Certus Bank v. Bennett

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Certus Bank, N.A., Appellant,

v.

Kenneth E. Bennett, Twin Rivers Resort, LLC, and
Bennett of Greenwood, LLC, Defendants,

Of Which Twin Rivers Resorts, LLC, is the Respondent.

Appellate Case No. 2014-001248

Appeal From Laurens County
Charles B. Simmons, Jr., Special Referee

Unpublished Opinion No. 2016-UP-090
Heard December 10, 2015 – Filed February 24, 2016

REVERSED

Louis H. Lang, Callison Tighe & Robinson, LLC, of
Columbia, for Appellant.

T. S. Stern, Jr., Covington, Patrick, Hagins, Stern &
Lewis, LLC, and Violet Elizabeth Wright, V. Elizabeth
Wright Law Firm LLC, both of Greenville, for
Respondent.
PER CURIAM: Certus Bank, N.A. sued Kenneth Bennett, Twin Rivers Resort,
LLC, and Bennett of Greenwood, LLC, seeking to establish the validity of its
mortgage on a property on Lake Greenwood. Certus brought claims for
reformation, an equitable lien, and ratification. Twin Rivers Resort, LLC moved
for summary judgment, and the special referee granted partial summary judgment
on the ratification cause of action. Certus argues the special referee erred in
granting summary judgment to Twin Rivers on Certus's ratification cause of action.
We reverse summary judgment and remand the case for the parties to further
develop the facts.

I. Facts

In 2006, JKR, LLC bought Twin Rivers Landing and Resort, a property on Lake
Greenwood that included cabins, a dock, a bar, and a restaurant. CommunitySouth
Bank loaned JKR $520,000 to purchase the Twin Rivers property and took a
purchase money mortgage. JKR's members were Kenneth—or Ken—Bennett,
Richard K. Bennett, and James Hendershot. JKR hired Ken Bennett's brother,
Richard C.—or Rick—Bennett, to manage the property.1 Pursuant to an agreement
with JKR, Rick Bennett acquired a twenty-five percent equity interest in the Twin
Rivers property over the course of several years.

In July 2007, Ken Bennett entered into a Purchase Agreement to buy the Twin
Rivers property from JKR. On November 1, 2007, Ken borrowed $497,450 from
CommunitySouth. Ken signed a note and a mortgage on the Twin Rivers property
in his own name.2 In a deposition, Ken stated that he did not know the mortgage
on the Twin Rivers property was included in his loan from CommunitySouth. The
closing attorney, James Belk, signed an affidavit stating,

it was my intent as closing attorney, the intent of Kenneth
Bennett, and the intent of [CommunitySouth] for
[CommunitySouth] to obtain a first lien on the property
described in the attached mortgage . . . and it was the
intent of JKR Development, LLC, of which Kenneth

1
Prior to JKR purchasing the property, Rick Bennett came to look at the Twin
Rivers property for JKR because he had experience in owning or working in
similar settings.
2
In October 2007, CommunitySouth ordered an appraisal on the Twin Rivers
property. The appraisal showed JKR still owned the property.
Bennett was a member, as the title holder to the property,
to give [CommunitySouth] that first lien.

Ken Bennett used part of the loan to pay off the purchase money mortgage and
complete the purchase of the property.

In February 2008, Bennett of Greenwood, LLC bought the property from JKR.
Ken Bennett signed the affidavit attached to the deed as "manager" of JKR.
Bennett of Greenwood's sole member was Ken Bennett. 3 In the affidavit attached
to the deed, Ken Bennett—as manager of JKR—stated there were liens or
encumbrances on the land amounting to $1.3 million. Rick Bennett continued to
manage the property and retained a twenty-five percent equity interest in the
property. From 2007 to 2010, Ken Bennett modified and extended the maturity
date of the note three times, provided CommunitySouth documents listing
CommunitySouth as mortgagee on the property, and paid for title insurance for
CommunitySouth on the property. During that time, Rick Bennett wrote several
letters to Ken Bennett asking for information on the mortgage for the Twin Rivers
property.

In March 2010, Rick Bennett told CommunitySouth he would assume the
mortgage on the property if they could come to an agreement, and he received a
loan commitment to refinance the November 2007 loan. The lender who worked
with the Bennetts during this negotiation stated in an affidavit he negotiated with
Ken and Rick to restructure or refinance the loan and "all parties operated under
and acknowledged the belief that [CommunitySouth] already had a mortgage on
the property." Ken signed the loan commitment as owner of the property, but Rick
never signed the commitment. From March 2010 forward, Rick wrote several
checks to CommunitySouth for the interest on the November 2007 loan.

