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2004-UP-656 - Blue v. Harrelson

THIS OPINION HAS NO PRECEDENTIAL VALUE.  IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Victor L. Blue and Gail V. Blue,        Respondents,

v.

Larry Harrelson and Nancy Harrelson d/b/a Angle Construction Company,        Appellants.


Appeal From Florence County
B. Hicks Harwell, Jr., Circuit Court Judge


Unpublished Opinion No. 2004-UP-656
Submitted November 1, 2004 – Filed December 22, 2004


AFFIRMED


Kenneth E. Merriman, of Florence, for Appellants.

Daryl James Corbin, of Florence, for Respondents.

PER CURIAM:  In this action to recover damages arising from a construction contract, Larry Harrelson and Nancy Harrelson, d/b/a Angle Construction Company (the Harrelsons), appeal the trial judge’s entry of judgment in favor of Victor L. Blue and Gail Blue (the Blues).  We affirm. [1]

FACTS

The Blues entered into a construction contract with the Harrelsons on April 6, 1999.  The Harrelsons agreed to complete construction of the Blues’ home no later than 265 days from the date of the contract for a purchase price of $340,000.  In addition, the parties negotiated a late-fee provision of $120 per day after December 28, 1999, if the home was not complete.  The Harrelsons never completed the home.  During this time period, the Blues were also subjected to litigation with the Shaw Lumber Company and forced to refinance their home due to the Harrelsons’ failure to satisfy an account that was designated for the Blues’ construction project. 

On November 22, 2000, the Blues filed this action, alleging breach of contract with fraudulent intent, negligence, breach of fiduciary duty, and civil conversion.  Underlying these causes of action, the Blues primarily asserted the Harrelsons breached the contract by:  (1) failing to complete the construction within the designated 265-day time period; (2) failing to construct the home in a workmanlike manner; and (3) failing to pay the material suppliers and subcontractors involved in the project.  The Blues sought relief of $150,000 in actual damages and $150,000 in punitive damages.

Because the Harrelsons failed to answer or respond to the pleadings, the trial judge entered an order of default on February 14, 2001.  This order provided that “all allegations contained within the Plaintiffs’ pleadings are deemed true.”  The judge denied the Harrelsons’ motion to set aside the entry of default.  The judge then held a hearing solely on the amount of damages.

The judge found the Blues were entitled to an award of actual damages “for completion costs of construction in a proper manner, reputational harms and damages, and emotional distress.”  The judge also concluded the Blues were entitled to “additional damages under its breach of contract theory given the [Harrelsons’] violation of the late-fee provision for some of the period of time between December 28, 1999, and May 1, 2001.”  The judge entered judgment in the amount of $50,000 for “breach of contract, violation of the late-fee penalty provision, negligence, breach of fiduciary duties, and civil conversion.”  The judge denied the Blues’ request for punitive damages.

Subsequently, the Harrelsons filed a motion pursuant to Rule 59(e), SCRCP.  The judge denied the motion and affirmed his previous ruling, explaining:

In considering damages, the Court based its consideration on the causes of action contained in the Plaintiff’s complaint:  breach of contract, breach of fiduciary duty, negligence, conversion and emotional and reputational harm.  The Court’s consideration of damages was also based on the following:  delay in not complying with the construction completion date which was provided for in the contract, injury to the Plaintiff’s credit standing, including refinancing with increased interest on the loan, assorted tools, including but not limited to, saws, hammers and paint brushes that were charged to the Plaintiffs but were never given to them, and those items charged to the building site that were not found in the construction.

The Harrelsons appeal.

STANDARD OF REVIEW

This case presents an action at law. See Roberts v. Gaskins, 327 S.C. 478, 483, 486 S.E.2d 771, 773 (Ct. App. 1997) (stating an action for a breach of contract seeking money damages is an action at law); see also Corley v. Ott, 326 S.C. 89, 92 n.1, 485 S.E.2d 97, 99 n.1 (1997) (recognizing an action for breach of fiduciary duty is an action at law); Advance Int’l, Inc. v. North Carolina Nat’l Bank of South Carolina, 316 S.C. 266, 271, 449 S.E.2d 580, 583 (Ct. App. 1994), aff’d in part and vacated in part, 320 S.C. 532, 466 S.E.2d 367 (1996) (action alleging, inter alia, fraud and negligence and seeking damages is one at law); Blackwell v. Blackwell, 289 S.C. 470, 471, 346 S.E.2d 731, 732 (Ct. App. 1986)(“An action for damages for conversion is an action at law.”).  In an action at law, tried without a jury, our scope of review extends merely to the correction of errors of law.  Crary v. Djebelli, 329 S.C. 385, 388, 496 S.E.2d 21, 23 (1998).  Thus, the trial judge’s factual findings will not be disturbed on appeal unless a review of the record discloses that there is no evidence which reasonably supports the judge’s findings. Id.; Townes Assocs., Ltd. v. City of Greenville, 266 S.C. 81, 86, 221 S.E.2d 773, 775 (1976).

