Peoples Federal Sav. & Loan Ass'n v. Myrtle Beach Golf & Yacht Club
| Citation | 310 S.C. 132,425 S.E.2d 764 |
| Decision Date | 22 January 1992 |
| Docket Number | A-P,No. 1926,1926 |
| Parties | PEOPLES FEDERAL SAVINGS & LOAN ASSOCIATION, Respondent, v. MYRTLE BEACH GOLF & YACHT CLUB, A General Partnership, Myrtle Beach Golf & Yacht Club, Inc., A South Carolina Corporation, MBG & YC II, Inc., Formerly Known As Peoples Joint Venture Group, Inc., Myrtle Beach Golf & Yacht Club Association, Inc., Teatros Y Cinemas, S.A., A Panamanian Company, American Community Development Group, Inc., F/K/A Justice Investment Corp., John A. Hinson, Individually and as Trustee of West Coast Pension and Profit Sharing Trust, Sears Roebuck & Co., Universal Resort Travel, Inc., D/B/Aort-of-Call Travel Agency, Stan Parker, Ed Hudson, Austin Kelly Advertising, Inc., POA Acquisition Corp., D/B/A Peterson Outdoor Advertising of South Carolina, Custom Glass, Inc., The Parnell-Martin Companies, Inc., Loyola Federal Savings & Loan Association, Equipment Leasing, Division of American Federal Bank, FSB, Chambers of South Carolina, Williams Trucking Co., Inc., Palmetto Turf Farms, Inc., Danny Player, D/B/A Players' Landscaping, Whaley Corp., D/B/A Socastee Hardware Store, Cornelius Toomey, Individually and for the Benefit and on Behalf of all other Similarly Situated, and Midway Nursery, Inc., Defendants, of whom American Community Development Group, Inc., F/K/A Justice Investment Corp., & John A. Hinson, Individually and as Trustee of West Coast Pension and Profit Sharing Trust are, Appellants. Appeal of AMERICAN COMMUNITY DEVELOPMENT GROUP, INC. . Heard |
| Court | Court of Appeals of South Carolina |
Dalton B. Floyd, Jr. of Floyd & Prevatte, Surfside Beach, for appellants.
Michael W. Battle of Lovelace & Battle, Conway, for respondent.
This case arose from a real estate development project in Horry County, South Carolina. The project involved the acquisition of several tracts of land for development, construction, and eventual leasing and sale of lots, single family dwellings, and multi-family dwellings. The project was to be developed in several phases. The project also included a proposed golf course, club house, tennis courts, and swimming pool. The two main actors in the development of the project were (1) George Magrath, Jr., an executive vice president of Peoples Federal Savings & Loan Association (Peoples); and (2) R.L. Propps, a real estate developer, president of Justice, Inc., and president of Cheezem Development Corporation (Cheezem). The appellant, American Community Development Group, Inc., is the successor corporation to Cheezem.
Peoples commenced this foreclosure action against Myrtle Beach Golf and Yacht Club, a general partnership, and the other named defendants in September 1988. The appellants, American Community Development Group, Inc. (ACDG) and John A. Hinson, 1 individually and as trustee of West Coast Pension and Profit Sharing Trust, also hold a mortgage on the property. They filed an answer denying the material allegations of the complaint. By way of counterclaim, ACDG asserted Peoples was individually liable to it for the debt secured by its mortgage under several theories of lender liability. ACDG also sought equitable subordination of Peoples's mortgage to its mortgage. Peoples replied, inter alia, (1) ACDG had sued and later settled with the partnership; (2) the settlement provided for a mortgage to be given by the partnership to ACDG; and (3) the express terms of the mortgage made it inferior to Peoples's mortgage. Peoples further alleged ACDG was estopped, judicially and collaterally, to assert that its mortgage was superior. Peoples also denied it was liable under any of the theories of lender liability and alleged ACDG waived its right to assert the superiority of its lien. The master ordered the mortgage held by Peoples foreclosed as a first lien. We affirm.