In September 2010, Bennett of Greenwood transferred title to the Twin Rivers
property to Twin Rivers Resort, LLC for one dollar. Twin Rivers Resort, LLC's
sole member is Rick Bennett.4

3
However, in a deposition, Rick Bennett stated he and Ken formed Bennett of
Greenwood.
4
Ken and Rick Bennett claim one dollar does not accurately reflect the sale price
because Ken Bennett owed money to Rick Bennett.
In October 2010, Ken Bennett defaulted on the November 2007 loan. In January
2011, the FDIC shut down CommunitySouth, and Certus Bank bought its assets,
including the November 2007 mortgage.

Certus Bank brought an action to enforce the mortgage against Twin Rivers based
on equitable lien, reformation, and ratification. Twin Rivers moved for summary
judgment on all three claims, and the special referee granted partial summary
judgment on the ratification cause of action. The special referee found it was
undisputed that Ken Bennett "was not the record owner of the mortgaged property
at the time Bennett executed the note and mortgage" and the doctrine of ratification
did not apply because the "defect in the original mortgage is more than a 'technical'
defect."

II. Standard of Review

"An appellate court reviews the granting of summary judgment under the same
standard applied by the trial court under Rule 56, SCRCP." Wachovia Bank, N.A.
v. Coffey, 404 S.C. 421, 425, 746 S.E.2d 35, 37 (2013). Summary judgment is
appropriate if there is no genuine issue of material fact and the moving party is
entitled to a judgment as a matter of law. 404 S.C. at 421, 746 S.E.2d at 38.
Summary judgment is not appropriate when "further inquiry into the facts is
desirable to clarify the application of the law." Carolina Chloride, Inc. v. S.C.
Dep't of Transp., 391 S.C. 429, 434, 706 S.E.2d 501, 504 (2011). In determining
whether summary judgment is appropriate, the court must view all evidence in the
"light most favorable to the non-moving party." Wachovia Bank, 404 S.C. at 425,
746 S.E.2d at 38.

III. Ratification

Members of a member-managed LLC and managers of a manager-managed LLC
are agents5 of the LLC. S.C. Code Ann. § 33-44-301 (2006). An agent of an LLC
has the apparent authority to bind the LLC in matters within the ordinary course of
business. Id. However, acts beyond the ordinary course of business "bind the
company only where supported by actual authority created before the act or ratified
after the act." § 33-44-301 cmt. "[T]he sale, lease, exchange, or other disposal of
all, or substantially all, of the company's property" is outside the ordinary course of

5
Black's Law Dictionary defines an agent as "someone who is authorized to act for
or in place of another; a representative." Agent, Black's Law Dictionary (10th ed.
2014).
business and requires actual authority or ratification. S.C. Code Ann. § 33-44-
404(c)(12) (2006).

"Ratification, as it relates to the law of agency, means the express or implied
adoption and confirmation by one person of an act or contract performed or entered
into in his behalf by another who at the time assumed to act as his agent." Lincoln
v. Aetna Cas. & Sur. Co., 300 S.C. 188, 191, 386 S.E.2d 801, 803 (Ct. App. 1989).
"Ratification proceeds upon the assumption that there has been no prior authority."
2A C.J.S. Agency § 52 (2013). "However, once a ratification has occurred, it is
equivalent to original, prior, or previous authority." Id. In Lincoln, this court first
stated the three elements of ratification, "(1) acceptance by the principal of the
benefits of the agent's acts, (2) full knowledge of the facts, and (3) circumstances
or an affirmative election indicating an intention to adopt the unauthorized
arrangements." 300 S.C. at 191, 386 S.E.2d at 803; see Stiltner v. USAA Cas. Ins.
Co., 395 S.C. 183, 191, 717 S.E.2d 74, 78 (Ct. App. 2011). To ratify the mortgage
in this case, Ken Bennett must have been an agent of the owner of the Twin Rivers
property and the owner must have (1) accepted the benefits of the November 2007
transaction, (2) had full knowledge of the transaction, and (3) adopted or intended
to adopt the transaction.

Certus argues the record contains evidence of ratification and the law of
ratification is much broader than the special referee concluded. We agree. We
hold summary judgment was not appropriate because (1) ratification is not limited
to technical defects, (2) "further inquiry into the facts is desirable to clarify the
application of the law," and (3) the record contains evidence both JKR and Bennett
of Greenwood ratified the November 2007 transaction. Carolina Chloride, 391
S.C. at 434, 706 S.E.2d at 504.

