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Issue  72  Article  140
Published:  7/1/2001

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Recent Developments - Summer 2001
Chris Burti, Vice President and Legal Counsel

Space limitations prohibit a discussion of each of the recent cases of interest to real property practitioners, but these have widespread application to the problems we are seeing most often.

Rich, Rich & Nance v. CAROLINA CONSTRUCTION CORPORATION, 546 S.E.2nd ___ (N.C.App. 2001), is an appeal by defendant from a judgment entered in an action seeking specific performance of an contract provision that was an addendum to a real estate sale contract.
The plaintiff owned a tract of land that consisted of a subdivision that had preliminary, but not final plat approval. The property was sold for the purpose of development. The sales contract addendum required Carolina Construction Corporation to pay the sum of $600.00 per lot, as an availability fee, upon the sale of each lot in the subdivision. The agreement provided that it would survive the closing and that a Declaration of Restrictive Covenants would be recorded with the subdivision plat referring to the fee agreement.

The property was conveyed to the defendant in 1997. Defendant subdivided the property into thirty-eight lots and sold one of the lots in the subdivision the next year, but failed to pay plaintiff as required by the addendum and refused after plaintiff demanded the fee. At the time of trial, defendant had sold nine lots in the subdivision without paying any of the availability fees. The trial court awarded the fees due for the nine lots sold and ordered defendant to pay the sum of $600.00 upon the closing of each lot sale. The judgment also provided that "In the event defendant sells the entire tract without selling each of the 28 remaining lots, then the entire balance then due would become immediately payable."

The Court of Appeals ruled that plaintiff's interest in the property was void, because it violates the rule against perpetuities. The Court opined that: "Where the interest or right does not refer or relate to a ‘life in being,’ also known as a ‘validating life,’ the perpetuities period is said to be ‘in gross,’ which means the period is simply twenty-one years. Rodin v. Merritt, 48 N.C. App. 64, 67, 268 S.E.2d 539, 541 (1980). The validity of the interest is measured from the execution of the contract. Id. at 68, 268 S.E.2d at 542. Thus, if at the moment of conveyance, there is any possibility that the interest will neither vest nor fail within the perpetuities period, the interest is void. Coble, 114 N.C. App. at 452, 442 S.E.2d at 121." The Court cites Rawls v. Early, 94 N.C. App. 677, 680, 381 S.E.2d 166,168 (1989) quoting T. Bergin & P. Haskell, Preface to Estate in Land and Future Interests at 73 (1984) as follows: "A future interest is contingent, or has yet to vest, when it is ‘either subject to a condition precedent (in addition to the natural expiration of prior estates), or owned by unascertainable persons, or both.’ (emphasis in original)."

The Court apparently focused on the fact that the agreement stated that plaintiff would retain a lien in the amount of $600.00 on each of the thirty-seven lots into which the parcel may or may not ultimately be divided. The Court of Appeals concluded that "the purported ‘lien’ was not a vested interest, because at the time of their creation, plaintiff's right to payment did not amount to an ‘immediate right of present enjoyment or a present fixed right of future enjoyment.’" Thornhill, 95 N.C.App. at 536, 383 S.E.2d at 449 (quoting Joyner, 299 N.C. at 569, 264 S.E.2d at 82). The liens were subject to several conditions precedent: (1) LFM had to convey the property to defendant; (2) Defendant had to develop the property and divide it into thirty-seven individual lots (and construct houses on each); and (3) Defendant had to convey each of the thirty-seven lots to a subsequent purchaser. The agreement sets no time within which these conditions must be met, and thus, creates a right that is perpetual in nature. Moreover, while the law imposes a reasonable time for performance of the obligations under a contract, see Metals Corp. v. Weinstein, 236 N.C. 558, 73 S.E.2d 472 (1952), a reasonable time for performing the obligations under the present agreement is not necessarily within the twenty- one year perpetuities period. Rodin, 48 N.C. App. at 68, 268 S.E.2d at 541."

The opinion states that the "underlying purpose of the rule being to prevent the restraint on alienation, we believe that the perpetual encumbrance on the property which plaintiff seeks to enforce is the sort of impediment to marketability that the rule was meant to prevent. Therefore, we hold that plaintiff's interest under the addendum must fail, and entry of judgment in plaintiff's favor was error." The case was reversed and remanded for entry of judgment in favor of the defendant.

Judge Tyson dissented. The dissent states that "the deferred compensation fee arrangement does not violate the RAP because: (1) the RAP does not apply because there is no restraint on alienation or marketability of the property as proscribed by the Rule, and (2) it is inequitable to allow defendant to own and sell the property acquired by deed from plaintiff, yet avoid an essential term of the acquisition." The dissent points out that the "requirement that defendant pay the ‘deferred fee’ to plaintiff upon the sale of each lot does not hinder defendant's ability to market or alienate the lots. Based on these facts, I would hold that the RAP is inapplicable to this ‘deferred compensation fee’ arrangement. The trial court found that defendant had alienated nine of the thirty-seven lots without payment of the agreed upon fees to the plaintiff. Defendant now wishes to avoid one of the essential terms of its acquisition of the property."

