Anderson v. Citizens Bank

• Decision Date: 21 September 1987
• Docket Number: No. 1037,1037
• Citation: 294 S.C. 387,365 S.E.2d 26
• Court: South Carolina Court of Appeals
• Parties: Robert F. ANDERSON, Trustee of the Estate of Billy E. Graham, Debtor, and Isla M. Graham, Executrix of the Estate of Billy E. Graham, Respondents-Appellants, v. The CITIZENS BANK, J.B. Carter and Charles Dorn Smith, Jr., Bill Prince, and Carolyn S. Thompson, and R.D. Thompson, Jr., as Guardian ad Litem for Robert D. Thompson, individually and d/b/a B.G. Farms, Defendants, of whom The Citizens Bank, Charles Dorn Smith, Jr., Bill Prince, and Carolyn S. Thompson and R.D. Thompson, Jr., as Guardian ad Litem for Robert D. Thompson, individually and d/b/a B.G. Farms, were Appellants-Respondents. . Heard

Page 26

365 S.E.2d 26

294 S.C. 387

Robert F. ANDERSON, Trustee of the Estate of Billy E Graham, Debtor, and Isla M. Graham, Executrix of the Estate of Billy E. Graham Respondents-Appellants, v. The CITIZENS BANK, J.B. Carter and Charles Dorn Smith, Jr. Bill Prince, and Carolyn S. Thompson, and R.D. Thompson Jr., as Guardian ad Litem for Robert D. Thompson, individually and d/b/a B.G. Farms, Defendants, of whom The Citizens Bank, Charles Dorn Smith, Jr., Bill Prince, and Carolyn S. Thompson and R.D. Thompson, Jr., as Guardian ad Litem for Robert D. Thompson, individually and d/b/a B.G. Farms, were Appellants-Respondents.

No. 1037.

Court of Appeals of South Carolina.

Heard Sept. 21, 1987.

Decided Oct. 26, 1987.

Rehearing Denied Dec. 11, 1987.

W.E. Jenkinson, III, of Jenkinson & Jenkinson, of Kingstree, and David W. Keller, Jr., of McGowan, Keller, Eaton, Brodie & Elmore, of Florence, for appellants-respondents.

R. Wayne Byrd, of Scott & Byrd, John S. Wilkerson, III, and Elbert S. Dorn, of Turner, Padget, Graham & Laney, Florence, for respondents-appellants.

BELL, Judge:

This is one of several suits arising from the business failure of Billy E. Graham, a large scale farmer in the Pee Dee. See also Graham v. Prince, 293 S.C. 77, 358 S.E.2d 714 (Ct.App.1987). Graham commenced this action against the Citizens Bank of Olanta, South Carolina, alleging (1) breach of contract, (2) breach of contract accompanied by a fraudulent act, and (3) violation of the South Carolina Unfair Trade Practices Act, all in connection with loans the Bank made to Graham or for his benefit. He also stated claims against J. Bryan Carter, managing officer of the Bank, and both Charles Dorn Smith, Jr. and Robert Davis Thompson, two directors of the Bank, for (1) fraud and (2) violation of the Unfair Trade Practices Act. Finally, Graham sued Thompson, Smith, and Bill Prince, individually and as partners in a general partnership known as B.G. Farms, for (1) breach of a lease agreement under which Graham leased certain farmlands to Thompson, and (2) violation of the Unfair Trade Practices Act.

During the pendency of the suit, Robert F. Anderson, Graham's trustee in bankruptcy, was joined as a party plaintiff, and upon Graham's death, Isla M. Graham, executrix of Graham's estate, was substituted as his personal representative. Additionally, Thompson was adjudicated incompetent and is now represented in the litigation by Carolyn S. Thompson and R.D. Thompson, Jr., his Guardians ad Litem.

The case was tried by jury. During the course of trial, the judge dismissed the case against Carter. At the close of the evidence, the judge directed verdicts for all defendants on the Unfair Trade Practices causes of action. The jury then found for the Bank on the remaining causes of action against it. However, the jury returned verdicts (1) for fraud against Smith and Thompson, individually, and (2) for breach of the lease agreement against the B.G. Farms' partners.

Smith and Thompson appeal the fraud verdict. The B.G. Farms' partners appeal the breach of lease verdict. Anderson and Graham cross appeal challenging: (1) the amount of damages awarded for breach of the lease; (2) the denial of prejudgment interest on those damages; and (3) the directed verdict on the Unfair Trade Practices cause of action against Citizens Bank. No appeal has been taken from the dismissal of Carter or the verdict in favor of Citizens Bank. We reverse the fraud verdict against Smith and Thompson and the denial of prejudgment interest, but otherwise affirm the judgment of the circuit court.

Although the evidence presented at trial was complex, the facts material to this appeal are reasonably straightforward.

Graham owned over three thousand acres of farmland in the Pee Dee. He acquired much of this property by borrowing from the Federal Land Bank during the 1960's and 1970's. As of 1979, his total mortgage indebtedness with the Land Bank exceeded $1.7 million. His Land Bank payments were due annually on January 1st.