DISCUSSION

I.

The Harrelsons argue the trial judge erred in failing to dismiss the Blues’ causes of action for civil conversion, negligence, and breach of fiduciary duty.  As to each cause of action, the Harrelsons contend the Blues failed to prove damages.  In conjunction with their civil conversion argument, the Harrelsons claim there is no evidence to support the judge’s finding that the Blues were damaged by the Harrelsons charging tools and materials to an account with the Shaw Lumber Company, which was designated for the Blues’ construction project.

To the extent the Harrelsons challenge their liability, we find they are precluded from raising these issues due to the entry of default.  Because the Harrelsons were found in default, they are deemed to have admitted the truth of the Blues’ allegations and conceded liability.  See Roche v. Young Bros., Inc., of Florence, 332 S.C. 75, 81, 504 S.E.2d 311, 314 (1998) (“It is well settled that by suffering a default, the defaulting party is deemed to have admitted the truth of the plaintiff’s allegations and to have conceded liability.”); Howard v. Holiday Inns, Inc., 271 S.C. 238, 242, 246 S.E.2d 880, 882 (1978) (“By defaulting, a defendant forfeits his right to answer or otherwise plead to the complaint.  In essence, the defaulting defendant has conceded liability.  However, a defaulting defendant does not concede the amount of liability.”) (citation omitted).

Despite the entry of default, the Harrelsons may raise, as they have done, issues regarding the sufficiency of the Blues’ pleadings and their entitlement to damages under each cause of action.  See Masters v. Rodgers Dev. Group, S.C., 283 S.C. 251, 254, 321 S.E.2d 194, 196 (Ct. App. 1984) (holding defendant found in default was not precluded from challenging the sufficiency of the plaintiff’s complaint as a basis for judgment); see also Mut. Sav. & Loan Ass’n v. McKenzie, 274 S.C. 630, 632, 266 S.E.2d 423, 424 (1980) (“A party seeking a default judgment is entitled to only such relief as is framed by his pleading . . . It follows that if a complaint fails to state a cause of action, the rendering of a default judgment thereon is without authority of law and therefore reversible error.”).  As will be discussed, we find the Blues properly pled the alleged causes of action and there is evidence to support the trial judge’s award of damages under each theory. 

A. 

Conversion has been defined as the unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of the condition or the exclusion of the owner’s rights.  Powell v. A.K. Brown Motor Co., 200 S.C. 75, 78, 20 S.E.2d 636, 637 (1942).  Furthermore, “[c]onversion may arise by some illegal use or misuse, or by illegal detention of another’s personal property.” Regions Bank v. Schmauch, 354 S.C. 648, 667, 582 S.E.2d 432, 442 (Ct. App. 2003).

A review of the Blues’ complaint reveals that they sufficiently pled a cause of action for civil conversion.  Specifically, the Blues alleged they “entrusted funds to the Harrelsons which were supposed to have been used solely for satisfaction of labor and materials costs involving construction of their home.” They further asserted the “Harrelsons intentionally took the Blues’ money and used it for their own personal benefit to the Blues’ detriment.”  Finally, the Blues alleged the “Harrelsons converted approximately $50,000 of the Blues’ money and have failed to return it to them.” 

