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Davis Adv. Sh. No. 5
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

      Radalytic Labs, Inc.,

      Radon, Inc., Parker

      Wriglht and Brickford

      Faucette,       Respondents,

      v.

      David A. Culver and

      Janice L. Culver,       Petitioners.

ON WRIT OF CERTIORARI TO THE COURT OF

APPEALS

Appeal From York County

J. Buford Grier, Master-in-Equity

Opinion No. 24756

Heard December 16, 1997 - Filed January 26, 1998

REVERSED AND REMANDED

      WALLER, A.J.: We granted certiorari to consider the Court of

Appeals' opinion in Radalytic Labs, Inc. et al. v. Culver, 96-UP-194 (S.C. Ct.

p. 27

App. filed July 9, 1996). We reverse.

Facts/Procedural Posture

      David and Janice Culver ("Sellers") owned one hundred percent of the

common stock in Radalytic Labs, Inc. (David owning sixty per cent and

Janice owning forty per cent). On June 2, 1989, they entered into an

agreement to sell eighty percent of the stock (David and Janice each selling,

forty per cent) to Radon, Inc. ("Purchaser"). The total purchase price was

$190,000. Purchaser agreed to make a cash down payment of $25,000, and

to execute a promissory note for the remaining balance of $165,000, such note

to be repaid according to the terms of the agreement. Purchaser also agreed

to place its newly-purchased shares in escrow as security for full payment.

A separate "Pledge and Escrow Agreement" was executed by the parties.

Finally, David was to continue working for Radalytic Labs, Inc. as a

corporate officer for five years under terms as set forth in the agreement.

      On February 18, 1993, David's employment was terminated. Radalytic

Labs, Inc. and Purchaser subsequently filed suit against Sellers alleging,

inter alia, misappropriation of corporate assets and breach of contract.

Sellers counterclaimed alleging breach of contract on several grounds, the one

pertinent here being default under the purchase agreement in that the

required note payments had not been made.1 The case was referred to a

master-in-equity with direct appeal to this Court.

      At the hearing, Purchaser and Radalytic Labs, Inc. represented they

were no longer pursuing their claims against Sellers; thus the trial issues

concerned only Sellers' counterclaims and third-party claims. Specifically,

both sides requested the master to rule on "whether or not the tendering of

all the stock of Radalytic Labs, Inc. to [Sellers] would satisfy any debt owing

from the Plaintiffs and the third-party defendants to [Sellers] in full." The

master ruled the tender of stock so satisfied Purchaser's obligations and

ordered the conveyance of stock to Sellers. The Court of Appeals affirmed in

an unpublished opinion. Radalytic Labs, Inc. et al. v. Culver, 96-UP-194

(S.C. Ct. App. filed July 9, 1996).

Brickford Faucette, Purchaser's owners, seeking to hold them individually

liable.

p. 28

      This Court granted certiorari to consider this aspect of the master's

ruling.2

DISCUSSION

      The focal point of contention centers around the following language in

the Pledge and Escrow Agreement concerning the rights of the parties upon

default:

It is essentially uncontested that this agreement gave Sellers the option, upon

default, of either (1) keeping the stock, in which case all obligations of

Purchaser would be deemed satisfied, or (2) selling the stock.3 The

ruling Sellers were barred from recovery because they had unclean hands.

See Culver, 96-UP-294, at 3.

      3In interpreting the contractual language, the master found:

p. 29

determinative issue is whether, should Sellers exercise the second option,

they would be entitled to seek a deficiency judgment if the stock were to sell

at a loss.4 In finding Sellers did not have this right, the Court of Appeals

found, "Should [Sellers] sell the stock at a private sale, there is no provision

in the contract allowing [Sellers] to seek a deficiency judgment against

[Purchaser] in the event the stock sells at a loss." Culver, 96-UP-194, at 3.

The Court of Appeals is correct that there is no contract provision addressing

any right to a deficiency judgment. However, Sellers argue they are entitled

to seek a deficiency judgment as a matter of law under Title 36 of the South

Carolina Code. We agree.

      Section 36-9-504(2) states, "If the security interest secures an

indebtedness, the secured party shall account to the debtor for any surplus,

and, unless otherwise agreed, the debtor is liable for any deficiency."

(emphasis supplied). We interpret this language to give a secured party the

right to seek a deficiency judgment unless such right is specifically refused

by agreement. Because the contract here is silent on this issue, we find

Sellers had this statutory right. See Blakeley v. Rabon, 266 S.C. 68, 72, 22l

S.E.2d 767, 769 (1976) ("Words cannot be read into a contract which impart

intent wholly unexpressed when the contract was executed"). Therefore, the

Court of Appeals erred in affirming the master's ruling.5 This case is

Apparently the master was under the impression it was the Purchaser's

choice as to which option Sellers would take. This was an erroneous

interpretation of the agreement.

      4If Sellers cannot seek a deficiency judgment, the master's ruling would,

as a practical matter, be correct, at least regarding Sellers' rights. In other

words, if Sellers cannot seek any deficiency, it would not matter whether they

exercise option one or two because they could sell it regardless of which

option they technically exercised.

      5We summarily reject Purchaser's argument Sellers have not preserved

this issue because they failed to argue it to the master. The record clearly

shows otherwise. Additionally, we find Purchaser's arguments that section

36-9-504 does not apply to the security interest in this case, and that Sellers

did not have rights in the collateral as required before a security interest can

attach, see S.C. Code Ann. § 36-9-203(1)(c) (Supp. 1996), to be without merit.

p. 30

therefore remanded for any further proceeding consistent with this opinion.

REVERSED AND REMANDED.

FINNEY, C.J., TOAL, MOORE and BURNETT, JJ., concur.

deficiency judgment because they did not take adequate care of the collateral,.

see S.C. Code Ann. § 36-9-207 (Supp. 1996), we find this argument would be

better addressed on remand should Sellers actually seek a deficiency

judgment in this case.

p. 31