Rosemond v. Campbell

• Decision Date: 22 January 1986
• Docket Number: No. 0684,0684
• Citation: 288 S.C. 516,343 S.E.2d 641
• Court: South Carolina Court of Appeals
• Parties: Mary Jane ROSEMOND and James Rosemond, Appellants, v. Marion CAMPBELL, d/b/a Quality Construction Company and Marion Harris, d/b/a Pickensville Finance Company, Defendants, of whom Marion Harris, d/b/a Pickensville Finance Company is Respondent. Appeal of Marion HARRIS, d/b/a Pickensville Finance Company. . Heard

Page 641

343 S.E.2d 641

288 S.C. 516

Mary Jane ROSEMOND and James Rosemond, Appellants, v. Marion CAMPBELL, d/b/a Quality Construction Company and Marion Harris, d/b/a Pickensville Finance Company Defendants of whom Marion Harris, d/b/a Pickensville Finance Company is Respondent Appeal of Marion HARRIS, d/b/a Pickensville Finance Company.

No. 0684.

Court of Appeals of South Carolina.

Heard Jan. 22, 1986.

Decided April 21, 1986.

David D. Armstrong, Greenville, for appellants.

Cecil H. Nelson, Jr., of Wilkins, Wilkins & Nelson, Greenville, for respondent.

Steven W. Hamm, Philip S. Porter, and J.M. Edouard Mille, of the South Carolina Dept. of Consumer Affairs, Columbia, amicus curiae.

BELL, Judge:

This is an action by homeowners against a building contractor and a finance company arising from a contract for home improvements. The complaint alleges three causes of action: (1) common law fraud; (2) violation of the South Carolina Unfair Trade Practices Act; ¹ and (3) derivative liability of the finance company under the South Carolina Consumer Protection Code. ² The case was tried before a jury. At the close of the homeowners' evidence, the trial judge granted the finance company's motion for a nonsuit with prejudice as to all causes of action. The case proceeded against the contractor and was submitted to the jury on the first and second causes of action. The jury returned a verdict for actual and punitive damages against the contractor. The homeowners appeal the granting of a nonsuit to the finance company. We reverse and remand.

The homeowners, James and Mary Jane Rosemond, own a house at 22 Owens Street in the City of Greenville. They are persons of limited education. Mrs. Rosemond is illiterate.

In April 1979, Marion Campbell, a building contractor doing business as Quality Construction Company, came to the Rosemonds' residence and solicited them to enter a contract for repairs and improvements to their house. Campbell orally agreed to install new roofing, storm windows on all windows, a storm door, and screening on the porch. He also agreed to furnish a suite of living room furniture. The contract price for these goods and services was $3236.69.

The day after the solicitation and oral agreement, Campbell returned to the Rosemonds' house and drove them in his truck to the office of Marion Harris in Pickens. Harris operates a finance company under the name of Pickensville Investment Company. Prior to the transaction with the Rosemonds, he had financed more than a thousand construction or home improvement jobs by Campbell over a period of twenty to twenty-five years. At Harris's office, the Rosemonds executed a second mortgage on their house to Campbell to secure payment of the contract price and a standard form, nonnegotiable promissory note, disclosure statement, and security agreement with Harris, evidencing an installment loan of $3236.69 at 19.66 per cent annual interest to be repaid in forty-eight monthly installments of $104.00 each. Among other things, the note contained the following notice:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

After these documents were executed, Campbell immediately assigned the mortgage to Harris, who paid the loan proceeds directly to him.

According to the Rosemond's evidence at trial, the work Campbell contracted to do was either done defectively or, in some instances, not done at all. After attempting unsuccessfully for four years to persuade either Campbell or Harris to complete the work and remedy the defects, the Rosemonds commenced this action. The jury found Campbell fraudulently induced the Rosemonds to enter the contract and awarded actual and punitive damages.

Campbell has not appealed the judgment against him. Our opinion therefore proceeds on the premise that the Rosemonds established a valid claim for fraud against Campbell.

I.

The Rosemonds maintain they also proved actionable fraud against Harris. For this reason, they contend, the trial judge erroneously granted Harris's motion for a nonsuit on the first cause of action. A careful review of the record convinces us that the nonsuit on the first cause of action was properly granted.

