State ex rel. McLeod v. C & L Corp., Inc.

Decision Date24 February 1984
Docket NumberNo. 0099,0099
Citation280 S.C. 519,313 S.E.2d 334
CourtSouth Carolina Court of Appeals
PartiesSTATE of South Carolina, ex rel. Daniel R. McLEOD, Attorney General, Respondent, Cross-Appellant, v. C & L CORPORATION, INCORPORATED, L.G. Funderburk, W.L. Cooper, Jr., Wayne C. Cooper d/b/a Wayne Cooper Real Estate Company, and Evelyn C. Cooper, of whom C & L Corporation, Incorporated, and Wayne C. Cooper, are Appellants, Cross-Respondents, and L.G. Funderburk and W.L. Cooper, Jr., are Cross-Respondents.

Frank B. Register, Jr., Lexington, for appellant C & L Corp., inc.

James E. Hunter, West Columbia, for appellant Wayne C. Cooper.

Atty. Gen. T. Travis Medlock, Retired Atty. Gen. Daniel R. McLeod, and Asst. Attys. Gen. W. Joseph Isaacs and C. Richard Kelly, Columbia, for respondent, cross-appellant.

BELL, Judge:

These cross appeals arise from an action brought by the Attorney General under the South Carolina Unfair Trade Practices Act. L.G. Funderburk and W.L. Cooper, Jr., were granted summary judgment dismissing them from the action. Thereafter the case was heard by a special referee. The circuit court confirmed the referee's finding that C & L Corporation and Wayne Cooper had engaged in deceptive and unfair trade practices in the sale of real estate to members of the general public and assessed civil fines against them as provided by the Act. From that order C & L and Wayne Cooper appeal. The Attorney General cross appeals from the order granting summary judgment to Funderburk and W.L. Cooper and from the failure of the trial court to award him certain costs of the action. We affirm the judgment against C & L and Wayne Cooper. We reverse and remand the summary judgment order, but affirm on the issue of costs.

The case is brought to us on a voluminous record. In addition to a three volume transcript of over 1200 pages, the parties, among them, filed one hundred and fifty-five exceptions to the order of the circuit court. Thirty-eight of these exceptions are argued in eight briefs, some of them lengthy and unduly repetitious. Despite the prolixity of the litigants, the facts and issues involved are few and fairly straightforward.

C & L Corporation was formed by Funderburk and W.L. Cooper for the sole purpose of developing and selling a real estate subdivision known as Green Briar in rural Lexington County. The project was conceived by Wayne Cooper, a licensed real estate broker and the brother of W.L. Cooper. Pursuant to an oral agreement among Funderburk and the two Coopers, C & L contracted with Wayne Cooper to lay out the subdivision and sell the lots for C & L. Lots were to be sold by installment purchase contracts under which title to the property would not be conveyed by C & L until all payments on the sales price had been made by the purchaser. Wayne Cooper was to make all collections on the installment contracts for C & L. For his services, C & L agreed to pay Wayne Cooper a commission of ten per cent of the gross sales price on each lot and an additional five per cent of the gross collections. C & L opened a bank account in its name for deposit of the moneys. Wayne Cooper was responsible for direct deposit to the account.

During 1973 Wayne Cooper sold a number of lots in Green Briar. The sales contracts invariably listed C & L as the "Seller" and were signed for the corporation by Wayne C. Cooper as "Agent." Wayne Cooper collected the money and deposited it in C & L's bank account after deducting his commissions. When C & L later conveyed the lots, these contracts were expressly acknowledged as contracts of the corporation by the sworn written statement of Funderburk, acting in his capacity as president of C & L.

It is not seriously contested that C & L began selling lots in Green Briar in 1973 in violation of a county subdivision ordinance. The ordinance required C & L, among other things, to construct roads and drainage in accordance with a county approved preliminary plat. In 1973 county officials notified W.L. Cooper in writing on more than one occasion that C & L was in violation of the subdivision ordinance. Nevertheless, with the knowledge of C & L, sales of the lots went forward in plain violation of the law.

The referee and the circuit court also found that sales agents in the employ of Wayne Cooper made various false representations in order to induce the purchase of lots in Green Briar during 1973. The sales agents told prospective buyers whatever they felt the buyers wished to hear in order to conclude a sale. Promises that the roads were to be paved were most frequently made, but there were also representations as to drainage, streetlights, sewage, city water, access roads, and school bus routes. None of these amenities was ever provided. The contracts of sale entered into with the buyers contained no clause by which C & L sought to disclaim liability for the misrepresentations or unauthorized acts of Wayne Cooper or his sales agents.

