M. B. Kahn Const. Co., Inc. v. South Carolina Nat. Bank of Charleston

• Decision Date: 16 October 1980
• Docket Number: No. 21316,21316
• Citation: 275 S.C. 381,271 S.E.2d 414
• Court: South Carolina Supreme Court
• Parties: M. B. KAHN CONSTRUCTION COMPANY, INC., Appellant, v. The SOUTH CAROLINA NATIONAL BANK OF CHARLESTON, Respondent.

Page 414

271 S.E.2d 414

275 S.C. 381

M. B. KAHN CONSTRUCTION COMPANY, INC., Appellant, v. The SOUTH CAROLINA NATIONAL BANK OF CHARLESTON, Respondent.

No. 21316.

Supreme Court of South Carolina.

Oct. 16, 1980.

William F. Austin, Robert W. Herlong and A. Camden Lewis, all of Barnes, Austin & Lightsey, Columbia, for appellant.

Kirkman Finlay, Jr., of Boyd, Knowlton, Tate & Finlay, Columbia, for respondent.

NESS, Justice:

M. B. Kahn Construction Company, Inc. appeals from an order dismissing its cause of action for fraud against the respondent, South Carolina National Bank of Charleston. The report of the special referee was confirmed in all respects by the trial court. We affirm.

Appellant Kahn was the general contractor for the Harborside Condominium project in Lexington County, which was commenced in June, 1973. Respondent SCN was the construction lender. Pursuant to its contract with the developer, Harborside, Kahn was to receive progress payments equalling 90% of the materials supplied and work performed as of specific dates, with the balance of the $2,056,017.60 contract price payable upon completion. Under SCN's agreement with the developer, SCN received a promissory note for the principal sum of $2,200,000.00 plus interest secured by a first mortgage on the project.

As construction neared an end, the developer, Harborside, was increasingly late in its progress payments to Kahn. Upon inquiry, the developer referred Kahn to SCN to ascertain Harborside's financial ability to complete the project. The special referee found as a fact that SCN falsely represented to Kahn that there was sufficient money in the construction loan account to pay the remainder of the construction contract.

Kahn continued its obligations under the construction contract until substantial completion in September, 1974. The unpaid balance at this juncture was $256,812.00; however, Harborside's loan account contained less than $100,000.00.

With SCN's knowledge and consent, Kahn compromised its claim with the developer to $240,000.00 in return for an immediate cash payment of $156,000.00 and a non-interest bearing second mortgage for $84,000.00. In the ensuing ten months, only $2,000.00 was paid toward satisfaction of this mortgage, leaving a balance of $82,000.00 due Kahn.

In August, 1975, SCN commenced a foreclosure action against the developer and named Kahn as a party defendant because of its second mortgage lien. The proceeds from the subsequent foreclosure sale were insufficient to apply to Kahn's mortgage debt.

Kahn brought suit against SCN asserting six causes of action, all of which were dismissed by the special referee and the trial court. Appellant's first cause of action alleged fraudulent misrepresentation by SCN of the developer's loan account balance. Kahn appeals only from the dismissal of this cause of action. We conclude Kahn's fraud claim was properly dismissed.

In order to recover in an action for fraud and deceit, based upon misrepresentation, the following elements must be shown by clear, cogent and convincing evidence: (1) a representation; (2) its falsity; (3) its materiality; (4) either knowledge of its falsity or a reckless disregard of its truth or falsity; (5) intent that the representation be acted upon; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on its truth; (8) the hearer's right to rely thereon; (9) the hearer's consequent and proximate injury. Failure to prove any one of the foregoing elements is fatal to recovery. O'Shields v. Southern Fountain Mobile Homes, Inc., 262 S.C. 276, 204 S.E.2d 50 (1974).

The special referee made special findings as to each element; these findings were concurred in by the trial judge, and are amply supported by the record. Therefore, they will not be disturbed on appeal. Townes Associates, Ltd. v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976); Gordon-Gallup Realtors, Inc. v. Cincinnati Ins. Co., S.C., 265 S.E.2d 38 (1980).

The special referee concluded as a matter of law that Kahn was obligated by contract to complete construction and therefore could not have relied solely upon SCN's misrepresentation in finishing the project. Appellant contends it would have been justified in ceasing construction due to Harborside's insolvency, and continued to work only upon SCN's assurance of financial stability. This is untenable.

We hold that one cannot recover for a fraudulent misrepresentation which induces him to perform an act he was legally obligated to perform. See 37 Am.Jur.2d, Fraud & Deceit, § 295; 37 C.J.S. Fraud § 41c; Woodward v. Todd, 270 S.C. 82, 240 S.E.2d 641 (1978); Griffin v. Heinitsh, 309 F.Supp. 1028 (1970).

We are unconvinced by appellant's argument that the developer's insolvency would have excused him from further performance under the construction contract. Section 287 of the Restatement of Contracts (1932), cited by appellant, provides that the prospective inability of a party to perform its obligation under a contract due to insolvency discharges the other party from its duties under the contract where it has reasonably and materially changed its position, and a longer time than permitted under the contract has elapsed before performance by the insolvent party.

Here, Harborside failed to timely tender its August 10, 1974 progress payment to Kahn, as required by the contract. Pursuant to the contract, if payment was not forthcoming within seven (7) days of the due date, Kahn could stop work upon an additional seven (7) days written notice until the payment was received. It was during this fourteen (14) day period that SCN's agent misrepresented the status of the loan account, and the overdue progress payment was in fact paid. Accordingly, the principle set forth in the Restatement is inapplicable here, where the payment was rendered within the time permitted by the contract. Additionally, the project was substantially completed before the August progress payment became due.

As Kahn was legally obligated under the contract to complete performance, we are not persuaded it was fraudulently induced to do so by SCN's misrepresentation.

Appellant's remaining exceptions are dismissed as moot. The order appealed from is affirmed.

AFFIRMED.

LEWIS, C. J., and GREGORY and HARWELL, JJ., concur.

LITTLEJOHN, J., dissents.

LITTLEJOHN, Justice (dissenting):

I respectfully dissent and would reverse the order of the lower court.

Inasmuch as the judge's order merely adopts the report of the special referee as its directive, we look to his report for an analysis of the court's factual finding. The referee stated:

"a. I find that SCN made the claimed representation to Kahn that there was enough money left in the construction loan account with SCN to pay the remaining amount under the construction contract and that the representation was false.

Kahn's vice-president and comptroller, Mr. McCall, testified that he telephoned SCN's mortgage loan officer, Mr. Hinshaw in August, 1974, on or about the 18th or 20th, because the August payment due to Kahn by Harborside had not been made. He said he asked Hinshaw whether...