In order to establish fraud on the part of Harris, the Rosemonds were required to prove, among other elements of the tort, that Harris made a false representation of a material fact, knowing of its falsity, with the purpose or expectation of having them rely on its truth. See Moye v. Wilson Motors, Inc., 254 S.C. 471, 176 S.E.2d 147 (1970). There is no evidence in the record that Harris made any representations whatsoever to the Rosemonds concerning the work to be performed by Campbell on their house. Thus, they failed to offer proof of an essential element of their first cause of action against Harris.

At oral argument, counsel for the Rosemonds virtually conceded this point. However, he argued that Harris is a principal in Campbell's construction business and, therefore, any false representations made by Campbell should be imputed to Harris. In effect, the Rosemonds contend Campbell was the agent of Harris when he induced them to enter the contract.

A party asserting agency as a basis of liability must prove the existence of the agency. Paramount Fund, Inc. v. Cusaac, 282 S.C. 497, 319 S.E.2d 354 (Ct.App.1984). In this case, the evidence falls far short of establishing that Harris was a principal to the contract. There is no evidence that Harris has a proprietary or other interest in Campbell's construction company. Although he did a continuous business with Campbell over many years, there is nothing in the record to indicate anything but an arm's length relationship between two separate and distinct enterprises. Campbell's company is only one of several for whom Harris provides financing on a regular basis. The Rosemonds adduced no evidence to show Campbell was acting at the direction or in the interest of Harris when he solicited the contract. They argue that Harris's status as a principal to the transaction is shown by the fact that all the documents were executed in his office. It is not uncommon, however, for a bank or other lender to prepare the documents in connection with a financing of this sort. The contract itself was filled out by Campbell, using a standard printed form of Quality Construction Company. In short, there is no evidence from which a reasonable inference of agency can be drawn. Accordingly, the trial judge ruled correctly when he granted Harris's motion for a nonsuit on the first cause of action.

II.

The Rosemonds' third cause of action sought to impose liability on Harris, as assignee of their contract with Campbell, pursuant to Section 37-2-404, Code of Laws of South Carolina, 1976, as amended. That section provides, in pertinent part:

(1) With respect to a consumer credit sale ..., an assignee of the rights of the seller ... is subject to all claims and defenses of the consumer against the seller ... arising from the sale ... of property or services, notwithstanding that the assignee is a holder in due course of a negotiable instrument issued in violation of the provisions prohibiting certain negotiable instruments (§ 37-2-403).

(2) A claim or defense of a consumer specified in subsection (1) may be asserted against the assignee under this section only if the consumer has made a good faith attempt to obtain satisfaction from the seller ... with respect to the claim or defense and then only to the extent of the amount owing to the assignee with respect to the sale ... as to which the claim or defense arose at the time the assignee has written notice of the claim or defense.

The circuit court was of the opinion that this statute merely abolishes the "holder in due course" doctrine with respect to consumer credit sales. It held the statute gives the consumer a right to assert any defense or setoff he has against the seller if the seller's assignee attempts to enforce the debt, but it does not give the consumer a right to sue the assignee on a claim against the seller. In other words, the court concluded the consumer may use the statute as a shield, but not as a sword against the assignee.

Based on this reasoning, the court granted Harris's motion for a nonsuit on the third cause of action, because the Rosemonds were asserting their claim of fraud by Campbell offensively rather than defensively against Harris.

The question presented for our decision is whether the Rosemonds are entitled to assert an affirmative claim against Harris for Campbell's fraud or whether the statute limits them to a defensive assertion of the claim.

At common law, an assignee's rights can be no greater than those of his assignor. Dixie Wood Preserving Co. v. Albert Gersten & Associates, 244 S.C. 57, 135 S.E.2d 368 (1964). Consequently, the assignee of a debt takes the obligation subject to all claims and defenses the obligor may have against the assignor. Id. However, absent an agreement to the contrary, the common law assignee takes only the benefits, not the burdens of the assigned obligation. Koppers Company v. Kaiser Aluminum and Chemical Corp., 9 N.C.App. 118, 175 S.E.2d 761 (1970). Thus, as against the...