In addition, Graham borrowed working capital from year to year to finance his farming operations. From 1970 through 1979 he borrowed between $1 million and $1.4 million annually from the Production Credit Association to make his crop. These loans were typically secured by crop liens. He would borrow the money at the first of the year and repay it in the fall out of the proceeds from his crops.

Both 1979 and 1980 were bad crop years for Graham. As a result, he was unable to service his debts without further borrowing. He rescheduled his long term debt and used federal disaster loans to continue farming. In 1980 he borrowed $1.5 million from the Farmers Home Administration (FmHA) to finance operations for that year. This indebtedness was secured by mortgages on his house, land, and equipment as well as a lien on his crops. During this period, Graham also purchased equipment and supplies on credit from various farm suppliers; and he borrowed money from friends.

In early 1981, Graham, still heavily indebted, obtained additional operating loans, totalling $648,000, from the FmHA. These loans were secured by crop liens and were to be repaid from Graham's 1981 crops. Unlike the two previous years, 1981 was a good crop year. Graham was so far in debt, however, that he used his 1981 crop money to pay creditors other than the FmHA. By the end of the year, he owed the FmHA almost $800,000 for the 1981 loans, but he did not have the money to pay them. To make matters worse, his annual payment to the Land Bank, in the amount of $234,000, was due in January 1982.

Graham, now in serious financial trouble, approached the Citizens Bank late in 1981 to seek financing for his 1982 farming operations. Graham made a loan application for $900,000. On January 18, 1982, the Bank approved a loan of $800,000 to be secured by Graham's 1982 crops, subject to two conditions: (1) the FmHA would have to subordinate its existing crop liens to the Bank; and (2) the Bank would have to obtain 100% participation on the loan from a corresponding bank. Graham clearly understood and agreed to both conditions.

Graham's main cash crop was tobacco. The federal government regulates tobacco markets. It allots each farmer a maximum poundage he may sell each crop year. The holder of an allotment may lease it to another farmer instead of farming it himself. Under federal regulations, tobacco allotments must be assigned to a farm by April 15 of each year or they expire. Each year, Graham leased several hundred thousand pounds of allotments from other farmers. To obtain allotments at their lowest cost, one must lease them early in the crop year. This posed a problem for Graham in January, 1982, because he had not yet obtained his operating cash for that year.

Since Graham's $800,000 operating loan could not be processed before he needed money to purchase tobacco allotments, Citizens Bank agreed to provide him short term "bridge" financing. As Graham bought tobacco allotments, the Bank agreed to advance the purchase money in increments of $50,000. In return, Graham would sign promissory notes due April 5, 1982, and pledge the tobacco allotments as collateral. Once Graham obtained his operating loan, the notes would be paid from the loan proceeds. If he was unable to obtain an operating loan, the Bank would sell the pledged allotments before they expired on April 15 and apply the proceeds to retire the notes. Under this arrangement, Citizens Bank had loaned Graham over $250,000 for tobacco leases by February 22, 1982.

On March 12, Graham learned that Citizens Bank could not find a corresponding bank to take up 100% participation on the loan. Graham likewise failed to obtain subordination from the FmHA, which insisted on certain conditions being met before it would subordinate. Among other things, the FmHA wanted Graham to repay his 1981 operating loan and cure his default with the Federal Land Bank. With no prospect of raising over $1 million to meet the conditions of subordination and with Citizens Bank's failure to obtain participation, Graham was unable to obtain his $800,000 operating loan.

In early April, 1982, Graham faced a critical financial situation. Although he paid off his 1981 FmHA operating loan on April 6, Graham was still in default on the notes to Citizens Bank and his mortgage payment to the Land Bank. Unable to finance his operations, Graham faced the prospect of having over $250,000 worth of tobacco allotments, held by the Citizens Bank, expire April 15 if not released to him and assigned to his farm. To compound his problems, the Federal Land Bank began foreclosing on his farm for failure to make his January, 1982, mortgage payment.

On April 14th and 15th, Graham met with representatives of the FmHA and Citizens Bank to work out an arrangement for farming in 1982. Under the pressure of registering his tobacco allotments before they expired, Graham agreed to lease the farm to Davis Thompson for 1982. Graham and Bill Prince would manage day to day operations, but Thompson would finance the farm. In return for the lease Thompson agreed to pay $80,000 rent. He also agreed in writing to make Graham's mortgage payment to the Land Bank out of the first proceeds from the 1982 crop. If the Land Bank would not accept payment from Thompson, Thompson agreed to pay the money directly to Graham from the first proceeds of the crop.

With the lease to Thompson executed, Citizens Bank released the pledged tobacco allotments to Graham. He registered them the afternoon of April 15th, just before they expired.

Due to personal problems, Thompson was unable to continue in the lease arrangement. On May 4, 1982, he assigned the lease to Bill Prince. Prince, Thompson, and Smith then formed a partnership, B.G. Farms, to operate the farm under the lease. In connection with these transactions, B.G. Farms assumed the obligation to make Graham's $234,000 mortgage payment to the Land Bank.

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