FEW, C.J.
Atlantic Private Equity Group, LLC defaulted on a promissory note personally guaranteed by Terry L. Rohlfing and Jerry T. Caldwell. The master-inequity ordered foreclosure of the mortgage securing the note and entered a deficiency judgment against Atlantic. On appeal, Atlantic challenges the master's admission of evidence on authentication and hearsay grounds. We affirm the judgment of foreclosure because we find the loan documents upon which the judgment was based were properly admitted into evidence. However, we reverse the deficiency judgment because the testimony of the amount remaining due on the note was hearsay. In addition, we vacate the master's finding that Rohlfing and Caldwell were liable on the guaranties because the finding was outside the
On March 27, 2008, Atlantic executed a promissory note to Community First Bank for a commercial loan in the amount of $2,000,000. The note was secured by a mortgage on two parcels of real estate in Beaufort County. Rohlfing and Caldwell executed personal guaranties to ensure payment of the note. When Atlantic defaulted, Community First brought a foreclosure action against Atlantic and breach of guaranty claims against Rohlfing and Caldwell. It sought deficiency judgments against all three. While the action was pending, Community First merged with Crescent Bank and became known as CresCom Bank, which later assigned the loan to the respondent, Deep Keel, LLC.
Atlantic, Rohlfing, and Caldwell filed a joint answer in which they admitted Community First made a loan to Atlantic, the loan was secured by a mortgage, and "not all monthly payments have been timely made." However, they denied Deep Keel was entitled to foreclosure or a deficiency judgment.
The circuit court referred the case to the master "for the purposes of adjudicating the foreclosure action." The order of reference provided that upon resolution "of the foreclosure action, this case is to be returned to the Circuit Court for final hearing and disposition as to any issues triable by jury against [Rohlfing and Caldwell]." At the beginning of the foreclosure hearing, the master acknowledged Deep Keel's breach of guaranty claims against Rohlfing and Caldwell "would be heard in a separate action."
To support its claim for foreclosure, Deep Keel offered into evidence six documents (the "loan documents") through its sole member — Scott Bynum — to establish the existence and terms of the loan. Atlantic objected, arguing the loan documents were inadmissible because (1) Deep Keel failed to authenticate them and (2) they contained hearsay to which no exception applied. The master overruled the objections and admitted the loan documents.
The master ordered foreclosure of the mortgage, found there was $1,655,027 remaining due on the note, and granted Deep Keel a deficiency judgment against Atlantic.
Atlantic disputes the admissibility of the loan documents, which include (1) a promissory note; (2) a mortgage; (3) an assignment of leases, rents, and profits;
A party offering evidence must meet "[t]he requirement of authentication ... as a condition precedent to admissibility." Rule 901(a), SCRE. The authentication requirement "is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims." Id. "[T]he burden to authenticate ... is not high" and requires only that the proponent "offer[] a satisfactory foundation from which the jury could reasonably find that the evidence is authentic."
We find Deep Keel offered evidence sufficient to authenticate the loan documents. First, Bynum's testimony complied with Rule 901(b)(1), SCRE, which provides that evidence may be authenticated by a witness with knowledge who testifies that an item "is what it is claimed to be." Bynum testified he agreed to purchase a note from CresCom Bank, he examined the loan documents while negotiating the agreement, and the loan documents offered in evidence were the ones he examined and later received pursuant to this transaction. This testimony authenticated the loan documents because it was sufficient to support a finding that they were the documents Deep Keel claimed them to be — the note, mortgage, and assignment of leases executed by Atlantic in 2008 when it borrowed the money from Community First; the two loan modification agreements "modify[ing] the original note"; and a partial release of the security interests granted through the mortgage and assignment of leases. See Rule 901(a).
Atlantic argues, however, Bynum was not a witness with knowledge under Rule 901(b)(1) because he did not know "when, how, or by whom the documents were prepared, how they came to be in the possession of CresCom Bank, or how they were maintained by that bank." The authentication requirement does not demand this degree of proof. See Hassan, 742 F.3d at 133. Bynum's testimony demonstrated he had personal knowledge that the loan documents admitted into evidence were the same ones CresCom Bank provided to him when Deep Keel purchased the asset the loan documents represent — the 2008 note, as modified, with security interests.
Second, Deep Keel authenticated the loan documents under Rule 901(b)(4), SCRE, which provides that evidence may be authenticated based on "[a]ppearance, contents, substance, internal patterns, or other distinctive characteristics, taken in conjunction with circumstances." The note the master admitted into evidence (1) names Atlantic as the "Borrower"/"Mortgagor" and Community First as the "Lender," (2) states $2,000,000 as the amount of the loan, (3) provides the date of execution — March 27, 2008, and (4) recites a specific "loan number" of 145003387. The mortgage — which was recorded in the public record
Third, we find the first five loan documents — excluding the partial release — are self-authenticating under Rule 902(9), SCRE, which provides, "Extrinsic evidence of authenticity as a condition precedent to admissibility is not required with respect to ... [c]ommercial paper, signatures thereon, and documents relating thereto to the extent provided by general commercial law." The note is commercial paper, and the other four loan documents are either commercial paper themselves or "documents relating thereto."