The dissent goes on to make several well-reasoned arguments as to why the majority is wrong. It appears to this writer that both opinions missed the mark with the majority coming to the wrong conclusion for, partially the right reasons and the dissent right for partially the wrong reason.

The majority’s invalidation of the purported lien is entirely consistent with the line of cases that invalidates such encumbrances that do not have a finite expiration. The reasoning in the line of cases is sometimes strained to apply the Rule Against Perpetuities, but consistent none the less. The "lien" is a restraint on alienation if recorded. The dissent’s argument that nine lots were sold is, most likely, only evidence that the terms of the agreement were not recorded or included in recorded CCRs. Where the majority seems to get off track can best be shown by analogy. If a Deed of Trust is improperly executed or acknowledged, it is void as lien and unenforceable by foreclosure. That failure does not affect the enforceability of the note that the Deed of Trust secures. One may sue on a defaulted note without being required to exercise a power of sale in a Deed of Trust unless it is a purchase money Deed of Trust. The anti-deficiency statute would not apply here, because apparently no security instrument incorporating foreclosure rights was obtained. There does not appear to be much in dispute as to the essential terms of the contract. We know who, how much, and when. Presumably, it was executed under seal, and therefore the statute of limitations period has not expired. In this case, the invalidity of the purported lien should not affect the validity of the contracted payment. It would seem that the judgment of the trial court should have been upheld.

 Coghill v . Oxford Sporting Goods, Inc., 545 S.E.2d 754, (N.C.App. 2001) is a reversal on appeal
of a judgment in favor of Petitioners declaring "the roadbed of the Old Stagecoach Road . . . a neighborhood public road." The petitioners own a large tract of family land (the Coghill tract) conveyed into the family by deed in 1965. The Coghill tract lies south of the respondent's large tract, which adjoins a State maintained road. The Coghill tract, however, does not adjoin any State maintained roads. The petitioners and their predecessors have always accessed the State maintained road by using Coghill-Dickerson Lane, which was described as "an old path" in a 1914 partition. Coghill-Dickerson Lane crosses over the petitioner's tract toward Weldon Mill Road and Weaver Creek to the west and crosses the respondent's tract to access the State maintained road.

The respondent's tract was obtained in 1998. The respondent began developing its tract into a subdivision in 1998. In its plan to develop the property, the respondent improved Coghill-Dickerson Lane to a, graded, fifty-foot right- of-way with drainage ditches. The petitioners were still permitted to use Coghill-Dickerson Lane to reach their property. The respondent, however, did not develop the part of Coghill-Dickerson Lane that crosses the petitioners' tract.
Later in 1998, the petitioners filed a petition to have Coghill-Dickerson Lane declared a neighborhood public road pursuant to N.C. Gen. Stat. 136-67. The trial court found the following facts, which are not disputed by either side:

7 . "[Petitioners] and their predecessors in title have traditionally accessed [the State maintained road] by using a road or path crossing [Respondent's tract], which road is currently denominated "Coghill-Dickerson Lane."
8. Coghill-Dickerson Lane was used for ingress, egress and access to [Petitioners'] property prior to 1941, and was never a part of the public roads system, and was never constructed or reconstructed with unemployment relief funds.

9 . Coghill-Dickerson Lane is located outside the boundaries of any municipality in a rural farming area of Vance County.

10 . [Coghill-Dickerson Lane] serves as a means of ingress and egress for one or more families . . . living along [Coghill-Dickerson Lane].

11. Coghill-Dickerson Lane essentially follows the old road bed of a road which was in existence prior to 1933 for some period of time running from what is now [the State maintained road] down and across Weaver Creek to what is now known as the Weldon Mill Road.

15. That senior citizens in the community know [Coghill-Dickerson Lane] as Old Stagecoach Road and in fact, it existed as early as 1930.

16. That prior to 1941 [Coghill-Dickerson Lane] was used by one and two-horse wagons, Model T and Model A automobiles, and the locals used [Coghill-Dickerson Lane] to go from one road to the other; to go to two mills located in the area, one somewhere on or near [the State maintained road], the other on or near Weldon Mill Road; to Sandy Creek Road and to a church in the neighborhood.

17. That, in addition, the citizenry of Vance County used [Coghill-Dickerson Lane] at their convenience, prior to 1941, to access the public waters of Weaver Creek and to fish for "horny heads," to wash their cars, and to gain access to public gatherings on the shores of Weaver Creek, especially on Sundays.

