Found At: www.statewidetitle.com
Issue 293 Article 448
Kassel v. Rienth (COA 22-825) 6/6/2023
Specific Performance of a Judicial Consent Order
Chris Burti, Vice President and Senior Legal Counsel
The defendants in this case appealed the trial court's order for specific performance of a consent order with respect to the sale of real property. The defendants argued that the trial court erred by:
- (1) interpreting the consent order as a standard real estate purchase contract and not as an order of the court;
- (2) inserting words into the unambiguous consent order;
- (3) making findings of fact that are unsupported by the evidence; and
- (4) denying their motion for sanctions.
In a unanimous opinion, the Court of Appeals affirmed the trial court's order in all respects. The plaintiffs entered into a Lease Agreement and Option to Purchase the defendants' home which provided that they would lease it for a term of one year, with the right to purchase at any time prior to the expiration of the agreement. A hurricane substantially damaged the home, requiring a roof replacement. The defendants did not name plaintiffs as an additional insured on the home and had difficulty obtaining insurance proceeds on repairs made by the plaintiffs who claimed that the defendants refused to pay those funds in order to profit from their storm repairs.
The plaintiffs sent the defendants timely written notice of their intent to close with cash and the closing date was scheduled, but the parties were unable to close on the sale. Once it became clear to the plaintiffs that the defendants were not going to close, they filed a Claim of Lien to secure their costs to repair the roof damaged by the hurricane. Subsequently, the plaintiffs filed a Complaint for breach of the Lease Agreement, breach of offer to purchase, specific performance, breach of duty of good faith, and damages. The plaintiffs alleged the sale did not take place because the defendants did not get the necessary closing documents and continued to demand more money for repairing the roof.
After ongoing negotiations, the parties signed a consent order memorializing their resolution of issues and agreement to close.
The Consent Order, which was "the result of arm's length negotiation" between parties, was intended to resolve all claims between the parties and grant Plaintiffs' claim for specific performance. Per the Consent Order, Defendants were responsible for satisfying Excel Roofing's mechanic's lien, and Plaintiffs were responsible for "satisfy[ing] the [mechanic's] lien for $13,512.87." Defendants were also responsible for providing proper execution and delivery of ALTA documents necessary to complete the closing transaction. The parties further agreed rent would be abated from the time the Consent Order was filed until the closing was complete.
The trial Judge signed the Consent Order, and it was filed with the clerk the same day. The Consent Order did not specify the date for closing, but it stipulated closing was to occur sixty days after the Consent Order was filed, which would have been September 7, 2021. After much back and forth and apparent miscommunications, the parties attempted to resolve issues related to the closing but were unable to reach a resolution. The opinion recites:
... Plaintiffs filed a Motion for Clarification and a Motion for Relief from Final Entry of Judgment/Order under Rule 60 of the North Carolina Rules of Civil Procedure (the "Rule 60 Motion"), requesting the trial court extend the closing date. In their Motion, Plaintiffs alleged the delay in closing was due to Defendants' delay in "consenting to inspections and providing verification of rents paid by Plaintiffs, delays in loan commitment due to title issues surrounding the cancellation of a mechanic's lien in the Clerk's office (official record), unexpected delays, and other delays not the fault of the Plaintiffs[.]"
... Defendants filed a Motion to Enforce the Consent Order, which included a motion to eject Plaintiffs from the Home and restore possession to Defendants. Defendants further requested an award of Rule 11 sanctions (the "Rule 11 Motion") against Plaintiffs and Mr. Del Re for the Rule 60 Motion. In response, Plaintiffs filed an Objection to Defendants' Motion and a Countermotion for Specific Performance.
... Judge Carmical entered the March Order granting Plaintiffs' Motion for Specific Performance and denying Defendants' Rule 11 Motion. The March Order concluded as a matter of law that the Consent Order "was intended to be a recital of the parties' agreement . . . [and] should be considered a court approved contract and be subject to the normal rules of contract interpretation."