Not only did the Blues properly plead a cause of action for civil conversion, there is also evidence in the record to support their entitlement to damages under this cause of action.  Mr. Blue testified concerning their damages, which were outlined in a summary that was admitted into evidence.  He testified the Harrelsons misused construction funds to purchase tools and materials that were not used in the construction of the home.  Thomas Robertson, a construction inspector, reviewed the invoices from the Shaw Lumber Company and confirmed that items were designated for the Blues’ construction projection but were not in fact used for the home.  Robertson concluded that “missing” construction materials and tools worth $4,632.96 were inappropriately charged to the Blues’ account.  Mrs. Harrelson admitted the tools, valued at $1,513.22, were never given to the Blues.  She also testified that she understood that by charging these items to the Shaw Lumber account and specifying that they were to be used for the Blues’ construction, the Blues would be subject to litigation if the invoices were not paid.  She acknowledged the Blues were sued by Shaw Lumber Company and required to satisfy the debt.  Mr. Blue testified they paid Shaw Lumber Company $55,000 in order to release the lien.

B.

To state a cause of action for negligence, the plaintiff must allege facts that demonstrate:  (1) a duty of care owed by the defendant to the plaintiff; (2) a breach of that duty by negligent act or omission; (3) resulting damages to the plaintiff; and (4) the damages proximately resulted from the breach of that duty.  Thomasko v. Poole, 349 S.C. 7, 11, 561 S.E.2d 597, 599 (2002).  In their complaint, the Blues alleged the “Harrelsons owed the Blues a duty to construct the house in a workmanlike manner and failed to do so.”  As part of this cause of action, the Blues incorporated other provisions of their complaint.  In paragraphs six and seven of the complaint, the Blues outlined the construction deficiencies and alleged the failure of the Harrelsons to correct the deficiencies despite being ordered to do so by the South Carolina Residential Builders Commission.  Furthermore, the Blues claimed that “[d]ue to the Harrelsons’ negligence, the Blues have incurred and will continue to suffer from severe financial, emotional, and repuational harms and damages.”  Therefore, we find the Blues sufficiently stated a cause of action for negligence.

There is also evidence supporting the Blues’ entitlement to damages pursuant to their cause of action for negligence.  During the presentation of their case, the Blues offered the testimony of Robertson and John Kendall, an investigator/inspector with the South Carolina Residential Home Builders Commission (the Commission).  Kendall testified concerning the deficiencies in the Harrelsons’ workmanship.  Based on his inspection, Kendall compiled two reports, which listed items that needed to be corrected to the Blues’ home because the work that was performed violated construction standards and building codes.  The Commission also issued an order, pursuant to its review of the Blues’ complaint, in which it prohibited the renewal of Mr. Harrelson’s building license until the deficient work was corrected.  Robertson also testified regarding construction items that were either incomplete or not satisfactorily completed.  As a result of these alleged deficiencies, Robertson testified about the costs incurred by the Blues to correct the construction problems, which included warped hardwood floors and roof flashing problems.  Furthermore, in explaining the damage summary exhibit, Mr. Blue testified about the damages that he and his wife incurred due to the defective construction.   

C.

In terms of the Blues’ cause of action for breach of fiduciary duty, “it is well-settled equitable rule that anyone acting in a fiduciary relationship shall not be permitted to make use of that relationship to benefit his own personal interests.” Island Car Wash, Inc. v. Norris, III, 292 S.C. 595, 599, 358 S.E.2d 150, 152 (Ct. App. 1987); see Hendricks v. Clemson Univ., 353 S.C. 449, 458, 578 S.E.2d 711, 715 (2003) (“Historically, this Court has reserved imposition of fiduciary duties to legal or business settings, often in which one person entrusts money to another.”).  In support of this cause of action, the Blues properly alleged that they “entrusted the Harrelsons with their construction funds; and the parties had a special fiduciary relationship during the construction project.  Accordingly, the Harrelsons had a fiduciary relationship with the Blues and were required to use the construction funds solely to satisfy costs involving the Blues’ project.”  The Blues further asserted that the “Harrelsons owed the Blues duties of honesty, loyalty, and fair-dealing,” and that they breached their fiduciary duty “by taking their construction funds and using the money for purposes other than paying the Blues’ construction costs.”  The complaint further stated, “[a]s a proximate result and consequence of the Harrelsons’ breach of fiduciary duties, the Blues have incurred and will continue to suffer from substantial additional construction and repair costs, financing and interest expenses, litigation costs, and emotional and reputational harms and damages.”

