A Georgia court has considered whether statements made by a bank representative about the development potential for a parcel of land amounted to fraud.
Ben Dupree ("Dupree") of the Sumter Bank & Trust Company ("Bank") informed Danny Hicks ("Developer") about a property that the Bank had acquired through foreclosure. Dupree and the Developer visited the property and saw that it was partially developed but needed some adjustments, including a soil test and revisions to the plat. Dupree hired a surveyor/engineer named Earl Dunmon ("Dunmon") to conduct a soil test and revise the plat.
In early 2001, the Developer met with Dupree and Dunmon. Dunmon allegedly stated that the soils were acceptable for development and that the county's environmental officer had told him "that everything was ready to record a revised plat and that the development plan could begin". Based on these discussions, the Developer purchased the property from the Bank, with the Bank providing the Developer the financing to complete the purchase.
The purchase agreement allowed the Developer to enter the property in order to conduct whatever testing he felt was necessary prior to closing. The transaction closed as scheduled. Following the closing, the Developer discovered a number of problems with the property's soil which prevented his developing half of the property.
In December 2002, the Bank informed the Developer that he was in default on his loan payment obligations. Soon thereafter, the Bank filed a lawsuit seeking payment of the loan, and the Developer responded by stating that he was not liable for the loan because of the Bank's fraud and also filed a counterclaim against the Bank. The trial court ruled in favor of the Bank on all claims, and the Developer appealed.
The Court of Appeals of Georgia affirmed the trial court. The court considered the Developer's fraud allegations. In order to establish fraud, the Developer must show that the Bank made a false statement it knew to be false with the intention that the Developer would rely upon the statement to his detriment, thereby causing him damages. The Developer claimed that Dupree had committed fraud when he had told the Developer that the property was ready for development and could support a residential development. The court disagreed, determining that these statements were "expressions of opinion, general commendations, and sales puffing" that the Developer had a duty to verify. As a professional developer, the Developer knew what additional tests needed to be performed and he had failed to order these tests. Thus, the court ruled Dupree's statements about the property did not support the Developer's fraud allegations.
Next, the court considered Dunmon's statements about the property's soil. The trial court had determined that the Bank was not liable for Dunmon's statements because he was acting as an independent contractor and not as the Bank's agent. The test in Georgia over whether an individual is an employee or independent contractor is an examination of the amount of control that the employer has in directing the way the purported employee performs his/her job functions. Even though the Bank allegedly hired Dunmon, it did not control the way he conducted his tests and so Dunmon was an independent contractor. The court also ruled that the Developer did not submit any evidence that the information provided by Dunmon was known to be false by the Bank or Dunmon at the time it was given to the Developer. Thus, the court rejected the Developer's fraud allegations and ruled in favor of the Bank.
Hicks v. Sumter Bank & Trust Co., 604 S.E.2d 594 (Ga. Ct. App. 2004).