The trial court further concluded:
Where a contract for the sale of real property does not include an explicit provision that time is of the essence for execution of the contract terms, the 'dates stated in an offer to purchase and contract agreement serve on as guidelines, and such dates are not binding on the parties.' The trial court did not rule on the Rule 60 Motion filed by Plaintiffs.
On appeal, the defendants argued that the trial court erred in interpreting the Consent Order as a standard real estate contract rather than as a court order and "rewriting the Consent Order's explicit deadline" for closing by allowing the plaintiffs "a reasonable time to perform."
The Court felt it was compelled to determine whether the Consent Order was a court-approved contract subject to regular principles of contract interpretation, or an order of the court enforceable solely through contempt powers and observed that:
Traditionally, consent orders have been considered "merely a recital of the parties' agreement and not an adjudication of rights. This type of judgment does not contain findings of fact and conclusions of law because the judge merely sanctions the agreement of the parties." [citation omitted] The question before us, therefore, is whether the inclusion of findings of fact and conclusions of law in the Consent Order transformed it from a court approved recitation of the parties' agreement into a binding order of the court subject to enforcement only through contempt powers.
However, the opinion notes that there in a split of opinion in North Carolina with respect to this issue and it analyses three lines of cases to come to its conclusion that findings of fact and conclusions of law are not, of themselves, dispositive of whether a consent order is to be construed as a court approved contract enforceable through a breach of contract action, or as an order of the court solely enforceable through contempt powers. Instead, the opinion tells us, the court must consider whether the order goes beyond a bare recital of the parties' agreement, and to incorporate the signatory court's own findings and conclusions on the face of the order.
In the case at hand, the court concluded that the Consent Order was a court-approved contract and subject to standard doctrine of contract interpretation.
First, the plain language of the Consent Order shows the court "merely approve[d] the agreement of the parties and set it out in the judgment." [citation omitted]... the Consent Order in this case states, "the parties have reached an agreement regarding resolution of the issues plead in the Complaint and Counterclaim . . . ." (emphasis added). The plain language of the Consent Order affirms that it is the result of a mutual agreement reached by the parties. The Consent Order was not an adjudication of parties' respective rights, but rather was the result of an "arm's length negotiation" between parties.
Second, based on the facts of this case, it appears that Judge Disbrow approved the agreement reached by the parties, and did not make a judicial determination of the parties' respective rights. [citation omitted] Judge Disbrow signed the Consent Order after it had been drafted and signed by the parties and notarized. Judge Disbrow did not "adopt" or "incorporate" the terms of the settlement agreement into Consent Order; he signed the Consent Order exactly as it was presented to him by the parties. [citation omitted]
Notably, Defendants had already signed and notarized the Consent Order on 21 June 2021 before it was presented to Judge Disbrow. Judge Disbrow could not have "transformed the parties' agreement" into his "own determination of the parties' respective rights and obligations" without sending it back to Defendants for approval and signature. [citation omitted].
Third, from our review of the language of the Consent Order, it appears that Judge Disbrow essentially "rubber stamped" the agreement reached by the parties. [citation omitted].
The defendants' argument that the trial court erred by inserting the plaintiffs' requested "reasonable time to perform" into the unambiguous Consent Order was given short shrift by the court where it concluded that the trial court did not "insert" language into the Consent Order but rather "interpreted" the Consent Order as allowing a "reasonable time to perform" because the Consent Order did not have a "time is of the essence" clause. It then supported this conclusion with a standard contract doctrinal analysis. While the opinion follows with an extensive and detailed analysis of the trial court's findings of fact supporting is order of specific performance, it could be contended that it Court of Appeals affirmation of the trail court had almost become a foregone conclusion without any real proffer by the defendants of evidence of any abuse of discretion on the part if the trial court.
We will omit any further discussion of this issue and the issue of the approtrpriatness of the trial court's denial of Rule 11 sanctions as they are primarily procedural and little import for real property practitioners. This unanimous opinion should be helpful as guidance in how to draft real property consent orders with an eye to enforcement according to their terms should there be a subsequent default.