R. Bryan Harwell, United States District Judge.
This matter is before the Court on appeal of Appellants, Richard L. Vice and Dinah B. Vice, ("Appellants" or "Vices") from an order issued by the United States Bankruptcy Court for the District of South Carolina granting summary judgment in favor of Appellee, Michelle L. Vieira, Chapter 7 Trustee for Legacy Development SC Group, LLC ("Appellee" or "Trustee"). For the reasons set forth below, the Court hereby reverses the Bankruptcy Court's order granting summary judgment in favor of Appellee, Michelle L. Vieira, and remands this matter for further proceedings.
This appeal arises from an adversary proceeding brought by Appellee, Michelle L. Vieira, Chapter 7 Trustee for Legacy Development SC Group, LLC ("Trustee") against Appellants, Richard L. Vice and Dinah B. Vice, for breach of contract for failure to make payments on a promissory note. The Bankruptcy Court granted summary judgment in favor of the Trustee on the breach of contract claim and awarded judgment in the amount of $286,665.62, with interest accruing at $70.83 per diem. In its Amended Order Granting the Trustee's Motion for Summary Judgment, the Bankruptcy Court issued Findings of Fact [ECF #4-1], which are not challenged in this appeal. The Bankruptcy Court's Findings of Fact are as follows:
[Amended Order granting Plaintiff/Trustee's motion for summary judgment, ECF #4-1, at 2-4].
Judgment in favor of the Trustee in the amount of $286,665.62, with interest accruing at $70.83 per diem, was entered on April 23, 2015. The Vices timely filed a notice of appeal from the Bankruptcy Court order and judgment on May 8, 2015. The Vices and the Trustee each filed briefs and statements regarding oral argument. The Vices requested oral argument; the
Title 28 U.S.C. § 158 authorizes district courts to act as appellate tribunals for final orders from bankruptcy courts. 28 U.S.C. § 158(a)(1). A district court reviews the bankruptcy court's findings of fact for clear error, and its legal conclusions de novo. See Nat'l Heritage Found., Inc. v. Highbourne Found., 760 F.3d 344, 347 (4th Cir.2014); SG Homes Assoc., LP v. Merinucci, 718 F.3d 327, 334 (4th Cir.2013).
Rule 56 of the Federal Rules of Civil Procedure applies in adversary proceedings in the Bankruptcy Court. Fed. R. Bankr.P. 7056. Rule 56 provides that "[t]he court shall grant summary judgment if the movant shows 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). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record ...; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1).
When no genuine issue of any material fact exists, summary judgment is appropriate. See Shealy v. Winston, 929 F.2d 1009, 1011 (4th Cir.1991). The facts and inferences to be drawn from the evidence must be viewed in the light most favorable to the non-moving party. Id. However, `the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.' Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
`Once the moving party has met [its] burden, the nonmoving party must come forward with some evidence beyond the mere allegations contained in the pleadings to show that there is a genuine issue for trial.' Baber v. Hospital Corp. of Am., 977 F.2d 872, 874-75 (4th Cir.1992). The non-moving party may not rely on beliefs, conjecture, unsupported speculation, or conclusory allegations to defeat a motion for summary judgment. See Baber, 977 F.2d at 875. Rather, the nonmoving party is required to submit evidence of specific facts by way of affidavits, depositions, interrogatories, or admissions to demonstrate the existence of a genuine and material factual issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The Vices argue the Bankruptcy Court erred in granting summary judgment in favor of the Trustee on the Trustee's claim for breach of contract for failure to make payments on a promissory note. The primary issue in this appeal concerns the application of the parol evidence rule to the Trustee's breach of contract claim. The Vices argue that the promissory note ("Note") is unenforceable because, among other things, they were fraudulently induced to sign the Note based on the promise of amenities and the assurance that they would not be responsible to pay the Note unless the property was sold or in the event that the development was not completed. [Richard L. Vice Affidavit, ECF #3-4, at 15-16].