20. That more recently the road has been used as ingress and egress by [Mr. Coghill's] family; his son; Anthony Garrett; landowner Roberson; landowner Dickerson; and the Clark family, a non-adjacent property owner.

21. That through the last years a number of citizens, not living along the road, have used it as a means to suit their convenience as members of the traveling public.

27. That [Coghill-Dickerson Lane] . . . has had incidental, occasional use by postmen, particularly within the last two months, when unable to deliver mail to [Coghill-Dickerson Lane's] residents at their mailboxes along The State maintained road; in addition, the police or law enforcement authorities have incidentally and occasionally used [Coghill- Dickerson Lane] for law enforcement activity, more particularly to chase fleeing offenders . . . .

The trial court concluded Coghill-Dickerson Lane was a neighborhood public road in 1941.

The Court of Appeals determined that the dispositive issue was whether the trial court's findings of fact support the conclusion of law that Coghill-Dickerson Lane is a neighborhood public road.
The Court cited the following provision of N.C.G.S. 136-67 as applicable: "all . . . roads or streets or portions of roads or streets whatsoever outside of the boundaries of any incorporated city or town in the State which serve a public use and as a means of ingress or egress for one or more families, regardless of whether the same have ever been a portion of any State or county road system . . . ."

Citing Roten v. Critcher, 135 N.C. App. 469, 473, 521 S.E.2d 140, 143 (1999) and Speight v. Anderson, 226 N.C. 492, 496, 39 S.E.2d 371, 374 (1946), the court stated that the petitioners must show that the road was used, as stated in the statute, "continuously and openly for public use for twenty years between 1921 and 1941." The Court of Appeals pointed out that the trial court made no findings of fact concerning the public's use of Coghill-Dickerson Lane anytime before the 1930's. Since the petitioners failed to present evidence showing use of Coghill-Dickerson Lane prior to 1930, the trial court erred in concluding Coghill-Dickerson Lane was a neighborhood public road.

The case does not bode well for practitioners dealing with property access issues. The statute was adopted to assist in putting to rest questions of access arising out of public thoroughfares that were never taken over by the state. It is difficult now to obtain testimony regarding such use eighty years past and will soon be virtually impossible. The narrow reading of the requirements of the statute will make it almost impossible to establish the existence of neighborhood public roads in the future. With the increasing litigation involving access issues, we will need legislation along the lines of the marketable title act in order to be assured that non developed property that does not abut a State road, has legal access.

Town of Highlands v. Edwards , COA00-221, North Carolina Court of Appeals (2001) is a case up on appeal from a directed verdict in a declaratory judgment ruling that certain streets in the Town of Highlands which had never been opened by the Town had in fact been dedicated to the Town and could be opened by the Town without the need for condemnation of rights-of-way. The trial court ruled that there was "only one permissible legal inference" to be drawn from the evidence as to each of the issues and plaintiffs were entitled, as a matter of law, to an affirmative answer to them. The Court of Appeals determined that there were triable issues of fact and remanded the case.

The Town of Highlands was chartered in 1883. In 1875 Samuel T. Kelsey purchased approximately 800 acres of mountain land and began to sell lots. The Town assumed the maintenance of those streets that had been opened and used by the public. The streets at issue here have never been opened. The case centers on a map referred to as the "Kelsey Map." This is a purported map of the original Kelsey property as subdivided into lots and streets. The disputed portions of the streets are part of the streets depicted on this map. The "Kelsey Map" was recorded in the Macon County Register of Deeds in 1944. The record does not reveal who recorded the map or its source. The map had no surveyor's certification and it was a basic layout of the streets and not a metes and bounds plat of these streets and lots. Only a few of the lots contain metes and bounds descriptions. Some lots are not numbered and contain a person's name as the only identification. In 1984, the Town passed a resolution "accepting" the "offer of dedication of streets, alleys, and rights-of-way" contained in the map and resolved "to open the unimproved portions of these streets as required, given the needs of the Town." Some of the defendants attempted to file notices of withdrawal of dedication and the Town filed suit for declaratory judgment to determine the respective rights of the parties.

A dedication of property to the public requires an offer of dedication, and an acceptance of this offer by a governmental body having jurisdiction. The offer of dedication may be express or implied. The acceptance must occur by express resolution, order, or formal ratification, or by implication by use and control of the area for a period of 20 years or more by public authorities. An offer of dedication may be revoked prior to acceptance, but it is irrevocable after acceptance.

The facts, as presented by the Court of Appeals, seem to show that it is highly questionable as to whether an offer of dedication occurred by recording of a plat with the sale of lots described by reference to the plat. This case was decided on procedural issues, but it contains a good summary of the law on dedication and demonstrates the difficulty of dealing with unopened streets.

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