On the evidence presented, the referee and the circuit judge found that Wayne Cooper was the agent of C & L in making the sales. They further found eleven specific instances of misrepresentation in the sale of lots at Green Briar. However, they found that C & L had no actual knowledge of the misrepresentations, which were made by Wayne Cooper's salesmen. On these facts, the circuit court concluded that Wayne Cooper and C & L violated the Unfair Trade Practices Act (the Act) and held them jointly and severally liable to pay civil fines of $55,000 plus certain costs.

I.

The first issue on appeal is whether the plaintiff must prove the elements of common law deceit in order to establish a violation of the Act. We hold that the common law elements of deceit need not be proved. The Act provides that:

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

§ 39-5-20(a), Code of Laws of South Carolina, 1976. Since the Act is modeled after § 5(a)(1) of the Federal Trade Commission Act (the FTC Act), 1 the courts of this State are to be guided by Federal Trade Commission and federal judicial interpretations of the FTC Act. Code § 39-5-20(b).

Federal courts have held that unfair or deceptive acts as defined in the FTC Act need not constitute ordinary fraud. Federal Trade Commission v. Algoma Lumber Co., 291 U.S. 67, 54 S.Ct. 315, 78 L.Ed. 655 (1934); D.D.D. Corp. v. Federal Trade Commission, 125 F.2d 679 (7th Cir.1942). Under the statute there is no need to show that a claim or representation was intended to deceive, but only that it had the capacity or effect or tendency to deceive. Id.

State courts have also refused to link proof of unfair or deceptive trade practices to proof of common law fraud. See e.g., Hardy v. Toler, 288 N.C. 303, 218 S.E.2d 342 (1975); Heller v. Silverbranch Construction Corp., 376 Mass. 621, 382 N.E.2d 1065 (1978); see also, Day, "The South Carolina Unfair Trade Practices Act: Sleeping Giant or Illusive Panacea?" 33 S.C.L.Rev. 479, 482 (1982).

We hold that the Act creates new substantive rights by making unlawful conduct which was not actionable under the common law. Accordingly, proof of common law fraud is not required to establish a violation of the Act.

II.

The next issue is whether the circuit court erred in finding that Wayne Cooper was the agent of C & L. C & L argues that it cannot be held liable on an agency theory because Wayne Cooper was an independent contractor.

An independent contractor can also be an agent; the two are not mutually exclusive. Commonwealth v. Minds Coal Mining Corp., 360 Pa. 7, 60 A.2d 14 (1948); Restatement (Second) of Agency § 2(3) (1958). One who is appointed to establish a contractual relationship between the principal and a third person is an agent. Peeples v. Orkin Exterminating Co., 244 S.C. 173, 135 S.E.2d 845 (1964). Since Wayne Cooper was appointed by C & L to enter into sales contracts binding between C & L and third persons, the relationship here was undoubtedly one of agency.

C & L also argues that the testimony of three witnesses, Pettit, Ford, and Compton, was improperly admitted to establish agency. The testimony of these witnesses tended to prove, among other things, that Wayne Cooper considered C & L responsible for the failure to construct the promised improvements in the subdivision, particularly the roads. Their testimony also showed that C & L, by its conduct, admitted responsibility, as the developer of the subdivision, for failure to comply with county subdivision regulations relating to roads and drainage before authorizing the sale of lots in 1973. C & L argues that testimony as to events in 1975 is irrelevant in establishing agency at the time the misrepresentations occurred in 1973. 2

In our judgment the testimony was admissible. It related to the failure of C & L, as the developer of the subdivision, to take legally required action in 1973 before lots were sold. It tended to show the defendants themselves regarded C & L, not Wayne Cooper, as the entity with ultimate legal liability for the subdivision in 1973. Thus, it had some probative value in showing the parties' own understanding that the relationship between C & L and Wayne Cooper was one of agency in 1973.

Even if it were assumed the testimony of these witnesses was inadmissible to show agency, the error was not prejudicial. The agency relationship was fully established by other evidence in the record. Therefore, admission of the disputed testimony, if erroneous, was harmless, especially since this was a nonjury trial. Ross v. Jones, 58 S.C. 1, 35 S.E. 402 (1900); In the Matter of Peirce, 53 N.C.App. 373, 281 S.E.2d 198 (1981).

III.

C & L and Wayne Cooper next claim they are not liable under the Act for the misrepresentations of the salesmen, since they were made without their knowledge. C & L further argues that because it had no knowledge of the misrepresentations, it cannot be held liable under the...

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