Appeal by defendant-intervenors from order entered 30 May 2006
by Judge Albert A. Corbett, Jr., in Johnston County District Court.
Heard in the Court of Appeals 12 April 2007.
Narron, O'Hale and Whittington, P.A., by James W. Narron, for
plaintiffs-appellees.
Pendergrass Law Firm, PLLC, by James K. Pendergrass, Jr., and
Christopher R. Bullock, for defendant-intervenor appellants.
LEVINSON, Judge.
Defendant-intervenors, Pedro Espinosa and Cecilia Rodriguez;
John Matthews, Trustee; and Mortgage Electronic Registration
Systems, Inc. (MERS), appeal from an order granting the motion of
plaintiffs Charles and Dorothy Hinnant for execution on a judgment
obtained against Richard and Sheila Phillips (defendants). We
affirm.
The factual and procedural history of this case began in 1982
when plaintiffs loaned money to defendants, secured by a promissory
note executed by the parties. Defendants failed to make therequired payments, and plaintiffs filed a complaint to collect the
balance of the loan. Their complaint was captioned Hinnant v.
Phillips, 87 CVD 1689. Plaintiffs obtained a default judgment on
18 March 1988, which was docketed and indexed with “Richard Barry
Phillips and Sheila Ann Phillips” named as defendants.
In July 1988, after the docketing of the judgment in 87 CVD
1689, defendants bought a parcel of land in Johnston County (the
subject property). Approximately ten years later, in 1998,
plaintiffs filed a complaint to renew their judgment against
defendants. The complaint, 98 CVD 272, was again captioned with
the parties' names, but the last name “Phillips” was spelled
“Philips” with one “L.” In February 1998 plaintiffs obtained
judgment in their favor; this judgment and the copy docketed by the
Clerk of Court also spelled “Phillips” as “Philips.”
In 2005 plaintiffs filed a motion in the cause seeking to
collect on the judgment through sale of the subject property.
However, by 2005 the property had changed hands several times.
Defendants had defaulted on their mortgage, and the lender
foreclosed on the property; thereafter, it was conveyed to a
financial corporation. The subject property was then conveyed to
Espinosa, who executed a promissory note in favor of MERS and its
trustee, John Matthews.
In May 2006 the trial court allowed appellants to intervene in
the case, to protect their rights in the subject property. At the
hearing conducted 8 May 2006, appellants argued that the judgment
against plaintiffs was not an effective lien as against a bona fidepurchaser. Appellants asserted that the claimed lien was invalid
because it did not appear in the chain of title in a search for
“Phillips” with two L's. Plaintiffs presented expert testimony
that the standard of care for a title search includes checking for
common spelling variants of a name, and that the approved practice
is to enter part of a name (in this case, P-H-I-L) in order to
catch minor errors or spelling variations. The trial court ruled
in favor of plaintiffs, in an order finding in pertinent part that:
1. Plaintiffs recovered a judgment against
defendant Phillips (herein 'Defendants')
docketed on March 18, 1988 . . . [the
“Original Judgment”].
2. Plaintiffs' brought an action to renew that
judgment in this file, number 98 CVD 272, and
prevailed in that action[.] . . . [T]he
Complaint and . . . other pleadings, including
the judgment, misspelled the Defendants'
surname as “Philips,” [not] “Phillips,” as in
the earlier action.
3. . . . Plaintiffs' judgment against Defendants
. . . [“Judgment at Issue”] was indexed in the
Clerk of Court's computer system with the
spelling, “Philips[,]” . . . [and] docketed
and indexed against, “Richard Barry Philips
and Sheila Philips,” as opposed to, “Richard
Barry Phillips and Sheila Phillips,” as was
the case with the Original Judgment.
4. . . . [In July 1998] Defendants took title to
a certain parcel in Johnston County . . .
[(the “subject property”)]. Such Deed is
recorded in . . . the Johnston County Registry
and . . . offered into evidence by the
Plaintiffs and correctly spelled the
[defendants'] name . . . as Richard Barry
Phillips and Sheila A. Phillips.
5. On November 30, 2001, Defendants . . .
conveyed the Land to a trustee to secure their
Note to Lender by Deed of Trust . . . (herein
the “Deed of Trust”).
