The Statewide Title Newsletter and Legal Memorandum

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Issue  253  Article  405
Published:  3/1/2019

Case Law Briefs - March 2019
Chris Burti, Vice President and Senior Legal Counsel

Everett's Lake Corp. v. Dye (COA 18-360) 10/16/2018

Riparian Rights on a Private Lake

Where the owner of a private lake conveyed "riparian rights" to the defendants' predecessors, "their heirs and assigns to their only use and behoof forever"... "in connection with a tract of land owned by the parties of the second part consisting of about 30 acres and located on the South side of the said Everett's Lake...", the Court of Appeals determined that this language by the plaintiff's predecessor in title created an appurtenant right running with the land and not an easement in gross. The Court also clarified that this was not a public trust doctrine issue as it was a non-navigable private lake, but rather that the lake owner had conveyed part of the axiomatic "bundle of sticks".

Bank of Am., N.A. v. Schmitt (COA18-222) 12/18/2018

Reforming Deed of Trust Property Description, Question of Law

The plaintiff appealed from the trial court's judgment entering a jury verdict construing the terms of a deed of trust encumbering property owned by the defendants and its subsequent order denying four post-trial motions. The plaintiff's principal argument was that the trial court erred by allowing the jury to construe the deed of trust to which the Court of Appeals agreed.

The defendants owned two adjoining tracts of land and the deed of trust in dispute described the encumbered property by the physical street address for the tract where the improvements had been constructed, but further by the tax parcel identification numbers for both tracts, as well as by the legal description of the unimproved alone.

The plaintiff filed this action seeking reformation and alleging that it intended to take both tracts in a security. The defendants counterclaimed for reformation claiming that they only intended to secure the improved tract. The trial court referred the meaning of the terms of the deed of trust as well as the reformation claims to the jury. The jury found that the terms of the deed of trust only encumbered the unimproved tract and that neither party was entitled to reformation.

Citing Brown v. Hodges, 232 N.C. 537, (1950) the Court of Appeals observed that "the construction of the terms of a deed, including the question of the property the deed is intended to cover, has historically been a question of law for the court, not for the jury." The Court's resolution of this dispute is significant and follows:

Turning to the 2008 Deed of Trust, the instrument describes the property to be encumbered in three places. First, the 2008 Deed of Trust describes the property to be encumbered by referencing a description of Tract C only, as contained in a prior recorded deed. Second, the 2008 Deed of Trust describes the property to be encumbered by reference to the tax parcel identification numbers for both Tract B (0541877) and Tract C (0537896). Lastly, the 2008 Deed of Trust describes the property to be encumbered by reference to the address of Tract B only. Specifically, the 2008 Deed of Trust describes the encumbered property as follows:

Borrower irrevocably grants and conveys to Trustee and Trustee's successors and assigns, in trust, with power of sale, the following described property located in the County of Macon

[Legal description for Tract C]

Parcel ID Number: 0541877 & 0537896

which currently has the address of 322 Cheyenne Drive, Highlands, North Carolina[.]

Also within the four corners of the Deed of Trust is a statement that it is a "Single Family - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT" and a covenant that "Borrower shall occupy, establish, and use the Property as Borrower's principal residence[.]" While the jury determined that the 2008 Deed of Trust only encumbers Tract C, which is a vacant lot, and not Tract B, containing the Schmitts' home, these provisions in the 2008 Deed of Trust evince an intent that their home also be subject to the lien. We conclude that the provisions contained in the four corners of the 2008 Deed of Trust are sufficient to determine the parties' intent as a matter of law. Based on the provisions, we conclude that the parties intended that the 2008 Deed of Trust encumber both Tract B and Tract C. Referencing both tax parcel numbers is evidence that the intention was to encumber two different tracts. And even though the legal description referenced is that of Tract C only, the reference to the address for Tract B and the provisions indicating that the collateral include the tract where the Schmitts lived is evidence of the intention that Tract B also be included.

Of particular significance is that the Court of Appeals also noted that the plaintiff's "claim that the 2008 Deed of Trust be reformed to include both Tract B and Tract C is moot, as we have determined that the language in the 2008 Deed of Trust already evinces an intent to encumber both Tract B and Tract C."

In re: Radcliff (COA18-419) 12/18/18

Jurisdiction to Reopen Foreclosure Upset Bid Period

This appeal results from an order granting the lender's motion to reopen the upset bid period in a power-of-sale foreclosure action on the basis that it never received notice of an upset bid, and that if it had, it would have placed an additional upset bid prior to the period's expiration. The motion was first heard by the clerk of court on who entered an order denying the motion concluding that the upset bid was the high and final bid. The lender then appealed to the trial court, which granted the motion and reopened the upset bid period.

