O'Quinn v. Beach Associates

• Decision Date: 20 November 1978
• Docket Number: No. 20813,20813
• Citation: 249 S.E.2d 734,272 S.C. 95
• Court: South Carolina Supreme Court
• Parties: , Blue Sky L. Rep. P 71,450 James L. O'QUINN, Corrine S. Johnson, Virginia K. Baird, Bobo Enterprises, Inc., Ross H. Carnes, Jack A. Fallaw, Michael L. M. Jordan, D. C. Peterson, Wilbert Roller, Sr., Davis Smith, for themselves and all others similarly situated, Appellants-Respondents, v. BEACH ASSOCIATES, Respondent-Appellant.

Page 734

249 S.E.2d 734

272 S.C. 95, Blue Sky L. Rep. P 71,450

James L. O'QUINN, Corrine S. Johnson, Virginia K. Baird Bobo Enterprises, Inc., Ross H. Carnes, Jack A. Fallaw Michael L. M. Jordan, D. C. Peterson, Wilbert Roller, Sr. Davis Smith, for themselves and all others similarly situated, Appellants-Respondents, v. BEACH ASSOCIATES, Respondent-Appellant.

No. 20813.

Supreme Court of South Carolina.

Nov. 20, 1978.

James M. Herring, of Corish & Smith, Hilton Head Island, for appellants-respondents.

F. Mikell Harper, of Harper & McDonald, Beaufort, and John L. Creson, of Hull, Towill, Norman, Barrett & Johnson, Augusta, Ga., for respondent-appellant.

A. Hoyt Rowell, III, Charleston, Chairman of S. C. Trial Lawyers Association, amicus curiae.

GREGORY, Justice:

James L. O'Quinn and others entered into individual contracts with Beach Associates for the purchase of condominium units at Hilton Head Island. This class action was brought by O'Quinn to rescind the contracts because of allegedly fraudulent misrepresentations made by Beach Associates in connection with the sale of the condominiums. The lower court held the members of the class were entitled to rescission and the return of their deposits. We affirm.

In a subsequent order the lower court denied class membership to several purchasers who were not notified of the class action at the initiation of the lawsuit. We reverse.

On appeal from an order in an action in equity, tried by the lower court without a reference, this Court has jurisdiction to make findings of fact in accordance with its own view of the preponderance of the evidence. Metromont Materials Corp. v. Pennell, 270 S.C. 9, 239 S.E.2d 753 (1977). Townes Associates, Ltd. v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976).

Beach Associates is a partnership formed by two corporations: Comprehensive Ventures, Inc., and Allen-White, Inc. In the spring of 1973 Beach Associates initiated the development of an ocean front condominium project on Hilton Head Island and retained Sea Pines Plantation Company as marketing agent for the project.

Beach Associates procured construction financing for the project from North Carolina National Bank, conditioned on Beach Associates preselling forty percent (40%) of the condominium units prior to the start of construction.

Beach Associates then obtained a two year commitment from First Federal Savings and Loan of Beaufort to finance the purchase of individual condominium units for qualified purchasers. Under the terms of this commitment, First Federal agreed to provide seventy-five percent (75%) permanent financing for twenty-five (25) years up to a cumulative total of $4,500,000. During the first year of the commitment, or until May 1, 1974, all financing would be at eight and one quarter percent (8 1/4%) interest. During the second year of the commitment, or until May 1, 1975, all financing would be at the then prevailing market interest rate.

Construction on the project was scheduled to start on August 15, 1973 and to be completed on December 15, 1974. Thus, the project was scheduled to be completed sometime during the second year of First Federal's financing commitment.

Under the express terms of the contracts entered into by O'Quinn and the other members of the class with Beach Associates, the condominium units would be completed within a two year period. No closings on individual units would be effected until the total project was completed.

Through its marketing agent Beach Associates represented to each prospective purchaser that seventy-five percent (75%) financing at eight and one quarter percent (8 1/4%) interest would be available at closing.

O'Quinn and the other members of the class entered into their respective purchase agreements before and during October 1973. As required by the purchase agreements, each purchaser paid ten percent (10%) of the purchase price to Beach Associates as a down payment. In late October 1973 Beach Associates informed all purchasers that the interest rate at closing would not be eight and one quarter percent (8 1/4%) as represented, but would be the prevailing market rate at the time of closing.

Several purchasers corresponded with Beach Associates in connection with the financing representation but no satisfactory arrangement was reached. Finally, on March 6, 1975 this lawsuit was initiated by service of a summons, complaint not served.

