Opinion
No. COA04-1714
Filed 1 November 2005 This case not for publication
Appeal by plaintiffs from judgment entered 8 September 2004 by Judge Gregory A. Weeks in Cumberland County Superior Court. Heard in the Court of Appeals 25 August 2005.
HUTCHENS, SENTER BRITTON, by H. Terry Hutchens, Rudolph G. Singleton, Jr., and John A. Mandulak, for plaintiff-appellants. McCOY, WEAVER, WIGGINS CLEVELAND, P.L.L.C., by Jim Wade Goodman, for defendant-appellees.
Cumberland County No. 03 CVS 7172.
This opinion was drafted and concurred in prior to 31 October 2005.
Gene S. Ammons ("Ammons, Sr."), Delores T. Ammons ("Delores"), Gene S. Ammons, Jr. ("Ammons, Jr."), Lee J. Ammons ("Lee"), Associated Motels, Inc. ("Associated Motels"), Associated Hotels, Inc. ("Associated Hotels"), Associated Hospitality Services, Inc. ("Associated Hospitality"), and Sterling House Hospitality Services, Inc. ("Sterling") (collectively, "plaintiffs") appeal the trial court order granting summary judgment in favor of James L. Yates ("Yates") and Yates Homes, Inc. ("Yates Homes") (collectively, "defendants"). Because we conclude that a material issue of fact remains in the case, we reverse the judgment of the trial court.
The facts and procedural history pertinent to the instant appeal are as follows: In 2001, Ammons, Sr., Ammons, Jr., and Yates held various partnership interests in several corporations operating hotels in Cumberland County, North Carolina. In mid to late 2001, a dispute arose between the partners concerning Yates' ownership interest in the corporations. At or around the same time, Branch Banking and Trust ("BB T"), the corporations' major creditor, began making demands upon the corporations and their partners regarding the payment and/or restructuring of debt owed to BB T. The partners thereafter filed individual lawsuits against one another, and BB T filed suits against Ammons, Sr., Delores, Yates, Associated Motels, and Associated Hotels.
Following a court-ordered mediation, plaintiffs and defendants entered into a Settlement Agreement on 30 August 2002. The Settlement Agreement contained the following pertinent provisions:
1. Yates will sell, convey and transfer to Ammons, Sr. all of the capital stock owned by Yates in Associated Motels, Associated Hotels, and any and all interest which Yates now has or is entitled to receive in Associated Hospitality.
2. Yates will sell, convey, transfer and assign to Ammons, Sr. all interest in any notes, notes receivable, accounts receivable, and any and all other claims, rights, title or interest which Yates has now or is entitled to from Associated Motels, Associated Hotels, Associated Hospitality and Sterling. Yates will sign an assignment in form and substance identical to that which is titled Assignment marked as Exhibit 1 attached hereto and incorporated herein by reference. (The "Assignment").
3. In consideration of the transfer of the stock from Yates to Ammons, Sr., the Assignment, the transfer of all other interests which Yates has or may have in Associated Motels, Associated Hotels, Associated Hospitality, and Sterling, and the settlement of all claims between parties, Ammons, Sr., Ammons, Jr., Delores, and Lee will pay to Yates the sum of $850,000.00. (The "Settlement Amount").
4. The Settlement Amount will be evidenced by a Promissory Note in form and substance identical to the Note marked as Exhibit 2 attached hereto and incorporated herein by reference. (The "Note"). The Note will be made and delivered by Ammons, Sr., Delores, Ammons, Jr. and Lee.
5. The Note will provide that no interest will accrue or be due for one year from the execution of the Note . . ., that interest shall accrue beginning with the 13th month following execution of the Note at the annual rate of 7% and that such accrued interest shall be paid on a monthly basis beginning on the 10th day of the 13th month following execution of the Note and continuing . . . with . . . all unpaid interest and principal due on August 30, 2012. The Note will provide that there will be no pre-payment penalty and that the Note may be prepaid in whole or in part provided that no partial prepayment of principal in the amount of less than fifty thousand dollars . . . may be made without the consent of Yates or the then holder of the Note. The Note will further provide that Yates will accept $750,000.00 as payment in full of all sums due under the Note in the event that such sum is paid at any time during the first year . . . following execution of the Note. The Note will further provide that Yates will accept $800,000.00 as payment in full of all principal sums due under the Notein the event that such payment is made at any time during the second year . . . following execution of the Note, provided that all payments of interest due under the Note are current.
[The Settlement Agreement thereafter set out the various obligations with BB T that Yates entered into as maker or guarantor.]
