Saro Investments v. Ocean Holiday Partnership

• Decision Date: 12 January 1994
• Docket Number: No. 2142,2142
• Parties: SARO INVESTMENTS, a South Carolina General Partnership, Respondent, v. OCEAN HOLIDAY PARTNERSHIP, a Virginia General Partnership; South and South Rentals, Inc., as General Partner of Ocean Holiday Partnership, a Virginia General Partnership; Duke Partnership, as General Partner of Ocean Holiday Partnership, a Virginia General Partnership; J.B. South, Individually; Mary S. Mullins, Individually; Lang M. Schupp, Individually; Ray A. Schupp, Individually and D.A. Dessouky, Individually, of which Ocean Holiday Partnership, a Virginia General Partnership; South and South Rentals, Inc., as General Partner of Ocean Holiday Partnership, a Virginia General Partnership; Duke Partnership, as General Partner of Ocean Holiday Partnership, a Virginia General Partnership; J.B. South, Individually; Mary S. Mullins, Individually; Lang M. Schupp, Individually and Ray A. Schupp, Individually, are Appellants. . Heard
• Court: South Carolina Court of Appeals

Page 835

441 S.E.2d 835

314 S.C. 116

SARO INVESTMENTS, a South Carolina General Partnership, Respondent, v. OCEAN HOLIDAY PARTNERSHIP, a Virginia General Partnership;

South and South Rentals, Inc., as General Partner of Ocean

Holiday Partnership, a Virginia General Partnership; Duke

Partnership, as General Partner of Ocean Holiday

Partnership, a Virginia General Partnership; J.B. South,

Individually; Mary S. Mullins, Individually; Lang M.

Schupp, Individually; Ray A. Schupp, Individually and D.A.

Dessouky, Individually,

of which Ocean Holiday Partnership, a Virginia General

Partnership; South and South Rentals, Inc., as General

Partner of Ocean Holiday Partnership, a Virginia General

Partnership; Duke Partnership, as General Partner of Ocean

Holiday Partnership, a Virginia General Partnership; J.B.

South, Individually; Mary S. Mullins, Individually; Lang

M. Schupp, Individually and Ray A. Schupp, Individually, are

Appellants.

No. 2142.

Court of Appeals of South Carolina.

Heard Jan. 12, 1994.

Decided Feb. 22, 1994.

William W. DesChamps, Jr., Myrtle Beach, for appellants.

John E. Copeland, Bellamy, Rutenberg, Copeland, Epps, Gravely & Bowers, Myrtle Beach, for respondent.

CURETON, Judge.

This case centers on rights under two promissory notes and a related wrap-around mortgage. This appeal is from the denial of Ocean Holiday Partnership's (OHP) ¹ motion under Rule 60(b)(5), SCRCP for relief from a prior judgment obtained against it by respondent, Saro Investments, on the ground it is no longer equitable that the prior judgment should have prospective application, ² and from a post-judgment order granting Saro additional attorney fees. We reverse both the denial of relief to OHP and the increased award of attorney fees to Saro.

On November 3, 1984, Saro conveyed to OHP a leasehold interest in motel property in Myrtle Beach. The purchase price of the property was $1,450,000 of which $100,000 was paid at the time of closing with the balance paid by OHP delivering to Saro two promissory notes, one in the amount of $350,000 and another in the amount of $1,000,000. Both notes were secured by a wrap-around mortgage. Under the terms of the wrap-around mortgage, Saro covenanted to continue making payment on a prior wrap-around mortgage indebtedness from Saro to Harkishin Bhambhani, Ashok Bhambhani and Gobind Gidvani (the Bhambhanis) in the original amount of $800,000.

OHP subsequently sold its leasehold interest to Tom's Mini-Mart, Inc. and took back wrap-around purchase money financing. Tom's thereafter conveyed the property to Ocean Holiday, Inc. who defaulted. Because of Ocean Holiday's default, OHP defaulted in its payments to Saro and in turn, Saro defaulted in its payments to the Bhambhanis, who commenced foreclosure on their mortgage.

Saro waived its rights in the collateral and sued OHP on the notes. Saro was awarded summary judgment against OHP for the face amounts of the notes. At that time, the foreclosure action brought by the Bhambhanis against Saro on their wrap-around mortgage was still pending. OHP and others were made parties to the Bhambhanis' foreclosure by virtue of their ownership interests in the collateral. When that foreclosure was finalized and the property sold, Saro was able to obtain a waiver of deficiency judgment from the Bhambhanis. Consequently, Saro's obligations under the underlying note and mortgage were satisfied.

I.

OHP asserts in its Rule 60(b)(5) motion that because Saro was relieved of the underlying indebtedness, prospective application of the $1,000,000 judgment on the promissory note was no longer equitable. ³

OHP first argues the trial court erred in refusing to consider affidavits of the attorneys who were involved in the mortgage transaction between Saro and OHP. OHP argues the affidavits were admissible to explain the intent of the parties to the mortgage transaction, to provide evidence of the consideration for the notes and mortgage, and to supply deficiencies in the notes and mortgage, which OHP claims are ambiguous. Saro responds that admission of the affidavits would violate the Parol Evidence Rule in that the documents involving the mortgage transaction are clear and unambiguous on their face.

