BODDIE NOELL PROPERTIES v. 42 MAGNOLIA

• Decision Date: 16 December 2002
• Docket Number: No. 25569.,25569.
• Citation: 574 S.E.2d 726,352 S.C. 437
• Parties: BODDIE-NOELL PROPERTIES, INC., Respondent, v. 42 MAGNOLIA PARTNERSHIP and Robert Mundy, Defendants, Of whom 42 Magnolia Partnership is Petitioner.
• Court: South Carolina Supreme Court

352 S.C. 437

574 S.E.2d 726

BODDIE-NOELL PROPERTIES, INC., Respondent, v. 42 MAGNOLIA PARTNERSHIP and Robert Mundy, Defendants, Of whom 42 Magnolia Partnership is Petitioner.

No. 25569.

Supreme Court of South Carolina.

Heard October 23, 2002.

Decided December 16, 2002.

Rehearing Denied January 24, 2003.

Thornwell F. Sowell, of Sowell Gray Stepp & Laffitte, L.L.C., of Columbia, for Petitioner.

Mark W. Hardee, of Lewis, Babcock & Hawkins, L.L.P., of Columbia, for Respondent.

Justice WALLER:

We granted a writ of certiorari to review the Court of Appeals' opinion in Boddie-Noell Properties, Inc. v. 42 Magnolia Partnership, 344 S.C. 474, 544 S.E.2d 279 (Ct.App.2000). We affirm as modified.

PROCEDURAL BACKGROUND

Respondent Boddie-Noell Properties, Inc. (BNP) sued petitioner 42 Magnolia Partnership (the Partnership) and Robert Mundy¹ for breach of contract, breach of contract accompanied by fraudulent act, and fraud. At the end of trial, the trial court submitted to the jury the fraud claim against both the Partnership and Mundy and the breach of contract claim against the Partnership. The jury returned a verdict in favor of the Partnership and Mundy on the fraud action, but found in favor of BNP on the breach of contract claim. The jury awarded BNP $100,000 in damages. The trial court denied the Partnership's motion for a judgment notwithstanding the verdict (JNOV), and the Partnership appealed. The Court of Appeals affirmed, holding: (1) there was overwhelming evidence of breach of contract; and (2) damages for the breach could be recovered despite BNP's cancellation of the contract. Boddie-Noell, supra.

FACTS²

The Partnership developed an apartment complex called 42 Magnolia in Columbia, South Carolina. In February 1994, the Partnership borrowed $6.9 million from the Lincoln National Life Insurance Company (Lincoln) to finance the complex. In June 1994, Southport Financial Asset Management, Inc. (Southport) and the Partnership entered into a purchase and sale agreement where Southport agreed to buy the complex for $10.5 million. Mundy negotiated the purchase agreement for the Partnership, and John Parker represented Southport. As part of the purchase agreement, Southport was to assume the $6.9 million mortgage held by Lincoln; the closing date could not be later than September 30, 1994.

In September 1994, BNP entered into a contract with Southport and the Partnership called the "First Amendment to Purchase and Sale Agreement." This contract recognized that Southport assigned its rights under the purchase agreement to BNP and extended the closing date to October 31, 1994.³ The contract provided that BNP would pay $100,000 as an extension deposit within three days after the contract was executed. The contract further provided that BNP could, at any time prior to 5 p.m. on September 30, "demand and receive a complete refund of the Extension Deposit upon" BNP's failure to receive, inter alia, a loan assumption agreement from Lincoln. In the event that BNP exercised this provision, the contract would become "null and void;" the purchase agreement, however, between Southport and the Partnership would remain "in full force and effect."

Scott Wilkerson, BNP's president, explained that BNP would not have been interested in the property without the Lincoln loan because it had such a low interest rate. Therefore, the loan assumption was a crucial part of the transaction. Wilkerson testified that he was told specifically not to contact Lincoln but to go through Mundy. Parker likewise testified that Mundy "had become the mouthpiece of Lincoln." As a result, BNP and Southport were relying on Mundy to give Lincoln the information necessary to get Lincoln's approval of the loan assumption.