On March 20, 1975 Beach Associates informed all purchasers that the units would be ready for closing in the near future and that financing was available through First Federal at eight and seven eights percent (8 7/8%) interest. By subsequent letter dated April 23, 1975 all purchasers were notified that Beach Associates had made arrangements for financing through First Federal at eight and one quarter percent (8 1/4%) interest. The complaint in this action was mailed to Beach Associates on April 24, 1975 and service was accepted on April 30, 1975.

The condominium project was completed in May 1975 and the first closings on individual units were in June 1975 with financing from First Federal at eight and one quarter percent (8 1/4%) interest.

O'Quinn's complaint alleges four causes of action:

1) The first cause of action alleges that Beach Associates' offering of these condominium units constituted the offering of unregistered "investment contracts" within the meaning of this term as used in the definition of "Security" in Section 35-1-20(12), 1976 Code of Laws of South Carolina in violation of Section 35-1-810, 1976 Code. By this cause of action O'Quinn sought the statutory relief specified in Section 35-1-1490, 1976 Code.

2) The second cause of action alleges that each member of the class contracted to purchase a condominium unit in reliance on Beach Associates' misrepresentation concerning the availability of financing at eight and one quarter percent (8 1/4%) interest. The complaint alleges that this was a fraudulent misrepresentation. By this cause of action O'Quinn sought the rescission of the contracts and the return of all deposits.

3) The third cause of action is based on the first two causes of action and alleges that Beach Associates made fraudulent misrepresentations in connection with the offering or sale of investment contracts in violation of Section 35-1-1490. By this cause of action O'Quinn asked for the same relief sought by the first cause of action.

4) The fourth and final cause of action alleges that all parties mistakenly believed that financing at eight and one quarter percent (8 1/4%) interest would be available at closing. The complaint alleges this belief constituted a mutual mistake of material fact. By this cause of action O'Quinn asked for the same relief sought by the first cause of action.

Beach Associates demurred to the complaint on the following grounds:

1) That the complaint failed to state a cause of action;

2) That there was a defect of parties by reason of O'Quinn's failure to name Sea Pines as a defendant; and

3) That the complaint failed to state facts sufficient to constitute a class action.

By subsequent motion O'Quinn moved to have the action certified a class action under Section 15-5-50, 1976 Code.

Following a hearing in Beaufort County on both the demurrer and the motion, the Honorable Clyde A. Eltzroth overruled Beach Associates' demurrer and certified O'Quinn's action a proper class action. Judge Eltzroth required Beach Associates to furnish a list of all purchasers to the clerk of court so that the members of the class could be notified of the class action. No appeal was taken from this order by either party.

Beach Associates then answered the complaint by alleging as follows:

1) A general denial;

2) That financing at eight and one quarter percent (8 1/4%) interest was available at closing as represented; and

3) That the Statute of Frauds barred the use of any oral representations to invalidate the purchase contracts.

The case was heard on the merits by the Honorable George F. Coleman, Jr. during the July 1976 term of the Beaufort County Court of Common Pleas.

By order dated March 18, 1977 Judge Coleman held as follows:

1) That Judge Eltzroth's certification of the action as a class action was the law of the case;

2) That each member of the class was not required to offer proof of his reliance on Beach Associates' misrepresentation concerning the availability of financing at eight and one quarter percent (8 1/4%) interest;

3) That Beach Associates' offering of the condominium units did not constitute the offering of "investment contracts" within the meaning of this term as used in the definition of "Security" in Section 35-1-20(12).

4) That there was no mutual mistake regarding the availability of financing at eight and one quarter percent (8 1/4%) interest because Beach Associates was aware of the falsity of the representation;

5) That Beach Associates made fraudulent misrepresentations to the members of the class regarding the availability of financing at eight and one quarter percent (8 1/4%) interest;

6) That the Statute of Frauds did not bar the introduction of evidence concerning representations made outside the written contract; and

7) That the members of the class were entitled to the rescission of the contracts and the return of all deposits.

On April 23, 1977 four persons who had contracted with Beach Associates for the purchase of a condominium but who had not been notified of the class action petitioned Judge Coleman and asked to be given the opportunity to participate in the class action. Judge Coleman denied the petition by order dated May 27, 1977.

Both O'Quinn and Beach Associates have appealed.

I

Beach Associates first contends the lower court erred by holding that the members of the class were entitled to the rescission of the contracts and the return of all deposits. The lower court granted this relief to the members of the class after finding that Beach...