6. The Deed of Trust was foreclosed [and] . . .
the substitute trustee under the Deed of Trust
. . . conveyed the Land to GMAC Mortgage
Corporation.
7. . . . [In March] 2005, GMAC . . . conveyed the
Land to . . . Pedro [M.] Espinosa and his
wife, Cecilia M. Rodriguez, by deed recorded
in [the] . . . Johnston County Registry.
8. . . . Espinosa et ux conveyed title to the
Land . . . to secure a Note for such purchase
by Deed of Trust . . . which Note and Deed of
Trust are now owned and held by [MERS]. . . .
Such Deed of Trust names . . . John T.
Matthews, as Trustee.
9. . . . [The] judgment docket index was put on
computer in 1989 and the use of the hard copy
of the judgment index book was discontinued
February 16, 2004.
10. Plaintiffs called as a witness Rhonda Moore,
[who] . . . worked in law offices since 1982
and as title [Page] searcher paralegal since
1985[.] . . . The Court qualified her as an
expert witness in matters of title examination
in eastern North Carolina, without objection.
11. Ms. Moore . . . explained the protocol used in
the AOC computers in the Office of the Clerk
of the Superior Court of Johnston County, that
only the name entered is pulled up for review
on the screen. . . . [T]he exact letters
typed in the screen on the computer are the
letters in the index which appear. For
example, inputting the letters,
“P-H-I-L-I-P-S,” into the judgment computer
would not reveal to the searcher a judgment
against a person having the name,
“P-H-I-L-L-I-P-S.” Ms. Moore's testimony was
that she enters the letters “P-H-I-L” when
checking judgments for Phillips or Philips
because of the prevalence of each spelling.
She testified such is her usual and customary
practice[.] . . .
12. Ms. Moore offered an opinion . . . [that the]
standard of care for a title examination in
eastern North Carolina involving a judgment
search for Phillips would be made by inputting
“P-H-1-L” in the Clerk of Court computersystem. . . .
13. The printed computer index for
“P-H-I-L-L-I-P-S” is [18] pages [and has] . .
. [2] entries for “Rick Phillips,” [3] entries
for “Richard Phillips” and [3] entries for
“Richard Barry Phillips.”
. . . .
16. Plaintiffs' expert witness would have
conducted her title examination of the
judgment index by typing “P-H-I-L” into the
judgment index system in the office of the
Clerk of the Superior Court.
. . . .
20. The name, “PHILIP” is a variant spelling of
the name, “PHILLIPS,” within the doctrine of
idem sonans.
On these facts, the court concluded, in pertinent part, that:
2. The foreclosure proceeding and the other
judgments indexed under the spelling
“Phillips” should have attracted the attention
of or stimulated further inquiry by a title
searcher.
3. The foreclosure proceeding and the judgments
indexed under the spelling “Phillips” were
sufficient notice to put a careful and prudent
examiner upon inquiry; and by such inquiry the
Judgment at Issue would have been found.
. . . .
6. The Judgment at Issue was properly docketed
and indexed.
7. [Appellants] could have discovered the
Judgment at Issue with reasonable care and so
had constructive notice of same.
8. The Judgment at Issue attached to and became a
lien on the Land upon acquisition of that Land
by Defendants.
9. Plaintiffs are entitled to levy execution on
the Judgment at Issue and to the extent the
same may involve the Land to . . . levyexecution on the Land.
The trial court stayed the execution of its order pending
resolution of this appeal.
In a bench trial “in which the superior court sits without a
jury, 'the standard of review is whether there was competent
evidence to support the trial court's findings of fact and whether
its conclusions of law were proper in light of such facts.
Findings of fact by the trial court in a non-jury trial . . . are
conclusive on appeal if there is evidence to support those
findings. A trial court's conclusions of law, however, are
reviewable de novo.'” Luna v. Division of Soc. Servs., 162 N.C.
App. 1, 4, 589 S.E.2d 917, 919 (2004) (quoting Shear v. Stevens
Building Co., 107 N.C. App. 154, 160, 418 S.E.2d 841, 845 (1992)).
In the instant case, appellants do not challenge the trial court's
findings of fact, which are therefore presumed correct. The
court's legal conclusions regarding the existence of a valid lien
are reviewed de novo.