As to damages, there is evidence in the record to support the trial judge’s conclusion that the Blues were entitled to recover under their cause of action for breach of fiduciary duty.  As previously discussed, the Blues, through their own testimony and that of Robertson, established that the Harrelsons inappropriately charged materials and tools at the Shaw Lumber Company and designated them for the Blues’ construction project.  Mrs. Harrelson admitted that the tools were never given to the Blues.  Although the Harrelsons were aware of the financial repercussions to the Blues, they did not satisfy the outstanding invoices.  Due to the Harrelsons’ actions, the Blues had to pay Shaw Lumber $55,000 to obtain a release of their home and avoid foreclosure.   

II.

The Harrelsons assert the trial court erred in assessing damages based on the penalty provision of the construction contract.  They contend the provision is unenforceable because it is not based on a consideration of actual damages and it is excessive.

The Harrelsons are correct that where a contract provision is not based upon contemplated actual damages, but is intended to provide punishment for breach of contract, it is a penalty.  See Moser v. Gosnell, 334 S.C. 425, 431-32, 513 S.E.2d 123, 126 (Ct. App. 1999) (“The test for determining whether a stipulation constitutes a penalty is whether ‘the sum stipulated is so large that it is plainly disproportionate to any probable damage resulting from breach of the contract.’” (quoting Tate v. LeMaster, 231 S.C. 429, 442, 99 S.E.2d 39, 46 (1957))).  However, because the Harrelsons failed to answer or respond to the Blues’ complaint, they have waived any challenge to this provision. See D & D Leasing Co. of South Carolina, Inc. v. Lipson, 305 S.C. 540, 542, 409 S.E.2d 794, 796 (Ct. App. 1991) (“Unenforceability based on a penalty theory is an affirmative defense that must have been pled.”).       

III.

The Harrelsons argue the trial judge’s orders were insufficient under Rule 52(A), SCRCP, to determine the basis for the award of actual damages in the amount of $50,000.

Rule 52(a) of the South Carolina Rules of Civil Procedure provides, “[i]n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon.”  Our supreme court has held that:

this requirement to be directory and that noncompliance would not form the basis for invalidating a judgment.  Rather, where a trial court substantially complies with Rule 52(a) and adequately states the basis for the result it reaches, the appellate court should not vacate the trial court’s judgment for lack of an explicit or specific factual finding.

Noisette v. Ismail, 304 S.C. 56, 58, 403 S.E.2d 122, 123-24 (1991)(citations omitted).  

Because we find the trial judge’s order entering judgment and the order denying a new trial substantially complied with the requirements of Rule 52(a), we decline to invalidate the judgment in favor of the Blues.  In the initial order, the judge made eight specific findings of fact and then found the Blues were entitled to actual damages under each cause of action.  In the order denying the Harrelsons’ motion for a new trial, the judge affirmed his previous ruling and explained the basis for his award of damages.  See In re: Treatment and Care of Luckabaugh, 351 S.C. 122, 133, 568 S.E.2d 338, 343 (2002) (“We do not require a lower court to set out findings on all the myriad factual questions arising in a particular case.  But the findings must be sufficient to allow this Court, sitting in its appellate capacity, to ensure the law is faithfully executed below.”) (citation omitted).  Although the judge did not delineate the amount of damages for each cause of action, we find this omission does not mandate an invalidation of the judgment in favor of the Blues.  As will be discussed, there is evidence to support the amount of damages awarded to the Blues.

IV.

Finally, the Harrelsons argue the trial judge erred in awarding the Blues $50,000 in damages.

The plaintiff has the burden of proving damages for a breach of contract action.  Jackson v. Midlands Human Resources Ctr., 296 S.C. 526, 528, 374 S.E.2d 505, 506 (Ct. App. 1988).  Specifically, this Court has stated:

In a default case, the plaintiff must prove by competent evidence the amount of his damages, and such proof must be by a preponderance of the evidence.  Although the defendant is in default as to liability, the award of damages must be in keeping not only with the allegations of the complaint and the prayer for relief, but also with the proof that has been submitted. 

Id. at 529, 374 S.E.2d at 506 (citation omitted).  

Initially, we note the Harrelsons assert the Blues are only entitled to $4,297.98 in damages, which represents the amount needed to complete the construction in excess of the original contract price of $340,000. [2]   This assertion, however, confines the Blues’ damages solely to their breach of contract action.  Because the Blues sought to recover under several other causes of action, as their attorney reiterated during the hearing, their damages would not be limited to this amount.