The "general commercial law" of South Carolina includes our Uniform Commercial Code, see S.C.Code Ann. § 36-1-101(a) (Supp.2014), which provides, "In an action with respect to an instrument, the authenticity of ... each signature on the instrument is admitted unless specifically denied in the pleadings," S.C.Code Ann. § 36-3-308(a) (Supp.2014). The note Rohlfing signed on behalf of Atlantic is an "instrument,"
The admission of evidence is within the discretion of the trial court. Fields v. Reg'l Med. Ctr. Orangeburg, 363 S.C. 19, 25, 609 S.E.2d 506, 509 (2005). We find the master acted within his discretion in admitting the loan documents because Deep Keel presented evidence — Bynum's testimony, the loan documents themselves, and the mortgage — sufficient to support a finding that the loan documents were the documents Deep Keel claimed them to be, and thus sufficient evidence to meet the requirement of authentication. See Rule 901(a).
Atlantic also argues the loan documents should have been excluded because they were hearsay. See Rule 801(c), SCRE ("`Hearsay' is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted."). "The rule against hearsay prohibits the admission of evidence of an out-of-court statement to prove the truth of the matter asserted unless an exception to the rule applies." Fowler v. Nationwide Mut. Fire Ins. Co., 410 S.C. 403, 411, 764 S.E.2d 249, 253 (Ct.App.2014); see also Rule 802, SCRE ("Hearsay is not admissible except as provided by these rules or by other rules prescribed by the Supreme Court of this State or by statute."). However, "[a] statement that is not offered to prove the truth of the matter asserted should not be excluded as hearsay." R & G Constr., Inc. v. Lowcountry Reg'l Transp. Auth., 343 S.C. 424, 439, 540 S.E.2d 113, 121 (Ct.App.2000).
The master relied on the business records exception to the hearsay rule to admit the loan documents. See Rule 803(6), SCRE; S.C.Code Ann. § 19-5-510 (2014). However, the master's reliance on a hearsay exception was unnecessary because the loan documents were not hearsay in the first place. The loan documents form the basis of Deep Keel's claim that Community First loaned Atlantic money in exchange for an obligation to pay it back and a security interest
In contrast to Deep Keel's thorough presentation of documents to prove the existence of its agreement with Atlantic and the terms of repayment, Deep Keel offered no documentation of the amount remaining due on the loan. The only evidence Deep Keel offered of the amount due was Bynum's testimony. Atlantic objected to this testimony on the basis of hearsay, but the master admitted it pursuant to the business records exception. Atlantic contends Bynum's testimony should have been excluded because it was hearsay to which no exception applied.
We first consider whether Bynum's testimony concerning the amount due on the note was hearsay. At the hearing, Bynum testified he reviewed "all the documents related to the
Bynum then explained how that figure was calculated. He testified that by the time Deep Keel acquired the loan, which was originally for $2,000,000, the principal had been reduced due to payments made by Atlantic, rent received from tenants, and proceeds from the sale of one of the properties securing the loan. He explained the current balance was calculated from "loan agreements" and "accounting records" that "show what payments were made, when they were made, [and] how much interest accrued." He then testified that with the addition of interest on the principal and several other costs, the total amount remaining due was $1,655,027.
We find Bynum's testimony was hearsay. Bynum had no personal knowledge of any transactions with Atlantic before he purchased the note. His testimony demonstrates his knowledge was based exclusively on documents that show payments and interest charges. By testifying to a conclusion based only on statements he read in documents, Bynum necessarily testified to the truth of those statements. His testimony, therefore, was offered to prove the truth of the statements and was hearsay.
The master relied on the business records exception to admit Bynum's testimony. According to Rule 803(6), the following is not excluded by the rule against hearsay:
See also § 19-5-510 ("A record of an act, condition or event shall, insofar as relevant, be competent evidence if the custodian or other qualified witness testifies to its identity and the mode of its preparation, and if it was made in the regular course of business, at or near the time of the act, condition or event and if, in the opinion of the court, the sources of information, method and time of preparation were such as to justify its admission."); Ex parte Dep't of Health & Envtl. Control, 350 S.C. 243, 249-50, 565 S.E.2d 293, 297 (2002) (explaining business records are admissible under Rule 803(6) and section 19-5-510 "as long[] as they are (1) prepared near the time of the event recorded; (2) prepared by someone with or from information transmitted by a person with knowledge; (3) prepared in the regular course of business; (4) identified by a qualified witness who can testify regarding the mode of preparation of the record; and (5) found to be trustworthy by the court").