A. Ratification is Not Limited to Technical Defects

In its order, the special referee found the doctrine of ratification was not applicable
because the defect in the November 2007 mortgage was more than a "technical"
defect, citing Scottish-American Mortgage Co. v. Deas, 35 S.C. 42, 14 S.E. 486
(1892). However, nothing in Scottish-American Mortgage Co. limits the doctrine
of ratification to technical defects. See 35 S.C. at 51-52, 14 S.E. at 487-88
(holding a wife had ratified the actions of her husband when the husband was an
agent of the wife, he signed a mortgage on the wife's property in the wife's name,
the mortgage was intended to bind the wife's property, and the wife expressly
adopted the mortgage). Additionally, no case law or secondary source limits
ratification to technical defects. See, e.g., Restatement (Third) of Agency § 4.01
(Am. Law Inst. 2006) ("(1) Ratification is the affirmance of a prior act done by
another, whereby the act is given effect as if done by an agent acting with actual
authority. (2) A person ratifies an act by (a) manifesting assent that the act shall
affect the person's legal relations, or (b) conduct that justifies a reasonable
assumption that the person so consents."); 23 S.C. Juris. Agency § 86 (1994)
("Ratification, as it relates to the law of agency, may be defined as the express or
implied adoption and confirmation by one person of an act or contract performed
or entered into on his behalf by another who at the time assumed to act as his
agent. Ratification is the adoption by one person of an act done or bargain made
for him by another under such circumstances that he would not have been bound
but for his subsequent assent.").

B. Further Inquiry is Desirable to Clarify the Application of
the Law

Ratification of a commercial mortgage is a somewhat novel issue in South
Carolina. Cases dealing with ratification of mortgages tend to deal with residential
mortgages. See Wachovia Bank, 404 S.C. 421, 746 S.E.2d 35; Scottish-American
Mortg., 35 S.C. 42, 14 S.E. 486. Though, "[t]he mere fact that a case involves a
novel issue does not render summary judgment inappropriate," as discussed below,
we hold further development of the facts would clarify the proper application of
agency law and ratification. Linog v. Yampolsky, 376 S.C. 182, 184-86, 656
S.E.2d 355, 356-57 (2008) (affirming the trial court's grant of summary judgment
for plaintiff's medical battery claim when courts had not "thoroughly" explored
medical battery).

C. The Facts Support Ratification for both JKR and Bennett
of Greenwood

Certus argues JKR, Bennett of Greenwood, and Twin Rivers Resort all ratified the
mortgage and even if all three companies did not ratify, JKR ratified the mortgage
and its ratification encumbers subsequent conveyances of the property. 6 See 27

6
Certus could possibly foreclose on the mortgage without ratification. If Ken
Bennett signed the mortgage with the actual authority of JKR, his actions bound
JKR, regardless of what name he used to sign the mortgage. See 23 S.C. Juris.
Agency § 67 (1994) (indicating a principal can be bound by "a person contracting
as an agent" when the "person makes the contract in his own name"). Thus, we
believe ratification may not be necessary for Certus to foreclose on the mortgage.
However, this court cannot address whether Certus can foreclose on the mortgage
S.C. Juris. Mortgages § 49 (1996) ("When mortgaged land is sold . . . the
purchaser takes legal title to the property subject to the lien of the mortgage.").
The evidence—viewed in the light most favorable to Certus—indicates JKR,
Bennett of Greenwood, and Twin Rivers Resort all may have ratified the mortgage.
However, the evidence most strongly indicates JKR and Bennett of Greenwood
met the three elements of ratification. We hold (1) Ken Bennett was likely an
agent of JKR and was an agent of Bennett of Greenwood, (2) facts in the record
support ratification for JKR, and (3) facts in the record support ratification for
Bennett of Greenwood.

First, Ken Bennett was likely an agent of JKR and was an agent Bennett of
Greenwood. Ken Bennett was one of three members of JKR and was the sole
member of Bennett of Greenwood. We cannot conclusively determine Ken
Bennett was an agent of JKR because the record does not indicate whether JKR
was a member-managed or a manager-managed LLC. See § 33-44-301 (stating in
a member-managed LLC, each member is an agent of the LLC and in a manager-
managed LLC, each manager is an agent of the LLC). If JKR was a member-
managed LLC, Ken Bennett was an agent of JKR. See § 33-44-301(a). If JKR
was a manager-managed LLC, Ken Bennett was only an agent of JKR if he was a
manager of JKR. See § 33-44-301(b). If JKR was a manager-managed LLC, the
facts indicate Ken Bennett was a manager—and thus agent—of JKR. When JKR
sold the Twin Rivers property to Bennett of Greenwood, Ken Bennett signed the
affidavit attached to the deed as "manager" of JKR. Thus, Ken Bennett was likely
an agent of JKR. Separately, as the sole member of Bennett of Greenwood, Ken
Bennett was the only person with authority to act on behalf of or to bind Bennett of
Greenwood. See § 33-44-301; Agent, Black's Law Dictionary (10th ed. 2014).
Thus, Ken Bennett was an agent of Bennett of Greenwood.

