In Deep Keel, LLC v. Atlantic Private Equity Group, LLC, 413 S.C. 58, 773 S.E.2d 607 (Ct. App., 2015), the South Carolina Court of Appeals dealt with two separate hearsay issues with respect to a mortgage foreclosure case. The facts are straightforward: the lender took back a note and mortgage for the purchase of commercial property, and the note was guaranteed by two individuals. The lender sold the loan to plaintiff and, following default, the plaintiff initiated foreclosure proceedings. At the trial of the foreclosure case before the Master-in-Equity, plaintiff’s witness (Bynum, the sole member of the plaintiff corporation) testified that he was personally involved in purchasing the loan, that he reviewed all the loan documents at the time of purchase, and that the documents offered into evidence were the same loan documents provided by the lender. Bynum also testified that he had reviewed other documents obtained from the lender and determined from these the amount of the remaining debt, after deducting payments received and the sale of a part of the secured property. However, plaintiff did not offer these other documents into evidence.
The Master found the debtor liable on the note, found there was a deficiency owing, found the guarantors liable, and ordered the foreclosure of the secured property. On appeal, the Court of Appeals affirmed only the order of foreclosure, reversing the Master on his other findings.
The first hearsay issue was whether the loan documents were properly admitted under the business records exception to the hearsay rule. Sidestepping the hearsay issue, and its numerous exceptions, the Court held that the loan documents were not hearsay. Because the loan documents were offered to establish the terms of a written contract and not for the truth of any facts stated in them, but merely to prove the existence of a contractual right or duty, the Court held they do not constitute hearsay citing 31A C.J.S. Evidence s. 482 (2008), and Kepner-Tregoe, Inc. v. Leadership Software, Inc., 12 F3d 527, 540 (5th Cir, 1994). Although the Court did not repeat it in its analysis, it did note at the outset of the opinion that when defendants filed their answer they admitted the existence of the loan documents and that they were delinquent in repaying the loan.
The second hearsay issue, and the more significant one, was whether the Master properly allowed Bynum to testify as to the amount remaining due on the loan based on his review of various documents obtained from the original lender, without plaintiff offering into evidence any of those documents. The Master had allowed the testimony as a business records exception to the hearsay rule, Rule 803(6) SCRE. However, the Court observed that the rule permits the introduction of records, but does not allow a witness to testify as to the content of records that have not been offered into evidence. “The plain language of Rule 803(6) allows for the admission of “[a] memorandum, report, record, or data compilation,” not testimony describing such a document. We hold Rule 803(6) does not apply to admit live testimony offered to prove the contents of a record containing hearsay when that record is not offered in evidence.” Deep Keel, 773 S.E.2d at 614.
The Court agreed with plaintiff that Bynum was a “qualified witness” under Rule 803(6) based on Twelfth RMA Partners, L.P. v. National Safe Corp., 335 S.C. 635, 518 S.E.2d 44 (Ct.App. 1999). “We held a person is a “qualified witness” under the rule if the testimony conveys information from a person “with knowledge” at the time the records were created. Id. In this case, Bynum appears to be a “qualified witness” under Twelfth RMA because he studied the manner in which [the lender] maintained the records before he purchased the note. Thus, his testimony conveyed information from a person with knowledge at the time the records were created. 335 S.C. at 642, 518 S.E.2d at 48.” Deep Keel, LLC, 773 S.E.2d at 615. Despite the apparent qualification of Bynum, “[b]ecause the business records exception applies only to the admission of business records themselves, the exception does not apply to Bynum’s hearsay testimony.” Id.
This decision is valuable for three reasons. Firstly, it confirms that South Carolina courts should permit the current loan servicer to offer into evidence loan records kept and maintained by the original lender or prior loan servicer. Secondly, it should act as a reminder that both the witness a litigant proposes to rely on, as well as the documents intended to be introduced into evidence, must be independently qualified. And, thirdly, litigants must read each hearsay exception closely so as to ensure they follow the correct process to take advantage of the exception.