The high bidder, on appeal, contended that the trial court lacked subject matter jurisdiction to reopen the upset bid period because the rights of the parties had already become fixed pursuant to N.C.G.S. Section 45-21.29A. The lender contended, however, that the trial court did indeed have subject matter jurisdiction pursuant to N.C.G.S. Section 45-21.27(h), and that as a third-party bidder with no interest in the collateral real property, the bidder's "rights" were not fixed emphasizing that a bidder is not a party the foreclosure statutes seek to protect, that the trial court properly reopened the upset bid period based on the evidence presented, and that the plain language of N.C.G.S. Section 45-21.27(h) supports that order.

The court noted that all briefed cases on this issue were raised by a borrower seeking to avoid a foreclosure sale altogether. The cases cited were found to be distinguishable here because the dispute does not involve a borrower but rather two bidders, one of which has interests in the collateral real property that stand to be eliminated by the foreclosure sale. That bidder, was to reopen the upset bid period on the basis that it did not receive proper notice of the upset bid asserting that "[t]he present case is an attempt to cure a procedural defect in the foreclosure statutes, to obtain a high bid, and to enhance the rights of the parties to the foreclosure." the lender relied upon N.C.G.S. Section 45-21.27(h), "which provides as follows:

The clerk of superior court shall make all such orders as may be just and necessary to safeguard the interests of all parties, and shall have the authority to fix and determine all necessary procedural details with respect to upset bids in all instances in which this Article fails to make definite provisions as to that procedure.

The Court noted that procedural defect in this case refers to the "vague notice requirements contained in N.C. Gen. Stat. § 45-21.27(e1)" which does not specify when a trustee must give notice of an upset bid to the last prior bidder.

Propst B. D., Inc. v. Shree Kamnath Corp. (COA 18-519) 1/2/19

Restrictions Negative v. Affirmative as applying to bordering use

This opinion deals with the strict interpretation doctrine of North Carolina as applied to restrictive covenants. A small commercial lot was restricted as follows:

Grantee, or Waffle House, Inc.,... or any subsequent grantee of theirs may not operate a drive-thru type food service restaurant on the real property granted by this deed so long as Grantor, or its successors, operates a drive-thru type food service restaurant in its convenience store on the tract adjacent to this property [Lot 1]. No motor vehicle fuels may be sold or disposed from this real property so long as Grantor or any Grantee of Grantor sells or disposes motor vehicle fuels on [Lot 1.]

The benefitted parcel [Lot1] owner operated a drive-thru restaurant in a convenience store and sold motor vehicle fuels while the restricted lot owner operated a Waffle House. After most of the restricted lot was taken by NCDOT for highway improvements, the vacant balance was conveyed to an owner of adjoining unrestricted property for the intended purpose of providing access to the adjoining property which, in turn, was going to be operated as a gas station and convenience store serving food and merchandise (walk in fast food, but not drive through).

The Adjacent property owner filed a declaratory action seeking a judgment declaring that the proposed use as access did not violate the restrictions and the trial court so ruled giving rise to this appeal by the benefitted owner and by McDonalds Corp. their tenant.

The Court's analysis articulated a distinction between what it termed "affirmative" and "negative" restrictions. It deemed "affirmative" restrictions to be ones that imposed a restriction that permitted only specific uses e.g. 'residential use only' and "negative" restrictions to be those that only prohibited specific uses as in this case. (It should be noted that all such restrictions are considered to be incorporeal hereditaments in the nature of "negative easements".) The Court with a nod to Long v. Branham, 271 N.C. 264(1964); Realty Co. v. Hobbs, 261 N.C. 414 (1964); and Starmount Co. v. Memorial Park, 233 N.C. 613(1951), asserted that "affirmative" restrictions preventing the use of the restrict property for unpermitted uses such as 'access' to other property while citing Charlotte Pavilion Rd. Retail Inv., LLC v. N.C.CVS Pharmacy, LLC, 238 N.C. App. 10, (2014) for the rule that "negative" restrictions could only restrict the defined use and that strict construction required the use at issue to be 'access' which was not prohibited.

In like manner the "Court disposed of McDonald's contention that the language "drive-thru type food service restaurant" does not specifically limit the Restaurant Restriction to restaurants that provide actual drive-thru service by applying strict construction and refusing to extend the restriction to uses it did not deem to be fairly implied in the definition.