We think the initial matter to be resolved is whether or not the Parol Evidence Rule is dispositive of the Rule 60(b)(5) motion. We hold that it is not. The trial judge appeared to have viewed the matter before him as a trial of Saro's rights to judgment on the promissory notes. It ruled:

[T]his court denies the relief requested by [OHP] in the 60(b)(5) motion on the grounds that the issues were not timely raised and even if they had been timely raised, do not constitute defenses to the judgment obtained by Saro. The agreement of the parties is contained in the documents and is clear and unambiguous and may not be modified or varied by parol evidence. OHP had the unconditional obligation to pay the amounts due under the note[s] to Saro and is not entitled to any credit or set-off for any sums which Saro may have owed to third parties. OHP is not asked to pay any sum in excess of the amount agreed to be paid under its note[s].

The Rule 60(b)(5) motion, unlike the suit on the promissory notes, addresses the right of the trial court to modify the final judgment entered on the notes based on the historical power of a court of equity to modify its decrees in light of subsequent conditions that make it inequitable that the judgment should have prospective application. Evans v. Gunter, 294 S.C. 525, 366 S.E.2d 44 (Ct.App.1988); see also Johnson v. Johnson, --- S.C. ----, 425 S.E.2d 46 (Ct.App.1992); Smith Companies of Greenville, Inc. v. Hayes, --- S.C. ----, 428 S.E.2d 900 (Ct.App.1993).

Of course, post trial motions may be heard on affidavits. See Santee Portland Cement Corp. v. Mid-State Redi-Mix Concrete Co., Inc., 273 S.C. 784, 260 S.E.2d 178 (1979) (affidavits and documents submitted); Gaskins v. California Insurance Co., 195 S.C. 376, 11 S.E.2d 436 (1940) (affidavit of counsel submitted); see also Rule 43(e), SCRCP. However, the facts stated in the affidavits must be admissible evidence. See Rule 56(e), SCRCP. We hold that the operative portions of the affidavits dealing with the attorneys opinions of the "intent and purpose of the wrap-around promissory note" and the attorneys' intent in drafting the note and mortgage documents are inadmissible. However, other portions of the affidavits which merely recite provisions of the promissory notes and wrap-around mortgage are admissible. Nevertheless, the failure of the trial court to consider the admissible portions of the affidavits does not constitute reversible error because that evidence is cumulative to other evidence in the record. ⁴

The facts of this case give rise to at least a prima facie case of inequity. The evidence clearly shows OHP executed in favor of Saro a document entitled "Wrap-around Mortgage of Leasehold Agreement" which referred to the notes, the subject of the summary judgment action. The mortgage provides that Saro would continue to be responsible for the prior indebtedness. ⁵ The $1,000,000 note states it is secured by a "Wrap-around Mortgage of Leasehold Agreement of even date." ⁶ In accordance with general principles of contract construction, the trial court must give effect to the intention of the parties to the wrap-around mortgage transaction if it can be done without offending settled principles of contract law. United Dominion Realty Trust, Inc. v. Wal-Mart Stores, Inc., 307 S.C. 102, 413 S.E.2d 866 (Ct.App.1992). In the absence of anything indicating a contrary intention, where instruments are executed at the same time, by the same parties, for the same purpose, and in the course of the same transaction, courts will consider and construe the instruments together. Cafe Associates, Ltd. v. Gerngross, 305 S.C. 6, 406 S.E.2d 162 (1991). Thus, the notes and mortgage must be considered together to determine the intent of the parties to the mortgage transaction which intention it seems to us, is relevant to the application of the proceeds from the prior mortgage foreclosure. Such intention necessarily bears upon the equities of the parties at this time.

Absent an express agreement, implied covenants are used in real property law to further effectuate the intentions of the parties as reflected in the terms used in the instruments. An implied covenant is based on the surrounding circumstances, the documents as a whole and the terms expressed in the written instruments. Implied covenants will be invoked only when necessary to effectuate the intentions of the parties. Therefore, whatever may fairly be implied from the terms of or nature of an instrument is, in the eyes of the law, contained in it. 17A Am.Jur.2d Contracts § 379 (1991).

All indications from the record are that this wrap-around transaction was of the conventional type found in commercial real estate financing. Under conventional wrap-around financing, a purchaser delivers to the seller a promissory note which includes or "wraps around," the principal balance of a prior indebtedness. The purchaser expressly assumes no obligation for paying the underlying indebtedness, and he accepts title subject to the lien of the underlying indebtedness. Summers v. Consolidated Capital Special Trust, 783 S.W.2d 580 (Tex.1989). A wrap-around mortgage differs from a conventional second mortgage in that the face amount of the wrap-around mortgage contains an amount equal to the sum of the principal balance on an existing mortgage note plus any additional funds advanced by the wrap-around lender. Mitchell v. Trustees of U.S. Mut. Real Estate Inv. Trust, 144 Mich.App. 302, 375 N.W.2d 424, 428 (1985). It also incorporates an agreement between the parties that the seller/mortgagee will be responsible for payment of the prior mortgage indebtedness. Prince George's County v. McMahon, 59 Md.App. 682, 477 A.2d 1218 (1984); Western Federal Sav. &...