8. Ammons, Sr., Ammons, Jr., Delores and Lee agree to indemnify and hold Yates harmless as to any claims, costs or suit arising out of a default in payment of any debts owed or due by Associated Motels, Associated Hotels, Associated Hospitality, or Sterling and to specifically include each of the notes due to BB T and Self Help Ventures Fund and set out in paragraphs 6 and 7 above. Ammons, Sr[.], Ammons, Jr., Delores and Lee will execute an indemnity agreement in favor of Yates in form and substance identical to the Indemnity Agreement marked as Exhibit 3 attached hereto and incorporated herein by reference. ("The Indemnity Agreement").
9. The Indemnity Agreement in addition to indemnifying Yates against any los[s], cost, suit or action resulting from a default in payment of any of the notes due to BB T or to Self Help Ventures Fund will also contain provisions indemnifying Yates against any loss, costs, suit or action arising out of any shortfall in the event that any of the real property owned by Associated Motels or Associated Hotels is foreclosed upon and the proceeds from the foreclosure sales fail to pay the debts due to BB T and/or Self Help Ventures Fund in full. The parties acknowledge that Associated Motels, Inc., Associated Hotels, Inc., Ammons, Sr.[,] Ammons, Jr.[,] Delores, Lee and Yates have entered into an agreement dated as of the 30th day of August, 2002, by the terms of which Associated Motels, Inc. and Associated Hotels, Inc. have agreed to pay in full all notes owed to BB T and as identified in Paragraphs 6 and 7 above on or before December 31, 2002.
. . . .
14. All parties to this agreement shall execute a forbearance agreement with BB T. The forbearance agreement shall be in form and substance identical to the agreement marked as Exhibit 10 attached here to and incorporated herein by reference.
Attached to the Settlement Agreement was a copy of a Promissory Note which stated that it was given "pursuant to terms of a Settlement Agreement." Attached to the Promissory Note was an exhibit outlining the following "Special Conditions" of the Promissory Note:
1. This Note may be prepaid at any time in part or in whole without the consent of payee. Provided that any partial prepayments in amounts less than Fifty Thousand Dollars ($50,000.00) may be made only with the consent of payee.
2. Payee will accept Seven Hundred Fifty Thousand Dollars ($750,000.00) in full payment of this Note provided that such payment is received on or before August 30, 2003.
3. Payee will accept Eight Hundred Thousand Dollars ($800,000.00) in full payment of all principal sums due under this Note provided that such payment is received on or after August 31, 2003 and before August 30, 2004 and provided further that all interest payments are current.
As "acknowledge[d]" in the Settlement Agreement, Associated Motels, Associated Hotels, Ammons, Sr., Delores, and Yates entered into a Forbearance Agreement with BB T on 30 August 2002. As part of the Forbearance Agreement, BB T agreed to forbear from the exercise of its rights and remedies from 30 August 2002 until 31 December 2002, pending the obligors' compliance with the terms of the agreement. On 31 December 2002, BB T agreed to amend the terms of the original Forbearance Agreement to extend the expiration of the forbearance period to 17 April 2003. On 4 April 2003, BB T agreed to a second amendment which extended the expiration of the forbearance period to 17 June 2003.
In their affidavits, both Ammons, Sr. and Ammons, Jr. assert that Yates signed both amendments and agreed to the corresponding extensions of the original forbearance period. However, although he was listed as a party on both documents, Yates did not sign either of the amendments contained in the record on appeal.
On 16 January 2003, Yates' counsel wrote to plaintiffs' counsel and informed him that Yates had received three past due statements from BB T regarding the defaulted loans. Yates' counsel wrote a second letter to plaintiffs' counsel on 12 February 2003, noting that it was his "understanding that the default by [plaintiffs] with [BB T] ha[d] been cured by the due execution by parties of interest of a Forbearance Agreement and Note Modification Agreements[.]" The letter stated further that
Notwithstanding the cure of the default by [plaintiffs] with [BB T], please be respectfully informed that it is the position of [Yates] that [plaintiffs] have not cured their default pursuant to an[d] in accord with the terms and provisions of the Settlement Agreement. . . .
Specifically, it is the position of [Yates] that [plaintiffs] have failed to timely perform numerous provisions of the Settlement Agreement; specifically including but not limited to, the provisions of paragraph numbered Nine (9) requiring [plaintiffs] to pay in full all notes to [BB T] on or before December 31, 2002.
In light of the default of [plaintiffs], [Yates] hereby demands the sum of $850,000.00 (Eight Hundred Fifty Thousand Dollars) from [plaintiffs] at this time.
A similar letter was written to plaintiffs' counsel on 21 March 2003. In that letter, Yates' counsel stated that "a substantial component of the negotiations and consideration leading to and supporting the Settlement and related agreements effective August 30, 2002 was the fact that [Yates] would be . . . fully released from the obligation and financial burden of the subject indebtednesses due [BB T] on or before December 31, 2002."
