Please be advised that the Court assumed for purposes of the Motion for Summary Judgment that all the facts the Plaintiff (Kagan) alleged were true in the light most favorable to him and without consideration of the Defendants Simchons’ version of the events to form the basis for their legal analysis.
Have you heard that oral contracts are legally binding? While many verbal agreements are valid and can be upheld in court, that’s not always the case. South Carolina law requires written contracts for certain types of agreements, and without evidence in writing, the contract cannot legally be enforced.
Still, some people, either not knowing the law or not seeing the need for a written contract, go ahead with a deal in good faith based on a verbal agreement and a handshake.
Jeffrey S. Kagan did so, lending large amounts of money on handshake deals, in a case (Kagan v Simchon) that was heard by the South Carolina Court of Appeals in May 2019.
Can you guess how it turned out for him?
Kagan had a close relationship with Renee Simchon, the respondent in the case, and her husband, Sam. Kagan worked as an independent contractor for many years for Sam’s company, Bay Island Sportswear, Inc., which was next door to Simchon’s realty company, Greenwood Realty, in Greenwood, SC.
Over the years, Kagan occasionally loaned them money, including $129,000 in June 2009 (First Loan), $210,000 in October 2010 (Second Loan), and $52,000 in November 2013 (Third Loan). Kagan later stated that the agreements for the First Loan and Third Loan were not reduced to writing, but stated there was written evidence of the Second Loan.
Simchon used the money from the Second Loan to pay off a mortgage she held for one of her clients, and the plan was to repay the principal when the property was sold. Instead, after the sale of the property, Simchon wrote Kagan a check for $31,616.46 and gave the remaining $180,000 to her husband Sam to invest on Kagan’s behalf. Kagan later stated in a deposition that he did not authorize that transfer of money to Sam.
Kagan also believed that from this point, the First Loan and Second Loan were consolidated. When he made the Third Loan, he stated he believed that it was also consolidated with the first two. Again, this consolidation was not put down in writing, and was done on the basis of “a handshake, a look in the eye and a personal relationship.”
Sam made periodic payments until November 2013. In April 2014, Kagan’s employment with Sam’s shop was terminated.
In August 2015, Kagan filed summons and complaint seeking repayment on all three loans, alleging breach of contract and other actions. In response, the defendants filed a motion to dismiss.
The case was heard in circuit court in February 2016, in which Kagan’s claims regarding the First Loan and the Third Loan were dismissed after he admitted that the terms of these loans had not been reduced to writing. The case was heard again in circuit court in January 2017 after some claims were dismissed and Simchon remained as the only defendant. This time, the Second Loan was dismissed for the same reason; despite Kagan claiming that there was written evidence of the Second Loan, he was not able to produce it.
Without written evidence of the terms of the loans, the court was not able to enforce Kagan’s claims for repayment, citing Section 37-10-107 of South Carolina Code:
No person may maintain an action for legal or equitable relief […] to lend or borrow money; […] or […] to renew, modify, amend, or cancel a loan of money […] involving in any such case a principal amount in excess of fifty thousand dollars, unless the party seeking to maintain the action or defense has received a writing from the party to be charged containing the material terms and conditions of the […] agreement and the party to be charged, or its duly authorized agent, has signed the writing.
In short, if you make a business deal that involves lending, borrowing, renewing, modifying, amending, or canceling a loan over $50,000, you must have the agreement written down and signed to be legally enforceable. (Note that this does not apply to “a loan of money used primarily for personal, family, or household purposes,” per 37-10-107(3)(a).)
The circuit court thus granted Simchon’s motion for summary judgment. The case was appealed and heard by the SC Court of Appeals in May 2019.
The circuit court cited the statute of frauds (SOF) as the reason for barring or dismissing Kagan’s claims. SOF requires that certain types of agreements be written down and signed to be enforceable. The concept comes from common law and is present in every state in one form or another.
In South Carolina, the statute of frauds is found in SC Code Title 32 Chapter 3. Agreements that must be reduced to writing and signed by an authorized party are those:
In addition, Section 36-2-201(1) requires a contract recording the sale of goods valued over $500 in order for any related action to be enforceable, and, as seen above, Section 37-10-107 requires written evidence to enforce actions on lending or borrowing $50,000 or more in business deals, or making changes to the agreement related to it.
Kagan argued that the circuit court erred because Simchon used the money from the Second Loan to pay off a mortgage that was in her name – not that of her realty company – therefore making it a personal loan that wasn’t subject to 37-10-107.
The SC Court of Appeals disagreed, stating that even if the mortgage was in her own name, the money was “used” (the word in the statute, the court notes) on behalf of a client in the course of business, making it subject to 37-10-107. The Court of Appeals agreed with the circuit court’s finding that Kagan’s claim with respect to the Second Loan was therefore barred.
The circuit court found that Kagan’s breach of contract claim was barred because of the statute of limitations (SOL), or the time allowed by law in which to bring a legal claim. Kagan argued that the circuit court erred, saying that Sam’s payments on the loans tolled the statute of limitations until the payments stopped.
“Tolling” means pausing or delaying the time left on the SOL. Tolling may allow someone to bring a lawsuit even after the SOL has seemingly run out.
However, in this case, the appeals court did not agree that the SOL was tolled, as that would have depended on the loans being consolidated. If you remember, Kagan stated that he believed all three loans were consolidated. He also stated that the terms of the consolidation were never written down – and that’s the problem.
The appeals court affirmed the circuit court’s finding, again citing 37-10-107, which states (as discussed above) that any amendment or modification to a loan over $50,000 must be in writing to be enforceable. Without the terms in writing, there is no tolling of the SOL.
The SOL therefore began when Simchon breached their agreement by failing to transfer the remainder of the money from the sale of the property to Kagan. This happened on March 21, 2011, and since the SOL for a breach of contract claim in South Carolina is three years, Kagan had until March 21, 2014 to file. He didn’t until August 2015, nearly a year and a half after the SOL had run out.
The South Carolina Court of Appeals affirmed the circuit court’s order to grant summary judgment to Simchon. Unfortunately for Kagan, he wasn’t able to use the force of the law to help him recover the outstanding money he was owed. This could have been avoided had he gotten everything in writing.
Contracts exist for a reason, and a correctly written one can save you time, money, and heartache. Don’t rely on a handshake or the goodwill you have with another party when making a deal, especially when there’s a substantial amount of money on the line. Work with an attorney to ensure that your interests are looked after and protected.
Business attorney Gem McDowell of the McDowell Law Group in Mt. Pleasant, SC, serves clients in the greater Charleston area and the state of South Carolina. He and his associates can help you with contracts, business creation and planning, commercial real estate, and more. To make an appointment or to schedule a free 20-minute consultation with an attorney, call Gem and his team today at 843-284-1021.