess.Laws, Ch. 327, Sec. 2; Dorman v. Goodman, 213 N.C. 406, 196 S.E.
352 (1938).