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Media Alerts - First South Bank v. Bank of the Ozarks - Fourth Circuit
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November 11, 2013
  First South Bank v. Bank of the Ozarks - Fourth Circuit
Headline: External Evidence Needed to Interpret Poorly Drafted Bank Contract

Area of Law: Contracts

Issue Presented: Whether the District Court was correct in denying motions for summary judgment after it found ambiguity in a contract when read in its entirety rather than a limited review of challenged provisions.

Brief Summary: In June 2010, First South Bank agreed to help Woodlands Bank fund a $7.1 million loan to Lakeside Development, LLC. Under Paragraph Three of the Loan Agreement, First South was to receive all the payments until its full investment was received. Thereafter, Woodlands could use payments to pay the expenses. However, in Paragraph Nineteen, the Agreement stated if default occurred, payments would first be applied to expenses then to the unpaid principal of the loan for both Woodlands and First South. Bank of the Ozarks later purchased the loan from Woodlands Bank and inherited the agreement. When Lakeside defaulted on the loan, Bank of the Ozarks deducted their expenses first then paid First South its percentage of the remaining assets.

First South Bank sued Bank of the Ozarks alleging breach of contract, because, according to its interpretation of the agreement, Ozarks should have paid First South's share of the recovery before expenses. Both sides filed motions for summary judgment, which were denied. The District Court found that as a matter of South Carolina law the agreement was ambiguous. During a bench trial, both sides were therefore allowed to present extrinsic evidence. The District Court ruled in favor of First South Bank and Bank of the Ozarks appealed.

South Carolina law states an agreement is ambiguous, if the contract when read in full, 1) is susceptible to more than one interpretation, 2) the meaning is unclear, or 3) there is internal inconsistency. Bank of the Ozarks argued Paragraph Nineteen unambiguously stated expenses were to be paid first. However, the United States Court of Appeals for the Fourth Circuit agreed with the District Court's interpretation that the agreement must be read in full, which showed ambiguity from internal inconsistencies. The Fourth Circuit thus affirmed the District Court's denial of summary judgment.

To read the full decision, please visit:

Panel: Judges King, Shedd, and Thacker

Date of Issued Opinion: 10/18/2013

Docket Number: No. 12-2154

Decided: Affirmed

Case Alert Author: Kelly Lynch

Counsel: John Coffman Lindley, III, JOHNSTON, ALLISON & HORD, PA, Charlotte, North Carolina, for Appellant. Alice F. Paylor, ROSEN, ROSEN & HAGOOD, LLC, Charleston, South Carolina, for Appellee.
ON BRIEF: Elizabeth J. Palmer, ROSEN, ROSEN & HAGOOD, LLC, Charleston, South Carolina, for Appellee.

Author of Opinion: Per Curiam

Case Alert Circuit Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 11/11/2013 08:11 PM     4th Circuit  

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