The Bankruptcy Court held that the parol evidence rule barred the Vices' testimony and allegations of fraudulent inducement
The Bankruptcy Court held that the parol evidence rule barred the Vices' testimony and allegations of fraudulent inducement because none of the exceptions to the parol evidence rule applied. Specifically, the Bankruptcy Court found that the fraudulent inducement exception to the parol evidence rule did not apply because the Vices' allegations of fraud amounted to nothing more than broken promises, which do not amount to fraud.
The parol evidence rule states that "where the terms of a written instrument are unambiguous, clear and explicit, extrinsic evidence of statements ... made contemporaneously with or prior to its execution are inadmissible to contradict ... vary or explain its terms...." Graves v. Serbin Farms, Inc., 306 S.C. 60, 409 S.E.2d 769, 771 (1991). However, "if the writing was procured by words and with a fraudulent intent of the party claiming under it, the parol evidence is competent to prove the facts which constitute the fraud." Hansen v. DHL Labs., Inc., 316 S.C. 505, 450 S.E.2d 624, 626 (S.C.Ct.App.1994). "To be actionable, a fraudulent misrepresentation must relate to a pre-existing fact." Hansen, 450 S.E.2d at 626. Although unfulfilled promises or statements as to future events do not amount to fraud, if at the time the promise is made, the party making the promise has no intention of keeping it, the promise then amounts to an actionable fraudulent misrepresentation of fact. Id.
In his affidavit submitted in opposition to the Trustee's motion for summary judgment, Richard Vice stated:
[Richard Vice Affidavit, ECF #3-4, at 16]. The November 19, 2008 letter stated:
[Letter dated November 19, 2008, ECF #3-4, at 32].
Based on the November 19, 2008 letter from the Debtor requesting early payment on the Note, a reasonable inference could be drawn that the Debtor, at the time the promise was made, had no intention of keeping the promise not to seek collection of the Note unless the property was sold. "The parol evidence rule was designed to prevent frauds, not to promote frauds by immunizing a party from claims arising out of his fraudulent misrepresentations." Redwend Ltd. P'ship v. Edwards, 354 S.C. 459, 581 S.E.2d 496, 503 (S.C.Ct.App.2003). Accordingly, viewing the evidence in the light most favorable and drawing all reasonable inferences in favor of the Vices as the non-moving party, a genuine issue of material fact exists as to whether the Vices were fraudulently induced into signing the Note making summary judgment at this stage inappropriate.
The Vices also argue that the subsequent agreement exception to the parol evidence rule applies. The Bankruptcy Court held the subsequent agreement exception to the parol evidence rule did not apply because there was no evidence of a subsequent offer, acceptance, or consideration. "Although the terms of a completely integrated agreement cannot be varied or contradicted by parol evidence of prior or contemporaneous agreements not included in the writing, the rule does not apply to subsequent modifications." Adamson v. Marianne Fabrics, Inc., 301 S.C. 204, 391 S.E.2d 249, 251 (1990) (emphasis in original). "Written contracts may be modified orally." Adamson, 391 S.E.2d at 251. "A written contract may be modified by a subsequent agreement of the parties, provided the subsequent agreement contains all the requisites of a valid contract." Sauner v. Public Serv. Auth. of South Carolina, 354 S.C. 397, 581 S.E.2d 161, 166 (2003). "The necessary elements of a contract are an offer, acceptance, and valuable consideration." Sauner, 581 S.E.2d at 166.
The Debtor's November 19, 2008 letter, along with Gwynn's alleged oral representations in November 2008, arguably constituted an offer to pay off the Note early for a 10% discount on the principal and provided the Note would not be collected unless the was property sold and in no event would the Note be collected if the development was not completed. The Vices argue that forbearance of legal action, i.e. forbearance of a lawsuit for fraudulent misrepresentation concerning the terms of the Note, constituted consideration for the subsequent agreement. The Vices argue that a reasonable inference could be drawn from the Vices' inaction that this forbearance of legal action was caused by, constituted acceptance of, and was in consideration of Gwynn's modification of the terms of the Note through the offer of additional restrictions on the Note's repayment.
