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Home / Opinion Digests / Contract / Contract – Promissory Notes – Real Property – Banks & Banking – Tort/Negligence – Fraud Counterclaims – Failed Subdivision

Contract – Promissory Notes – Real Property – Banks & Banking – Tort/Negligence – Fraud Counterclaims – Failed Subdivision

Synovus Bank v. Karp (Lawyers Weekly No. 14-04-0101, 39 pp.) (Martin Reidinger, J.) 1:10-cv-00172; W.D.N.C.

Holding: Not only did the defendant-borrowers not rely on the plaintiff-bank’s appraisals of the lots defendants were buying, but defendants never even saw the appraisals before their closings; moreover, defendants did not show that they relied on the statements of a bank employee in deciding to buy the lots.

This action is stayed as to the defendants who have filed bankruptcy; otherwise, the bank’s motion for summary judgment is granted.

Defendants borrowed money from the plaintiff-bank’s predecessor to buy lots in the River Rock subdivision. The subdivision failed, the defendant-borrowers defaulted on their loans, and the bank seeks to collect on defendants’ promissory notes.

The borrowers raise defenses and counterclaims of fraud, unfair trade practices, and bad faith.

The borrowers dealt with bank employee Michael Wolf. Most of the statements Wolf allegedly made to the borrowers are expressions of opinion regarding the value or quality of the property as a potential investment; as such, they are mere “puffery” on which the borrowers were not entitled to rely. Any statement by Wolf regarding the future quality or value of the lots or the purchasers’ ability to sell their lots in the future are not regarded as fraudulent since they are not misrepresentations of an existing fact.

The borrowers have failed to present a forecast of evidence that Wolf made any statement while holding a contrary opinion.

Even if any of Wolf’s statements were actionable, no reasonable fact-finder could infer from the forecasted evidence that the borrowers actually relied on these opinions. For the most part, the borrowers had already entered into the purchase agreements for the properties when they spoke to Wolf. Thus, Wolf’s statements could not have been the cause of the borrowers’ harm.

Even if the borrowers could show reliance, such reliance was unreasonable as a matter of law.

First, reliance on “booster” statements of enthusiastic agents is unreasonable because such statements are to be expected.

Second, it was unreasonable for the borrowers to rely on Wolf’s opinions when their purchase agreements expressly warned the borrowers that there was no guarantee that the property would appreciate and that they should not expect to receive any economic benefits from their purchases.

Third, the borrowers’ asserted reliance was unjustified because they had ample opportunity to conduct an independent investigation of the property and reach their own conclusions about the development and its risks prior to buying the property, but they failed to do so. Most of the borrowers were sophisticated investors, and all of them were seeking to “flip” the property in a relatively short period of time for a profit. Importantly, none of the borrowers have forecasted evidence that the bank denied them the opportunity to inspect the property or that they were otherwise induced to forgo additional investigation as a result of Wolf’s representations.

Further, the borrowers’ asserted reliance was unjustified because their relationship with the bank was contractual and did not give rise to a fiduciary duty to ensure that the borrowers were making a sound investment.

Finally, to the extent that the borrowers base their fraud claims and defenses on the bank’s use of allegedly inflated appraisals, the borrowers have not forecasted any evidence that the bank had any knowledge that the appraisals were incorrect or false in any way. Moreover, the borrowers have forecasted no evidence that they relied on these appraisals in purchasing the properties. Indeed, none of the borrowers even saw an appraisal prior to closing.

The bank is entitled to summary judgment on the borrowers’ fraud defenses and counterclaims.

The borrowers’ unfair trade practices counterclaims also fail.

The borrowers’ assertions that the bank should be held liable for its close association with River Rock’s developer are insufficient to state a claim under G.S. Chapter 75 absent a forecast of evidence that the bank was an actual or apparent agent of the developer.

Since the borrowers’ fraud and Interstate Land Sales Act counterclaims have been dismissed, the borrowers cannot rely on those counterclaims to sustain their Chapter 75 counterclaim.

The bank is entitled to summary judgment on the borrowers’ Chapter 75 counterclaims.

The parties’ promissory notes are governed by South Carolina law, and South Carolina law recognizes duty of good faith and fair dealing in S.C. Code Ann. § 36-1-203. But because the borrowers do not contend that the bank acted in bad faith in exercising its discretion under the terms of their loan agreements, the duty of good faith is not applicable here.

In any event, the borrowers have failed to forecast evidence that the bank acted in bad faith. The borrowers have not forecasted any evidence that Wolf actually held an opinion contrary to the ones he gave or that he was withholding negative information about the developer. The bank is entitled to summary judgment on the borrowers’ defense of the breach of the duty to good faith and fair dealing.

The bank has presented sufficient evidence that it is entitled to recover under the promissory notes of the non-bankrupt borrowers. The bank is also entitled to an award of its costs, including reasonable attorneys’ fees, where such costs and fees are explicitly provided for by the parties’ agreements.

Motion granted.

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