Appellants argue that, because judgment against defendants was
docketed under a misspelling of defendants' last name, the judgment
cannot be a valid lien on the subject property. We disagree.
N.C. Gen. Stat. § 1-233 (2005) sets out requirements for
docketing a judgment, and provides in relevant part that:
Every judgment . . . affecting title to real
property, or requiring . . . the payment of
money, shall be indexed and recorded by the
clerk of said superior court on the judgmentdocket of the court. The docket entry must
contain the file number for the case in which
the judgment was entered, [and] the names of
the parties[.] . . . The clerk shall keep a
cross-index of the whole, with the dates and
file numbers thereof[.] . . .
G.S. § 1-233. Under N.C. Gen. Stat. § 1-234 (2005), a judgment
docketed in accordance with G.S. § 1-233 creates a lien that is
effective against third parties:
Upon the entry of a judgment under G.S. 1A-1,
Rule 58, affecting the title of real property,
or directing . . . the payment of money, the
clerk of superior court shall index and record
the judgment on the judgment docket[.] . . .
The judgment lien is effective as against
third parties from and after the indexing of
the judgment as provided in G.S. 1-233. The
judgment is a lien on the real property in the
county where the same is docketed[.] . . .
G.S. § 1-234.
Docketing a judgment provides notice of the existence of the
lien on the property, and a judgment that is not docketed is
ineffective as to third parties:
[U]nless the judgment is docketed . . . there
can be no lien by virtue of the judgment
alone. The docketing is required, in order
that third persons may have notice of the
existence of the judgment lien. . . . In our
case no attempt whatever appears to have been
made to have the judgment docketed, [and] . .
. the judgment is not a lien upon the
property, as against this defendant[.]
Holman v. Miller, 103 N.C. 118, 120-21, 9 S.E. 429, 430 (1889).
The issue presented is whether the judgment docketed under the
name “Philips” instead of “Phillips” nonetheless provided
sufficient notice, actual or constructive, to create a valid lien
on the subject property. We conclude that on the facts of thiscase, the judgment was a lien on the property.
Plaintiffs argue that a judgment docketed and indexed in
substantial compliance with the pertinent statutes will establish
a lien on the judgment debtor's property, while defendants contend
that the statutory requirements must be strictly followed in all
respects. The North Carolina Supreme Court addressed this issue in
West v. Jackson, 198 N.C. 693, 153 S.E. 257 (1930).
In
West, a
tract of land was jointly owned by a Jesse and Nora Hinton, who
borrowed money to purchase the property, and executed a deed of
trust to secure the loan. After Mr. Hinton died, Nora Hinton
obtained a loan from plaintiff in her name, also secured by the
property. When the first lender tried to foreclose, plaintiff
argued that the first deed of trust did not create a valid lien on
the property because both the deed and deed of trust were indexed
under “Jesse Hinton and wife.” The Court framed the issue thusly:
The statute . . . requires in substance that
the indexes of recorded instruments . . .
'shall state in full the names of all the
parties'[.] . . . [C]onstruction of this
statute produces two divergent theories. Upon
one hand it is asserted that as indexing and
cross-indexing is an essential part of
registration . . . and since such indexing is
statutory, the statute should be complied with
to the exact letter. Upon the other hand, it
is insisted that the underlying philosophy of
all registration is to give notice, and that
hence the ultimate purpose and pervading
object of the statute is to produce and supply
such notice.
Id. at 694, 153 S.E. at 258. These are essentially the positions
taken by the parties in the instant case. The Court then stated:
Therefore, if the indexing and cross-indexing
upon a given state of facts is insufficient tosupply the necessary notice, then such
indexing ought to fail as against subsequent
purchasers or encumbrancers. Nevertheless, it
is a universally accepted principle that
“constructive notice from the possession of
the means of knowledge will have the effect of
notice, although the party was actually
ignorant, merely because he would not
investigate. It is well settled that if
anything appears to a party calculated to
attract attention or stimulate inquiry, the
person is affected with knowledge of all the
inquiry would have disclosed.”
Id. (quoting
Wynn v. Grant, 166 N.C. 39, 81 S.E. 949 (1914))
(citation omitted).