Because there are genuine issues of material fact as to whether the Vices were fraudulently induced into executing the Note and whether a subsequent agreement modified the terms of the Note, summary judgment in favor of the Trustee on the breach of contract claim for failure to make payments on the Note was inappropriate. Accordingly, the Bankruptcy Court's order granting summary judgment in favor of the Trustee is reversed.
The Bankruptcy Court held that the non-reliance clause in paragraph 10.7 of the real estate purchase agreement prevented the Vices, as a matter of law, from establishing the justifiable reliance element of their claim that the Note was unenforceable due to the Debtor's fraud.
The real estate purchase agreement containing the non-reliance clause was signed by the Vices on March 26, 2008. The Note, which does not contain a non-reliance clause and does not reference the real estate purchase agreement, was executed on April 8, 2008. The Vices argue that the non-reliance clause in the real estate purchase agreement is framed in the past tense and should not apply to any statements or representations made after the execution of the real estate purchase agreement. This Court agrees.
The real estate purchase agreement non-reliance clause provides:
[Real Estate Purchase Agreement, ECF #3-3, at 69]. The non-reliance clause, by its terms, is limited to statements occurring before the execution of the agreement on March 26, 2008. Thus, any statements or alleged misrepresentations made after the execution of the Agreement or contemporaneous with the execution of the Note two weeks later would not be barred by the real estate purchase agreement's non-reliance clause. Furthermore, the terms of the non-reliance clause appear to limit its application to reliance on representations concerning the real estate purchase agreement and would not apply to bar representations concerning the subsequently executed Note, which contains no reference to the real estate purchase agreement or the non-reliance clause. The Trustee has offered no authority for the Bankruptcy Court's broad application of the non-reliance clause found in the real estate purchase agreement.
The Vices further argue that the Bankruptcy Court erred by failing to look to the totality of the circumstances to
A general non-reliance clause does not prevent one from proceeding with allegations of negligent misrepresentation and fraud. Slack v. James, 364 S.C. 609, 614 S.E.2d 636, 641 (2005). "A party should not be given the opportunity to free himself from an allegation of fraud by incorporating a generalized non-reliance clause into a contract." Slack, 614 S.E.2d at 641. Because there is a question of fact as to whether the Debtor fraudulently induced the Vices into executing the Note, the Bankruptcy Court erred in applying the non-reliance clause to find that the Vices could not establish justifiable reliance as a matter of law.
For each of the above reasons, the Court reverses the Bankruptcy Court's holding that the non-reliance clause found in paragraph 10.7 of the real estate purchase agreement prevented the Vices from establishing justifiable reliance as a matter of law.
The Bankruptcy Court granted summary judgment in favor of the Trustee on the Vices' defenses of unclean hands, in pari delicto, and breach of the implied covenant of good faith and fair dealing. However, because there exists a genuine issue of material fact as to whether the Debtor and its agents had any intention of keeping their alleged promises to the Vices at the time the promises were made, summary judgment was also inappropriate on the Vices' defenses of unclean hands, in pari delicto, and breach of implied covenant of good faith and fair dealing. Additionally, with respect to the defense of in pari delicto, the Bankruptcy Court failed to draw all reasonable inferences in favor of the Vices when it concluded that there was no evidence of wrongdoing by the Vices because they bought the lot with the intention to build on it. The Bankruptcy Court improperly inferred that the Vices had no intention to resell the land even though there was no evidence offered in support of that inference. Even if the Vices bought the lot with the intention to construct a house and no intention to resell the property, viewing the evidence in the light most favorable to the Vices, a reasonable inference could be drawn that the Vices and the Debtor conspired to artificially inflate property values as both the Vices and the Debtor would stand to benefit from such a conspiracy. Accordingly,
For the reasons stated above, the Court