On 23 July 2003, plaintiffs' counsel wrote Yates and advised him of plaintiffs' intention to prepay the Promissory Note pursuant to the special condition requiring Yates to accept $750,000.00 as full payment. On 6 August 2003, plaintiffs' counsel advised Yates that a closing had been scheduled for 15 August 2003. After receiving no response from Yates or his counsel regarding the letters, plaintiffs' counsel contacted Yates' counsel via telephone. Yates's counsel informed plaintiffs' counsel that Yates would not accept the $750,000.00 payment and would instead pursue litigation. Subsequent attempts by plaintiffs to offer full payment of the Promissory Note were rejected, and on 26 September 2003, plaintiffs filed a declaratory judgment complaint against defendants, seeking to determine, inter alia, whether plaintiffs were entitled to pay the Promissory Note via the terms of the special condition and whether Yates was obligated to accept $750,000.00 as full payment for plaintiffs' obligations under the Promissory Note.
After the filing of the initial pleadings, both plaintiffs and defendants filed motions for summary judgment in their favor. On 8 September 2004, the trial court denied plaintiffs' motion for summary judgment and granted summary judgment in favor of defendants, ordering that plaintiffs pay defendants the unpaid principal balance of the Promissory Note plus accrued interest as well as attorneys' fees and costs. Plaintiffs appeal.
The dispositive issue on appeal is whether the Forbearance Agreement was incorporated into the Settlement Agreement. Plaintiffs argue that because a genuine issue of material fact remains as to whether the Forbearance Agreement was incorporated into the settlement agreement, the trial court erred by granting summary judgment in favor of defendants. We agree.
Summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2003). The party moving for summary judgment may demonstrate that no triable issue exists "(1) by showing that an essential element of the opposing party's claim is nonexistent; or (2) [by] demonstrating that the opposing party cannot produce evidence sufficient to support an essential element of the claim or overcome an affirmative defense which would work to bar [their] claim." Wilhelm v. City of Fayetteville, 121 N.C. App. 87, 89, 464 S.E.2d 299, 300 (1995). "All inferences of fact from the proofs offered at the hearing must be drawn against the movant and in favor of the party opposing the motion." Boudreau v. Baughman, 322 N.C. 331, 343, 368 S.E.2d 849, 858 (1988).
The instant case involves a matter of contract interpretation. Defendants assert that by paying the notes owed to BB T in May 2003, plaintiffs violated a material term of the Settlement Agreement. Specifically, defendants contend that the Forbearance Agreement was incorporated into the Settlement Agreement, and that paragraph 9 of the Settlement Agreement required plaintiffs to pay the debt to BB T by 31 December 2002 in order to invoke the special condition of the Promissory Note. Plaintiffs, on the other hand, assert that payment of the debt to BB T by 31 December 2002 was not a material term to the Settlement Agreement or Promissory Note. Specifically, plaintiffs contend that the Forbearance Agreement requiring payment of the debt to BB T by 31 December 2002 was not incorporated into the Settlement Agreement. In the alternative, plaintiffs contend that any ambiguity concerning the incorporation of the BB T debt into the Settlement Agreement raises a question of fact for the jury.
"In North Carolina it is well settled that `[w]henever a court is called upon to interpret a contract its primary purpose is to ascertain the intention of the parties. . . .'" Jefferson-Pilot Life Ins. Co. v. Smith Helms Mulliss Moore, 110 N.C. App. 78, 82, 429 S.E.2d 183, 186 (1993) (quoting Cleland v. Children's Home, 64 N.C. App. 153, 156, 306 S.E.2d 687, 589 (1983)) (alterations in original). "If the agreement is ambiguous and the intention [of the parties] unclear, interpretation of the contact is for the jury." Jefferson-Pilot Life Ins. Co., 110 N.C. App. at 82, 429 S.E.2d at 186 (citing Cleland, supra). "[I]f the writing itself leaves it doubtful or uncertain as to what the agreement was, parol evidence is competent . . . to show and make certain what was the real agreement between the parties; and in such a case what was meant, is for the jury, under proper instructions from the court." Root v. Insurance Co., 272 N.C. 580, 590, 158 S.E.2d 829, 837 (1968) (citation and quotation marks omitted).