West addresses the indexing of a deed of trust
in the office of the register of deeds, rather than the docketing
of a judgment. Although these situations are governed by different
statutes,
(See footnote 1)
the principles enunciated in
West pertaining to the
effectiveness of the lien and placing the record or title examiner
on notice are equally applicable to the instant case. “In [
Ely v.
Norman, 175 N.C. 294, 298, 95 S.E. 543, 545 (1918)], the [Supreme
Court] quoted with apparent approval from the Supreme Court of Iowa
to the effect that an index will hold a subsequent purchaser to
notice thereof if enough is disclosed by the index to put a careful
or prudent examiner upon inquiry, and if, upon such inquiry, the
instrument would have been found.”
West, 198 N.C. 694, 153 S.E.
257. The Court “conceded that the indexing and cross-indexing of
the deed of trust in the case at bar is not a strict compliance
with the statute” but held that “there was sufficient information
upon the index and cross-index to create the duty of makinginquiry” and held that the indexing of the deed and deed of trust
was sufficient to create a lien on the property.
Id. at 694-95,
153 S.E. at 258.
Thus, “for a recordation to be effective as notice there must
be a substantial compliance with the indexing statutes. The
general rule to be applied in determining the sufficiency of an
irregular indexing has been stated by this Court in these terms:
'[T]he primary purpose of the law requiring
the registration and indexing of conveyances
is to give notice, and . . . an index will
hold a subsequent purchaser or encumbrancer to
notice if enough is disclosed by the index to
put a careful and prudent examiner upon
inquiry, and if upon such inquiry the
instrument would be found.'”
Cuthrell v. Camden County, 254 N.C. 181, 184, 118 S.E.2d 601, 603
(1961) (recordation of old age assistance lien on property)
(quoting
Dorman v. Goodman, 213 N.C. 406, 412, 196 S.E. 352, 355
(1938)). Other appellate cases have held that a lien may be valid,
despite minor docketing errors.
See, e.g., Wilson v. Taylor, 154
N.C. 211, 218, 70 S.E. 286, 289 (1911) (“A party who may be
affected by notice must exercise ordinary care to ascertain the
facts, and if he fails to investigate when put upon inquiry, he is
chargeable with all the knowledge he would have acquired if he had
made the necessary effort to discover the truth.”)
(citations
omitted), and
Valentine v. Britton, 127 N.C. 57, 58, 37 S.E. 74, 75
(1900) (“We concur with the defendant, as was also held by the
Court below, that 'J. Mizell,' or 'Jo. Mizell,' was a sufficient
cross-indexing for a judgment against 'Josiah Mizell[.]'”).
The relationship between the standard of care for titleexamination and the question of the efficacy of the judgment to
create a lien is as follows: If a title examiner exercising the
standard of care would have found the judgment at issue, then it
sufficiently complies with G.S. § 1-233 to create a lien on the
property. In the instant case, plaintiffs established by
uncontradicted expert testimony that in this case the standard of
care for a reasonably prudent title examiner would be to search
under part of the last name, such as “P-H-I-L,” which would have
revealed the judgment at issue. Additionally, even a search under
“Phillips” would indicate defendants' involvement in several other
proceedings, including a foreclosure; this should have spurred
further inquiry. We conclude that plaintiffs substantially
complied with G.S. § 1-233, and agree with the trial court's
findings and conclusions.
Appellants, however, assert that the statutory requirements
for indexing a judgment require “strict compliance” and that any
spelling error automatically renders the judgment unenforceable
against a third party purchaser. Under the pertinent case law,
particularly
West v. Jackson, supra, we have reached a different
conclusion. Moreover, the cases cited by appellants are neither
binding precedent nor persuasive authority, as none are factually
similar. In
Holman v Miller, cited by appellants, the court's
decision was based on the fact that the judgment in question had
not been docketed in a timely manner and
not on any defect or
spelling error in the docketing. Thus, the Court's discussion of
docketing practices dating back to “the reign of Henry VIII” ismere dicta. In
Trust Co. v. Currie, 190 N.C. 260, 129 S.E. 605
(1925), also cited by appellants, the judgment in question was
indexed under a totally different last name: “Quick,” rather than
“Currie.”