Turning to the testimony and evidence presented by the Blues, Mr. Blue testified they suffered $173,990.57 in actual damages.  These damages were itemized on a summary sheet that was entered into evidence during Mr. Blue’s testimony. [3]

The contract required the Harrelsons to comply with “all building laws and applicable building codes of Dillon County and of the State of South Carolina.”  However, Kendall, who investigated the Blues’ complaint against the Harrelsons for the Commission, concluded that construction of the home violated the standard building practices, codes, regulations, and standards.  Robertson, who the Blues hired as an expert to inspect the construction, testified there were problems with several contract items, which included the front porch, painting, fixtures, warped hardwood floors, and roof flashing.  As to the cost of correcting and completing these items, Mr. Blue testified they paid $13,138.98.  He further stated the cost of completing construction on the Blues’ home was estimated at $9,650 for work on the porches, shower units, window screens, light wiring, as well as other items.

In addition, Mr. Blue testified concerning the Harrelsons’ use of the construction account at Shaw Lumber Company to purchase tools and materials not used in the Blues’ home.  Robertson, who had forty-two years of experience in construction and held South Carolina General Contractor’s and Residential Home Builder’s licenses, examined the Shaw Lumber invoices and determined $4,632.96 in missing construction materials and tools was charged to an account at Shaw Lumber, which was designated for the Blues’ construction project.  Because the Harrelsons did not pay the Shaw Lumber invoices as agreed upon by the parties in the contract, Shaw Lumber sued the Blues for the balance of the account.  The Blues had to pay Shaw Lumber $55,000 to obtain a release from this debt.  Mrs. Harrelson acknowledged this debt and the financial repercussions could have been avoided had the Harrelsons satisfied the charges as stipulated by the contract between the parties.

Due to the Shaw Lumber Company debt and resulting litigation, the Blues testified their credit rating was adversely affected.  Additionally, the Blues’ original mortgage holder, NBSC, began foreclosure.  The Blues were then forced to obtain financing at a higher interest rate from another financial institution.  They paid an application fee of $300 and closing costs of $3,912.40 to First Citizens Bank where the Blues eventually obtained financing for a second mortgage.  Aside from the above-outlined tangible damages, Mr. Blue also testified they suffered emotional damages in the amount of $50,000.  Mrs. Blue, a mental health counselor, testified regarding the specifics of the emotional damages.  She claimed that as result of the financial problems she was anxious and had migraine headaches for which she took medication.  She further testified her husband became irritable, experienced headaches, and had trouble sleeping.

Finally, the construction contract provided for a late-fee of $120 per day if the Harrelsons failed to complete the Blues’ home in the allotted 265-day time period.  Because the project was not completed as agreed upon by the parties, Mr. Blue testified the Harrelsons accrued a late fee of $58,680.00 for the 489 days between December 28, 1999 and May 1, 2001, the day the Blues obtained financing to complete the project.  Based on the foregoing, we find there is evidence in the record to support the trial judge’s award of actual damages to the Blues in the amount of $50,000.

CONCLUSION

We find the Blues properly pled each cause of action raised in their complaint and presented evidence in support of their entitlement to damages.  We hold the trial judge’s order awarding damages to the Blues was sufficient and there is evidence to support his award of damages in the amount of $50,000.  Accordingly, the decision of the trial judge is

AFFIRMED. 

HUFF, KITTREDGE, and BEATTY, JJ., concur.


[1]  Because oral argument would not aid the court in resolving the issues on appeal, we decide this case without oral argument pursuant to Rule 215, SCACR.

[2]    The Harrelsons base this amount on the following calculation:

Paid by the Blues directly to the Harrelsons                   $ 266,500.00
Paid by the Blues to Shaw Lumber Company                     55,000.00
Construction cost paid directly by the Blues                        13,138.98
Construction cost to complete the contract                            9,650.00
                                                                                            $  344,297.98

[3]    The following is an abbreviated version of the Blues’ damage summary:

Construction Costs Paid by the Blues                            $   13,138.98
Construction Completion Costs                                              9,650.00
Items Missing Charged By Harrelsons to Blues                    4,632.96
Mortgage Refinancing Costs                                                 22,893.63
Liens, Attorney’s Fees, and Litigation Expenses                64,995.00
Contract Damages (Late Penalty:  $120/day x 489)           58,680.00
Emotional/Reputational Damages                                        50,000.00
                                                                                              $ 173,990.57