Certus Bank, N.A. v. Kenneth E. Bennett, Twin Rivers Resort, LLC

• Decision Date: 24 February 2016
• Docket Number: Unpublished Opinion No. 2016-UP-090,Appellate Case No. 2014-001248
• Parties: Certus Bank, N.A., Appellant, v. Kenneth E. Bennett, Twin Rivers Resort, LLC, and Bennett of Greenwood, LLC, Defendants, Of Which Twin Rivers Resorts, LLC, is the Respondent.
• Court: South Carolina Court of Appeals

Certus Bank, N.A., Appellant, v. Kenneth E. Bennett, Twin Rivers Resort, LLC,and Bennett of Greenwood, LLC, Defendants,Of Which Twin Rivers Resorts, LLC, is the Respondent.

Appellate Case No. 2014-001248

Unpublished Opinion No. 2016-UP-090

STATE OF SOUTH CAROLINA In The Court of Appeals

Heard December 10, 2015

February 24, 2016

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.

Appeal From Laurens County

Charles B. Simmons, Jr., Special Referee

REVERSED

Louis H. Lang, Callison Tighe & Robinson, LLC, of Columbia, for Appellant.

T. S. Stern, Jr., Covington, Patrick, Hagins, Stern & Lewis, LLC, and Violet Elizabeth Wright, V. Elizabeth Wright Law Firm LLC, both of Greenville, for Respondent.

PER CURIAM: Certus Bank, N.A. sued Kenneth Bennett, Twin Rivers Resort, LLC, and Bennett of Greenwood, LLC, seeking to establish the validity of its mortgage on a property on Lake Greenwood. Certus brought claims for reformation, an equitable lien, and ratification. Twin Rivers Resort, LLC moved for summary judgment, and the special referee granted partial summary judgment on the ratification cause of action. Certus argues the special referee erred in granting summary judgment to Twin Rivers on Certus's ratification cause of action. We reverse summary judgment and remand the case for the parties to further develop the facts.

I. Facts

In 2006, JKR, LLC bought Twin Rivers Landing and Resort, a property on Lake Greenwood that included cabins, a dock, a bar, and a restaurant. CommunitySouth Bank loaned JKR $520,000 to purchase the Twin Rivers property and took a purchase money mortgage. JKR's members were Kenneth—or Ken—Bennett, Richard K. Bennett, and James Hendershot. JKR hired Ken Bennett's brother, Richard C.—or Rick—Bennett, to manage the property.¹ Pursuant to an agreement with JKR, Rick Bennett acquired a twenty-five percent equity interest in the Twin Rivers property over the course of several years.

In July 2007, Ken Bennett entered into a Purchase Agreement to buy the Twin Rivers property from JKR. On November 1, 2007, Ken borrowed $497,450 from CommunitySouth. Ken signed a note and a mortgage on the Twin Rivers property in his own name.² In a deposition, Ken stated that he did not know the mortgage on the Twin Rivers property was included in his loan from CommunitySouth. The closing attorney, James Belk, signed an affidavit stating,

it was my intent as closing attorney, the intent of Kenneth Bennett, and the intent of [CommunitySouth] for [CommunitySouth] to obtain a first lien on the property described in the attached mortgage . . . and it was the intent of JKR Development, LLC, of which KennethBennett was a member, as the title holder to the property, to give [CommunitySouth] that first lien.

Ken Bennett used part of the loan to pay off the purchase money mortgage and complete the purchase of the property.

In February 2008, Bennett of Greenwood, LLC bought the property from JKR. Ken Bennett signed the affidavit attached to the deed as "manager" of JKR. Bennett of Greenwood's sole member was Ken Bennett.³ In the affidavit attached to the deed, Ken Bennett—as manager of JKR—stated there were liens or encumbrances on the land amounting to $1.3 million. Rick Bennett continued to manage the property and retained a twenty-five percent equity interest in the property. From 2007 to 2010, Ken Bennett modified and extended the maturity date of the note three times, provided CommunitySouth documents listing CommunitySouth as mortgagee on the property, and paid for title insurance for CommunitySouth on the property. During that time, Rick Bennett wrote several letters to Ken Bennett asking for information on the mortgage for the Twin Rivers property.

In March 2010, Rick Bennett told CommunitySouth he would assume the mortgage on the property if they could come to an agreement, and he received a loan commitment to refinance the November 2007 loan. The lender who worked with the Bennetts during this negotiation stated in an affidavit he negotiated with Ken and Rick to restructure or refinance the loan and "all parties operated under and acknowledged the belief that [CommunitySouth] already had a mortgage on the property." Ken signed the loan commitment as owner of the property, but Rick never signed the commitment. From March 2010 forward, Rick wrote several checks to CommunitySouth for the interest on the November 2007 loan.