Atlantic first asserts the business records exception does not apply in this case because no records were actually offered in evidence. Bynum's testimony demonstrates he reviewed bank records that showed the principal balance and total amount due on the note, but these records were never offered in evidence at the hearing. The plain language of Rule 803(6) allows for the admission of "[a] memorandum, report, record, or data compilation," not testimony describing such a document. We hold Rule 803(6) does not apply to admit live testimony offered to prove the contents of a record containing hearsay when that record is not offered in evidence. See Thompson v. State, 705 So.2d 1046, 1048 (Fla.Dist.Ct.App. 1998) ("While the business-records exception to the hearsay rule allows the admission of `[a] memorandum, report, record, or data compilation,' it does not authorize hearsay testimony concerning the contents of business records which have not been admitted into evidence." (citation omitted)); State v. Watkins, 148 Idaho 418, 224 P.3d 485, 492 (2009) (finding written notes relied on by the witness "were not offered into evidence" and "[i]n the absence of any document ... there was simply no `business record' that might fall within this hearsay exception"); Bass v. Washington Kinney Co., 119 Ill.App.3d 713,
Deep Keel argues Bynum was a "qualified witness" under Rule 803(6) and section 19-5-510 and thus should have been permitted to testify to the calculations he made from the information contained in the records. Deep Keel relies on Twelfth RMA Partners, L.P. v. National Safe Corp., 335 S.C. 635, 518 S.E.2d 44 (Ct.App.1999), in which this court held a witness is qualified to testify about a business record, despite the fact he or she did not personally participate in the creation of the record and was not the custodian "at or near the time" the record was made. 335 S.C. at 642, 518 S.E.2d at 48. We held a person is a "qualified witness" under the rule if the testimony conveys information from a person "with knowledge" at the time the records were created. Id.
However, establishing that a witness is qualified to testify about a business record does not automatically lead to admission of that record. The qualified witness must then lay the foundation to meet the requirements of Rule 803(6) and section 19-5-510. See State v. Davis, 371 S.C. 170, 178-79, 638 S.E.2d 57, 62 (2006) (stating the proponent of evidence has the
Because the business records exception applies only to the admission of business records themselves, the exception does not apply to Bynum's hearsay testimony. Deep Keel did not argue, and we do not find, any other hearsay exception applies. Thus, we find the master abused his discretion in admitting the evidence.
We must next determine whether Atlantic was prejudiced by the admission of the evidence. See Fields, 363 S.C. at 26, 609 S.E.2d at 509 (stating to warrant reversal, the appellant must prove the evidentiary ruling was erroneous and resulted in prejudice). Without Bynum's hearsay testimony concerning the unpaid balance, Deep Keel could not prove the amount remaining due on the debt, and the master had no basis for calculating the amount of the deficiency. We find the error prejudiced Atlantic.
Rohlfing and Caldwell argue the master erred by finding they executed and delivered personal guaranties to Community First and were liable on the guaranties because those issues were outside the scope of the order of reference. Specifically, they contend this court should vacate the master's finding 18, which states:
We first consider whether this issue is preserved for our review because Rohlfing and Caldwell did not argue in their Rule 59(e), SCRCP, motion that the master erred in including finding 18 in his order. We find the issue preserved. A
"Pursuant to Rule 53, SCRCP, a master has no power or authority except that which is given to him by the order of reference." Bunkum v. Manor Props., 321 S.C. 95, 98, 467 S.E.2d 758, 760 (Ct.App.1996). "When a case is referred to a master, Rule 53(c) gives the master the power to conduct hearings in the same manner as the circuit court, unless the order of reference specifies or limits his powers." Smith Cos. of Greenville, Inc. v. Hayes, 311 S.C. 358, 360, 428 S.E.2d 900, 902 (Ct.App.1993). The circuit court referred the case to the master "for the purposes of adjudicating the foreclosure action." The order of reference specifically provided that "upon a resolution or disposition of the foreclosure action, this case is to be returned to the Circuit Court for final hearing and disposition as to any issues triable by jury against" Rohlfing and Caldwell. The order did not authorize the master to decide any issues regarding Rohlfing's and Caldwell's liability on the guaranties; it specifically restricted the master from doing so. Because finding 18 exceeded the scope of the order of reference,
We find the master acted within his discretion in admitting the loan documents because they were properly authenticated and were not hearsay. However, we find Bynum's testimony
We
HUFF and WILLIAMS, JJ., concur.