Prior to February 24, 1984, Justice, Inc. through its president, R.L. Propps, approached Peoples about the development of some land in Myrtle Beach, South Carolina. The development concept would oblige Peoples to provide the funding to purchase and develop the land through loans. In return, Peoples would share in the potential profits from the development through a wholly owned subsidiary service corporation. In furtherance of this plan Peoples incorporated a wholly owned subsidiary, Peoples Joint Venture Group, Inc. (Peoples Venture). Justice, Inc. incorporated Myrtle Beach Golf and Yacht Club, Inc. (MBGYC, Inc.). Those two corporations together formed the partnership known as Myrtle Beach Golf and Yacht Club on February 28, 1984. Peoples Venture owned twenty-five (25%) per cent of the partnership and MBGYC, Inc. owned the remaining seventy-five (75%) per cent. Profits and losses were to be shared in proportion to the ownership interests of the partners. The partnership agreement provided each partner would make initial capital contributions of one hundred dollars. Finally, the agreement provided the monies for acquisition and development costs would be borrowed by the partnership from "an affiliate of Peoples [Joint Venture]."
On February 29, 1984, MBGYC, Inc. assigned to the newly formed partnership its option to purchase tracts I and II of the land to be developed. 2 At the time of the Tracts I and II of the property represented the first phase of construction of the development. Tract I was to contain single and multiple family homes. Tract II was the amenities tract and the land on which an eighteen-hole golf course, tennis courts, and swimming pool were to be built. The amenities tract is the subject of this foreclosure.
exercise of the option to purchase, the seller offered the partnership one million ($1,000,000) dollars to release the seller from the option. The partnership refused the offer. Thus, at the inception of [310 S.C. 137] the partnership relationship, Peoples contributed to the partnership its commitment to provide financing for the development while Justice, Inc. provided development expertise, plans that had been approved by appropriate government agencies, and an option with considerable value
On February 29, 1984, Peoples made two loans to the partnership totaling $4,500,000. One loan of $3,000,000 appears to have been primarily used for the acquisition and development of the amenities tract. On August 27, 1984, Peoples made a loan to the partnership in the amount of $350,000. On September 20, 1984, Peoples made another loan to the partnership in the amount of $1,800,000. These funds were advanced for the purposes of acquiring the property and for construction and development costs. Construction began; roads were built; electrical, water, and sewage disposal facilities were constructed. According to Magrath's testimony, things were going well. With the exception of the $3,000,000 amenities loan, virtually all of these other loans have either been repaid or extinguished through foreclosure.
Sometime after June 1985, Cheezem Development Corporation decided it would buy the majority of Propps's developments. 3 Arthur Andersen was retained to develop a plan to effectuate these purchases. Merrill-Lynch Capital Corporation was to finance the purchases. Cheezem had an appraisal done of the partnership's properties as of August 1, 1985. The appraisal indicated a net value of $14,100,000. Propps testified his company figured the project had a net value of about ten to twelve million dollars on August 9, 1985.
On August 9, 1985, Peoples sold all of its stock in Peoples Venture to Propps for the sum of $403,000. To secure the payment of the purchase price, Propps and the partnership gave Peoples a note and mortgage for the full purchase price. Interest on the note and mortgage was delayed until maturity. Payments were to be made from mortgage lot releases on Phase II of the development. The stock purchase price was established by estimating the profit Peoples Venture would have received from Phase II had it stayed in the project. The master found the $403,000 represented the fair market value of the stock and the stock sale was bona fide. ACDG claims the stock's value did not even approach $403,000 and the sale was simply a scheme to remove Peoples from the partnership, yet ensure it continued to receive profits from the project.
Propps testified that while he was not satisfied with the purchase price and Peoples refused to negotiate regarding it, he thought it was nevertheless fair. He further testified the main bone of contention regarding the negotiations was the deferral of interest. Peoples had insisted on no deferral, but eventually agreed to a deferral of all interest until the principal was payable. Magrath confirmed the fact the deferral of interest was the main bone of contention in the sale and testified the price was fair.
On August 13, 1985, Loyola Federal Savings became the major lender for the project by committing to lend the partnership $13,000,000 for the construction of housing. The focus of Peoples then turned to financing On September 30, 1985, ACDG, in furtherance of its predecessor's plan to purchase Propps's interest in the partnership, transferred $257,000 to MBGYC, Inc. On October 2, 1985, an additional $493,000 was wired to Justice, Inc. Both of these corporations were controlled by Propps. On October 30, 1985, ACDG wired $150,000 to Justice, Inc. ostensibly as operating expenses for the partnership.
the development of the golf course and amenities tract. Thereafter on October 9, 1985, Peoples loaned the partnership $5,100,000. The $3,000,000 amenities loan from 1984 was refinanced from this loan
In January of 1986, Propps and his partner, Dale Murray, had a disagreement relative to the acquisition of the Myrtle Beach project and another development. As a result, ACDG decided to cancel the purchase of the Myrtle Beach project. After extended negotiations, Justice, Inc. signed an open note to repay ACDG...
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