Gecy v. South Carolina Bank & Trust (Lawyers Weekly No. 011-024-18, 12 pp.) (Stephanie McDonald, J.) Appealed from Beaufort County Circuit Court (Marvin Dukes III, J.) S.C. App.
Holding: The plaintiff-contractor was a non-customer of the defendant-bank for purposes of the defendant-borrowers’ loan application. Even if it hadn’t been true that the borrowers needed a road maintenance agreement to be signed by everyone on the same private road as their future home in order for the borrowers to get the loan, the bank owed no duty of care to the contractor, so the bank’s representation to the borrowers could not form the basis for the contractor to assert a negligent misrepresentation claim against the bank.
We affirm the circuit court’s grant of summary judgment for defendants.
The plaintiff-contractor agreed to sell the defendant Hamners a lot on Meredith Lane – a private road – and to build a house on the lot for them. This agreement was contingent on the Hamners obtaining financing. The contractor steered the Hamners to the defendant-bank, which was also where the contractor banked.
The bank told the Hamners that they would need all property owners on Meredith Lane to sign a road maintenance agreement (RMA) in order to obtain a construction loan. The contractor asserts that an RMA is only required for Veterans Administration loans, not conventional construction loans. However, the bank required the RMA for the construction loan because the Hamners intended to roll their construction loan over into a VA loan once construction was completed.
The contractor failed to get the required signatures, despite a one-month extension by the bank. The Hamners’ loan application was denied, and their attorney told the closing attorney that their contracts with the plaintiff-contractor were null and void.
The contractor alleges negligent misrepresentation by the bank.
Under Kerr v. Branch Banking & Trust, 408 S.C. 328, 759 S.E.2d 724 (2014), banks owe a limited duty of care to their customers, but this duty does not extend to non-customers when the non-customers’ claims are premised on disputed contractual obligations between a bank and its customer, and the non-customer is not an intended third-party beneficiary to that contract.
Kerr bars the contractor’s negligent misrepresentation claim against the bank. The contractor is attempting to proceed with a cause of action that, at its core, concerns a financing application between the bank and its customers, the Hamners.
In this context, the bank owed no duty of care to the contractor – a non-customer for purposes of the Hamners’ contract – when evaluating the Hamners’ financing application. Thus, only the Hamners could properly pursue the bank for any irregularities or misrepresentations.
Section 552 of the Restatement (Second) of Torts extends possible damages in a negligent misrepresentation case to a loss suffered “(a) by the person or one of a limited group of persons for whose benefit and guidance [the defendant] intends to supply the information or knows that the recipient intends to supply it; and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.”
Thus far, South Carolina has applied § 552 to non-contracting third-parties only in the accounting and consulting contexts. The language of § 552 neither envisions nor applies to transactions like the Hamner contract, for which the bank provided information about its own financing requirements to a third party in a real estate transaction. Therefore, § 552 is inapplicable.
The contractor also claims the bank tortiously interfered with is contractual relations with the Hamners. Yet, the bank was within its rights to set its own lending policies, and it informed the contractor clearly about the need for an RMA, even extending the closing date to obtain this compliance.
It is undisputed that the contractor (and the Hamners) failed to obtain an RMA signed by all necessary landowners before the expiration date of the closing extension. Thus, the contractor has failed to show an issue of material fact demonstrating that the bank intentionally procured any breach of the contracts without justification.
Breach of Contract
Financing was a condition precedent to the Hamners’ performance of their contracts with the contractor. The bank did not offer the Hamners financing. Accordingly, the contractual provisions excused the Hamners’ lack of performance.
Although the contractor alleged that the Hamners hindered the contracts by their failure to “provide all documents or information requested by the lending company in a prompt and timely manner” and to “take any action that is needed or requested by Lender to process the loan application,” the contractor admitted that Jaime Hamner actively participated in attempting to obtain signatures for the RMA. There is no evidence that the Hamners “hindered” the contracts by their conduct.