Thus, all the information required by Lincoln regarding the loan assumption flowed from the buyer (which initially was Southport and then was BNP), to Mundy, then to Fleet Funding (Lincoln's local servicing agent), and, finally, to Lincoln. Parker testified that after Southport assigned its rights to BNP, Mundy inquired about the "secret profit" Southport was going to make. When Parker refused to tell him, Mundy's behavior became "fishy" according to Parker. Nonetheless, with the September 30 deadline approaching, the parties continued to work on obtaining Lincoln's consent to BNP's assumption of the loan.

Although the loan was generally a non-recourse loan, there were certain exceptions or "carve-outs" which were personally guaranteed. For example, Lincoln required individuals to guarantee the loan for environmental liability. Mundy told BNP that Lincoln would not agree to an assumption of the loan without personal guarantors for the environmental carve-outs. However, because BNP is a publicly traded corporation, Wilkerson told Mundy a personal guaranty was not possible. BNP offered to have the company sign for the carve-outs or to provide Lincoln with a copy of its bond in lieu of individual guarantors. Wilkerson related this information to Mundy and was told that Lincoln was being contacted daily. According to Mundy, however, Lincoln insisted on individual signers for the carve-outs.

The deadline of September 30 came and, because Mundy said Lincoln would not approve the loan assumption, BNP reluctantly exercised its option under the contract to cancel. Wilkerson explained he did not want to put $200,000 of his company's money at risk without Lincoln's assurance it would consent to the loan assumption.

Nevertheless, negotiations regarding the sale of the property continued. Wilkerson could not understand why Lincoln was reluctant to approve assumption of the loan since it had closed many other insurance company loans with only the company as a guarantor. After hearing that the Partnership had a meeting on October 5 and had discussed finding another buyer at a higher price, Wilkerson decided to contact Lincoln directly. On October 6, he spoke with Calvin King of Lincoln and told him that the company would sign for the carve-outs. According to Wilkerson, King acted like he had never heard this information before. The very next day, Lincoln approved BNP's assumption of the loan without any individual guarantors.

On October 24, the Partnership's attorney wrote BNP and Southport a letter stating that BNP had terminated the contract and because Southport did not close by September 30, pursuant to the original purchase agreement, the Partnership was entitled to keep Southport's $100,000 deposit. Negotiations apparently continued for a few more months, but neither BNP nor Southport ever purchased 42 Magnolia.

The jury found in favor of BNP on the breach of contract claim and awarded $100,000 in damages. In its JNOV motion, the Partnership argued that because the contract was rescinded, damages could not be recovered for any breach. The trial court denied the motion, and the Court of Appeals affirmed. Boddie-Noell, supra.

ISSUE

Where BNP exercised its option to cancel under the contract, can BNP recover breach of contract damages?

DISCUSSION

The Partnership argues that because BNP "rescinded" the contract, the contract was rendered "null and void;" therefore, BNP is barred from recovering damages for breach. BNP responds that the contract was not "rescinded," but instead was "canceled" pursuant to the contract terms.

Addressing the Partnership's argument that BNP had rescinded the contract, the Court of Appeals analyzed the issue as one of rescission and stated, in part, as follows:

Rescission is an abrogation or undoing of [a contract] from the beginning, which seeks to create a situation the same as if no contract ever had existed....

When a party elects and is granted rescission as a remedy, he is entitled to be returned to status quo ante. Rescission entitles the party to a return of the consideration paid as well as any additional sums necessary to restore him to the position occupied prior to the making of the contract.....

Boddie-Noell, 344 S.C. at 482-83,544 S.E.2d at 283-84 (internal quotes and citations omitted).

The Court of Appeals recognized, however, that in the...