Second, facts in the record support ratification for JKR. Though more information
is needed to clarify JKR's acts, facts in the record tend to support a finding Ken
Bennett was an agent of JKR and JKR accepted the benefits of the November 2007
transaction, had full knowledge of the transaction, and adopted or intended to
adopt the transaction. See Stiltner, 395 S.C. at 191, 717 S.E.2d at 78. As
discussed above, Ken Bennett was likely an agent of JKR. JKR appears to have
accepted the benefits of the November 2007 transaction. Ken Bennett used part of
the money from the note to pay off the purchase money mortgage and for Bennett

without ratification. The sole question before this court is whether the special
referee erred in granting Twin Rivers summary judgment on Certus's ratification
cause of action.
of Greenwood to purchase the Twin Rivers Property from JKR. See Scottish-
American Mortg., 35 S.C. at 51-52, 14 S.E. at 488 (finding ratification was
appropriate when money from a note "was to be used, in part at least, to remove an
encumbrance from" the mortgaged land). The record does not indicate whether
JKR had full knowledge of the November 2007 transaction. Here, further inquiry
into the corporate structure of JKR, the other members of JKR, and the information
known to JKR about Ken Bennett's actions would be helpful to clarify the
application of the doctrine of ratification. Carolina Chloride, 391 S.C. at 434, 706
S.E.2d at 504. However, facts in the record indicate JKR adopted or intended to
adopt the November 2007 transaction. The closing attorney for the November
2007 note and mortgage stated it was the intent of Ken Bennet and JKR to
mortgage the Twin Rivers property. Viewing all evidence in the light most
favorable to Certus, JKR may have ratified the November 2007 transaction and the
facts preclude summary judgment. Wachovia Bank, 404 S.C. at 425, 746 S.E.2d at
37-38.

Third, facts in the record support ratification for Bennett of Greenwood. Ken
Bennett was an agent of Bennett of Greenwood. Additionally, Bennett of
Greenwood appears to have accepted the benefits of the November 2007
transaction, had full knowledge of the transaction, and adopted or intended to
adopt the transaction. Bennett of Greenwood accepted the benefits of the
November 2007 transaction because the proceeds from the November 2007 note
allowed Bennett of Greenwood to purchase the Twin Rivers property. Bennett of
Greenwood had full knowledge of the transaction because Ken Bennett was the
sole member of Bennett of Greenwood and Ken Bennett executed the transaction.
Finally, facts in the record indicate Bennett of Greenwood intended to adopt the
transaction. Though Bennett of Greenwood is now trying to avoid the mortgage,
the mortgage is a consequence of the November 2007 transaction, and facts in the
record indicate Bennett of Greenwood intended to adopt the transaction. See Bank
of Am., N.A. v. Draper, 405 S.C. 214, 220, 746 S.E.2d 478, 481 (Ct. App. 2013)
("A mortgage and a note are separate securities for the same debt . . . ."). While
Bennett of Greenwood owned the property, Ken Bennett listed CommunitySouth
as the mortgagee on multiple title insurance documents. Additionally, during the
time Bennett of Greenwood owned the Twin Rivers property, Ken Bennett
modified or refinanced the note three times. The April 2009 modification stated
the obligation on the note was secured by the November 2007 mortgage, and Ken
Bennett signed the April 2010 extension as owner of the Twin Rivers property.

We hold summary judgment was not appropriate as to Certus's ratification cause of
action. Facts in the record support JKR and Bennett of Greenwood's "adoption and
confirmation" of Ken Bennett's November 2007 transaction, which includes the
mortgage on the Twin Rivers Property. Lincoln, 300 S.C. at 191, 386 S.E.2d at
803. Any purchaser of the Twin Rivers property would take the title subject to a
ratified mortgage on the property. See Restatement (Third) Of Agency § 4.02
(Am. Law Inst. 2006) ("Ratification recasts . . . legal relations as they would have
been had the agent acted within actual authority. Legal consequences thus 'relate
back' to the time the agent acted."); 27 S.C. Juris. Mortgages § 50 (1996) ("The
mortgagor may convey legal title to a purchaser, but the purchaser takes the title
subject to any lien that the mortgage may have given the holder of the mortgage.").
Thus, we remand the case for the special referee to determine whether JKR,
Bennett of Greenwood, and/or Twin Rivers Resort ratified the November 2007
mortgage.

IV. Conclusion

We REVERSE summary judgment on Certus's ratification cause of action and
REMAND for further proceedings.

FEW, C.J., and KONDUROS and LOCKEMY, JJ., concur.