COLLINS MUSIC CO. INC. v. FMW CORP.

• Decision Date: 25 August 2003
• Docket Number: No. 25703.,25703.
• Citation: 586 S.E.2d 128,355 S.C. 446
• Court: South Carolina Supreme Court
• Parties: COLLINS MUSIC CO., INC., Respondent/Appellant, v. FMW CORPORATION, Bob Finney, F.M. Witt, James R. Munn and Farmers and Merchants Bank, Defendants, of whom James R. Munn is the Appellant/Respondent.

355 S.C. 446

586 S.E.2d 128

COLLINS MUSIC CO., INC., Respondent/Appellant, v. FMW CORPORATION, Bob Finney, F.M. Witt, James R. Munn and Farmers and Merchants Bank, Defendants, of whom James R. Munn is the Appellant/Respondent.

No. 25703.

Supreme Court of South Carolina.

Heard March 18, 2003.

Decided August 25, 2003.

M.M. Weinberg, Jr., and M.M. Weinberg, III, of Weinberg, Brown, and Curtis, both of Sumter, for Appellant-Respondent.

David Wesley Whittington, of Charleston; Desa A. Ballard, of West Columbia, and Philip Lacy, of Columbia, for Respondents-Appellant.

Chief Justice TOAL.

This case involves a cross appeal of the trial judge's grant of a judgment notwithstanding the verdict in favor of Collins Music Company ("Collins") because the Appellant/Respondent, James R. Munn ("Munn"), could not prove actual compensable damages in his claim of fraud.

FACTUAL/PROCEDURAL BACKGROUND

In February of 1987, FMW Corporation ("FMW") issued a note and mortgage to Collins in the principal sum of $50,000. The debt was to be repaid in one year and was secured by certain real property. FMW used the proceeds of the check to renovate its truck stop. While Bob Finney ("Finney"), F.M. Witt ("Witt"), and Munn admit that they signed and personally guaranteed the FMW note and mortgage, they testified that Collins never intended that they pay back the note. Instead, they testified that the $50,000 represented an advancement on the future proceeds that Collins' video poker machines would generate, and the note and mortgage were to provide security that its machines would remain at the truck stops. Collins' agent testified that he never promised to forgive the obligation on the note.

In 1989, Collins entered into a Coin Machine Lease Agreement with Munn and FMW, which does not refer to the 1987 note and mortgage but does contain an integration provision. The integration clause states that the agreement "contains all agreements of the parties, there being no other reservations or understandings." Collins brought this action to collect on the 1987 note and mortgage. In their answer, Finney,¹ Witt, and Munn asserted fraud as an affirmative defense and counterclaimed asserting that Collins fraudulently induced them to personally guarantee the note and mortgage. The jury returned a verdict for Finney, Munn, and Witt on the fraud counterclaim awarding each of the three parties $1.00 in nominal damages and $200,000 in punitive damages. FMW was not awarded any damages.

The trial judge granted Collins' motion for JNOV, finding that Witt, Munn, and Finney had not established a cause of action for fraud since they did not prove actual damages—an essential element of a fraud claim. In addition, the judge also concluded that Collins could not recover on its breach of contract cause of action since the jury found for Witt, Munn, and Finney on its affirmative defense to fraud.² Both parties have appealed raising the following issue:

I. Did the trial judge err in granting Collins' JNOV motion on Witt, Finney and Munn's fraud counterclaim on the basis that they could not establish a fraud cause of action since they failed to show they suffered actual damages resulting from the alleged misrepresentation?

LAW/ANALYSIS

Upon appellate review of an action at law tried by a jury, the jury's findings of fact will not be disturbed unless the reviewing tribunal determines that no evidence in the record supports the jury's conclusion. Townes Associates Limited v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976).

I. Actual Damages

Munn argues that the trial judge erred in setting aside the verdict on their counterclaim for fraud on the grounds that they failed to establish actual damages. We disagree. A determination of the presence of actual damages in this case is controlled by our analysis in Daniels, 253 S.C. 218, 169 S.E.2d 593. In Daniels, the plaintiffs' brother and father owed the defendant a sizeable debt. The plaintiffs' father conveyed his $75,000 to $100,000 farm to the plaintiffs for $5.00 and love and affection. The defendant, who became angered by this transaction, sought to settle a portion of the outstanding debt with the plaintiffs. The parties negotiated a settlement where the plaintiffs executed a $20,000 note, secured by a mortgage on the farm to the defendant, and the defendant agreed to release the father from any debt obligation and to restructure the brother's obligation by reducing the interest rate. Id. at 222-223, 169 S.E.2d at 595.

The plaintiffs signed the note, but the parties had not agreed to the provisions of the release when the defendant surreptitiously "took" the note and mortgage from the plaintiffs' attorney's office and attempted to record the mortgage. The defendant had not attempted to collect on the debt when the plaintiffs filed an action for fraud. The jury returned a verdict for the plaintiffs, declaring the note and mortgage null and void and granting $17,000 of punitive damages for the fraud action. Id. at 223-224, 169 S.E.2d at 595-596.

This Court reversed, finding that the plaintiffs did not prove that they suffered any actual damages. The Court analyzed a line of cases that suggested that damages are inherently embedded within one's obligation on a promissory note. See Nipper v. Griffin Mercantile Co., 31 Ga.App. 211, 120 S.E. 439 (1923); Planters' Bank & Trust Co., v. Yelverton, 185 N.C. 314, 117 S.E. 299 (1923): See also 91 A.L.R.2d 346, 354 (1963). The Court held that while the potential damages associated with a promissory obligation are sufficient to establish the damage element of the affirmative defense to fraud, they are insufficient to establish the actual pecuniary damages element of a fraud claim. Id. at 226-227, 169 S.E.2d at 597.

The Daniels Court reasoned that when fraud is asserted as an affirmative defense to a breach of contract action, the defendant is exposed to a threat of loss in that the plaintiff might prevail on the breach of contract and subject the defendant to liability on the obligation. Id. The Daniels Court distinguished the threat of loss concept from the actual loss element that was necessary for the plaintiffs to prevail on their fraud...