In September 2010, Bennett of Greenwood transferred title to the Twin Rivers property to Twin Rivers Resort, LLC for one dollar. Twin Rivers Resort, LLC's sole member is Rick Bennett.⁴

In October 2010, Ken Bennett defaulted on the November 2007 loan. In January 2011, the FDIC shut down CommunitySouth, and Certus Bank bought its assets, including the November 2007 mortgage.

Certus Bank brought an action to enforce the mortgage against Twin Rivers based on equitable lien, reformation, and ratification. Twin Rivers moved for summary judgment on all three claims, and the special referee granted partial summary judgment on the ratification cause of action. The special referee found it was undisputed that Ken Bennett "was not the record owner of the mortgaged property at the time Bennett executed the note and mortgage" and the doctrine of ratification did not apply because the "defect in the original mortgage is more than a 'technical' defect."

II. Standard of Review

"An appellate court reviews the granting of summary judgment under the same standard applied by the trial court under Rule 56, SCRCP." Wachovia Bank, N.A. v. Coffey, 404 S.C. 421, 425, 746 S.E.2d 35, 37 (2013). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. 404 S.C. at 421, 746 S.E.2d at 38. Summary judgment is not appropriate when "further inquiry into the facts is desirable to clarify the application of the law." Carolina Chloride, Inc. v. S.C. Dep't of Transp., 391 S.C. 429, 434, 706 S.E.2d 501, 504 (2011). In determining whether summary judgment is appropriate, the court must view all evidence in the "light most favorable to the non-moving party." Wachovia Bank, 404 S.C. at 425, 746 S.E.2d at 38.

III. Ratification

Members of a member-managed LLC and managers of a manager-managed LLC are agents⁵ of the LLC. S.C. Code Ann. § 33-44-301 (2006). An agent of an LLC has the apparent authority to bind the LLC in matters within the ordinary course of business. Id. However, acts beyond the ordinary course of business "bind the company only where supported by actual authority created before the act or ratified after the act." § 33-44-301 cmt. "[T]he sale, lease, exchange, or other disposal of all, or substantially all, of the company's property" is outside the ordinary course ofbusiness and requires actual authority or ratification. S.C. Code Ann. § 33-44-404(c)(12) (2006).

"Ratification, as it relates to the law of agency, means the express or implied adoption and confirmation by one person of an act or contract performed or entered into in his behalf by another who at the time assumed to act as his agent." Lincoln v. Aetna Cas. & Sur. Co., 300 S.C. 188, 191, 386 S.E.2d 801, 803 (Ct. App. 1989). "Ratification proceeds upon the assumption that there has been no prior authority." 2A C.J.S. Agency § 52 (2013). "However, once a ratification has occurred, it is equivalent to original, prior, or previous authority." Id. In Lincoln, this court first stated the three elements of ratification, "(1) acceptance by the principal of the benefits of the agent's acts, (2) full knowledge of the facts, and (3) circumstances or an affirmative election indicating an intention to adopt the unauthorized arrangements." 300 S.C. at 191, 386 S.E.2d at 803; see Stiltner v. USAA Cas. Ins. Co., 395 S.C. 183, 191, 717 S.E.2d 74, 78 (Ct. App. 2011). To ratify the mortgage in this case, Ken Bennett must have been an agent of the owner of the Twin Rivers property and the owner must have (1) accepted the benefits of the November 2007 transaction, (2) had full knowledge of the transaction, and (3) adopted or intended to adopt the transaction.

Certus argues the record contains evidence of ratification and the law of ratification is much broader than the special referee concluded. We agree. We hold summary judgment was not appropriate because (1) ratification is not limited to technical defects, (2) "further inquiry into the facts is desirable to clarify the application of the law," and (3) the record contains evidence both JKR and Bennett of Greenwood ratified the November 2007 transaction. Carolina Chloride, 391 S.C. at 434, 706 S.E.2d at 504.

A. Ratification is Not Limited to Technical Defects

In its order, the special referee found the doctrine of ratification was not applicable because the defect in the November 2007 mortgage was more than a "technical" defect, citing Scottish-American Mortgage Co. v. Deas, 35 S.C. 42, 14 S.E. 486 (1892). However, nothing in Scottish-American Mortgage Co. limits the doctrine of ratification to technical defects. See 35 S.C. at 51-52, 14 S.E. at 487-88 (holding a wife had ratified the actions of her husband when the husband was an agent of the wife, he signed a mortgage on the wife's property in the wife's name, the mortgage was intended to bind the wife's property, and the wife expressly adopted the mortgage). Additionally, no case law or secondary source limits ratification to technical defects. See, e.g., Restatement (Third) of Agency § 4.01 (Am. Law Inst. 2006) ("(1) Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority. (2) A person ratifies an act by (a) manifesting assent that the act shall affect the person's legal relations, or (b) conduct that justifies a reasonable assumption that the person so consents."); 23 S.C. Juris. Agency § 86 (1994) ("Ratification, as it relates to...