Jackson v. Don Johnson Forestry, Inc. (18-354) 1/15/2019

Timber Rights, Life Tenant vs. Remaindermen

Traditional doctrine holds that absent some express grant, a life tenant's right to cut timber is limited such as needed to "'clear tillable land to be cultivated for the necessary support of [her] family,' and she may 'also cut and use timber appropriate for necessary fuel' or to build structures on the property...Further, a life tenant is permitted to harvest and sell sufficient timber needed to maintain the property...However, a life tenant commits waste if she cuts timber merely for sale, to sell the timber trees, and allow them to be cut down and manufactured into lumber for market[:]" (citations omitted). Here the decedent's will expressly devised the life tenant the "unfettered right to cut and sell any tree with a diameter of twelve (12) inches or more (hereinafter the "Large Trees") during her life tenancy."

The timber was clear cut pursuant to a timber cutting contract executed by the life tenant's Attorney in Fact. The remaindermen alleged that the contract was unauthorized and the trial court issued summary judgment on several issues. The Court of Appeals affirmed in part, reversed in part and remanded holding that the devise of cutting rights was valid according to cited precedent; that the remaindermen had no standing to challenge the validity of the execution of the contract as that was solely the right of the life tenant's estate; that they did have claim for any trees cut under twelve inches in diameter and that their allegations were sufficient to survive summary judgement and that the timber cutter had a right of contribution from the estate of the deceased life tenant for any wrongfully cut timber.

The court also determined that the double damages remedy of N.C.G.S. Section 1-539.1 does not apply as the timber cutter was lawfully on the land and not a "trespasser to the land" citing Matthews v. Brown, 62 N.C. App. 559 (1983).

Donnell-Smith v. McLean (COA 18-613) 3/5/19

Division of Unequal Interests for Partition in Kind

The Court of Appeals in this opinion affirmed the trial courts affirmation of the confirmation by the Clerk of Superior Court of a commissioner's report dividing the subject land into unequal share where there were unequal undivided interests. The appellant argued that the commissioners should have determined that the shares were equal after the division, however the opinion observed that the cases holding this requirement to be the case involved "equal" divisions which were not involved here. While it might initially seem that the jurists may have missed the point of the argument, a close reading of the opinion makes it clear that the court was of the opinion that the necessary consideration in decided the equitable division of the land obviated both the deed for such a post division valuation and the practicability of such. "The valuation of the land was consistently applied by the commissioners to all tracts. Each tract was valued differently, even pre-division, due to the factors noted above and the percentage of ownership to be allocated. Respondent's assertion of post-division value is irrelevant to the allocation of interests."..." The evidence in the record supports a conclusion that the property was valued consistently, and the consistent value was applied in dividing the property according to each party's interest. Presuming, arguendo, the method used by the commissioners erroneously failed to take into consideration the value of the underlying property after the lots were divided and the value of the acreage within the lots could have varied depending on where they were ultimately positioned, Respondent failed to show an abuse of discretion and presented no evidence to support a finding that the tract he received was less valuable than the share to which he was otherwise entitled."

Of additional interest a reading of this opinion also makes clear that certain variations in the way a partition proceeding is structured are sanctioned by our courts and two of them appear here. In a division in kind, N.C.G.S. Section 46-13 permits two or more tenants in common to authorize the commissioners to allot their several respective shares to them in common as one parcel. This opinion also makes it clear that a partial sale may be permitted in a proceeding to divide where all of the parties consent. Under the facts of this case a 2.27 acre parcel was located across the road from the principal 98.34 acre tract and the petition asked for a sale of the smaller parcel to cover the costs of the special proceeding. In this case, the opinion held that where the appellant had consented to the division of the larger tract without objection to the sale, he had implicitly consented to the sale of the smaller and as the sale had not occurred, he was not prejudiced since he would be entitled to his share of the net proceeds and could bid at the sale.

Tarr v. Zalaznik (COA18-649) 3/19/2019

Partition Sale; Equitable Treatment of Joint Tenants

Two owners of property held as joint tenancy with right of survivorship disputed the division of the proceeds of the partition sale. The petitioner had contributed $45,000 more to the purchase price than the other owner and requested a pro rata distribution of the net proceeds. The Clerk of Superior Court so ordered and upon appeal to the Superior Court, the trial court agreed.

The respondent contended that as the deed was silent, each was only entitled to half and that the courts were without authority to prorate the division of proceeds. The Court of Appeals with appropriate citation observed that partition was an equitable remedy and that joint tenancy with right of survivorship was governed by N.C.G.S. Chapter 41 which dealt only with the legal rights of property owners. It may be observed that there is very little appellate case law on what was traditionally termed an accounting in partition. It may also be fair to surmise that the process was so well understood in the past that few disputes rose top the appellate level. It is also very interesting to note that this unanimous opinion was not briefed by the successful petitioner appellee.

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