In the instant case, as detailed above, paragraph 9 of the Settlement Agreement "acknowledge[s] that [plaintiffs] and Yates . . . entered into an agreement dated as of the 30th day of August, 2002, by the terms of which Associated Motels, Inc. and Associated Hotels, Inc. . . . agreed to pay in full all notes owed to BB T . . . identified [in the Settlement Agreement] . . . on or before December 31, 2002." Both parties agree that this sentence refers to the Forbearance Agreement executed by the parties and BB T. However, the parties disagree regarding the impetus behind and applicability of the sentence. Defendants offered evidence by way of affidavits tending to show that the sentence was included in the agreement to create an absolute requirement that the debt to BB T be paid by 31 December 2002. In his affidavit, Gardner H. Altman, Jr., Esq. ("Altman"), Yates' legal and financial counsel, makes the following pertinent assertions:
10. A significant and pivotal point of negotiation on behalf of [Yates] at the time of the mediation was the release of liability of [Yates] as a guarantor on the Notes made by the Hotel Companies. The initial position of [Yates] was that he must be released as of the date of the settlement agreement. In response, [plaintiffs' counsel] presented to counsel for [Yates] a letter of commitment from a third party funding source indicating that. . . . Ammons, Sr. and Ammons, Jr., as the proposed successor owners to the stock interests of [Yates], would, by October 2002, obtain refinancing of the Notes guaranteed by [Yates]. [Yates] observed that the likelihood of the funding commitment to be completed by October was not great. Therefore, [Yates] authorized me to present a counter proposal to [plaintiffs' counsel] that [Yates] would accept the other proposed settlement agreement terms on the condition that the Notes due and payable to [BB T] would be paid no later than December 31, 2002.
11. The date of December 31, 2002 was extremely important to [Yates] because he and his companies had several loans with [BB T] that had to be renewed or renegotiated during the first quarter of 2003. Specifically, [Yates] or one of his companies had obligations due to [BB T], secured by liens encumbering a building supply property, an office building in downtown Fayetteville, and apartment complexes. [Yates] emphasized to all parties and persons at the mediation that it was critical that the BB T Notes be paid off on or before December 31, 2002. Pursuant to those discussions, the parties entered into a Settlement Agreement[.]
Yates refers to his intent in entering into the Settlement Agreement in his own affidavit, in which he states that his "primary objective in this matter was to either have the indebtedness on the notes referenced . . . in the settlement agreement paid off, or be released from the guarantees thereon." Yates further contends that he "very clearly informed . . . plaintiffs of that fact during the negotiations that led up to the settlement agreement."
Plaintiffs' forecast of evidence presents a different reason for inclusion of the reference to the Forbearance Agreement. In his affidavit, Ammons, Jr. "recall[s] that [Yates] . . . wanted to include a term in the Mediated Settlement Agreement which would provide that [plaintiffs] would be in default in the event that notes which were owed by all of us and [Yates] were not paid in full by December 31, 2002." Ammons, Jr. also recalls that plaintiffs "refused to agree to such a term and it was not included in the Mediated Settlement Agreement." Although Ammons, Jr. admits that the Settlement Agreement contains a sentence referring to the Forbearance Agreement, Ammons, Jr. states that "[t]he reference to the Forbearance Agreement was not a term of the Settlement Agreement such that a failure to comply with the Forbearance Agreement would be an event of default under the Settlement Agreement." Ammons, Sr. also recalled Yates' desire to include an absolute requirement in the Settlement Agreement, but he notes in his affidavit that plaintiffs "steadfastly refused and [Yates], recognizing that we could not agree to something which we knew we could not deliver, conceded and that term was never put in the . . . typed Settlement Agreement. . . ." Ammons, Sr. further recalls plaintiffs "specifically point[ing] out . . . to [Yates] . . . that the reference to the Forbearance Agreement was not an agreement on our part to be responsible for or to pay off [BB T] by December 31, 2002; nor was it an incorporation of the Forbearance Agreement into the Settlement Agreement."
The record reflects that other documents related to the Settlement Agreement (e.g., the Indemnity Agreement, the Promissory Note, and the Assignment of Yates' interest) were attached to the agreement and expressly included by consistent and specific language stating that they were "incorporated herein by reference." The Forbearance Agreement, on the other hand, was merely referred to by date rather than name and only "acknowledge[d]" in paragraph 9. This Court has previously stated that "[a]mbiguities in contracts are to be resolved by the jury upon consideration of `the expressions used, the subject matter, the end in view, the purpose sought, and the situation of the parties at the time.'" Cleland, 64 N.C. App. at 157, 306 S.E.2d at 590 (quoting Silver v. Board of Transportation, 47 N.C. App. 261, 268, 267 S.E.2d 49, 55 (1980)). In the instant case, because a question of the parties' intent exists and extrinsic evidence is required to determine that intent, we hold that the trial court erred by granting summary judgment in favor of defendants. Thus, because we conclude that a material issue of fact remains, we need not address plaintiffs' alternative argument that they were entitled to judgment in their favor as a matter of law. Accordingly, the judgment of the trial court is reversed, and the case is remanded to the trial court.
Reversed.
Judges HUDSON and ELMORE concur.
Report per Rule 30(e).
Judge TIMMONS-GOODSON submitted this opinion for filing prior to 31 October 2005.