Opinion
No. COA11–1221.
2012-05-15
AREA STORAGE, INC., Petitioner, v. OLD OAK ESTATES COMMUNITY ASSOCIATION, Respondent.
Williams Mullen, by Camden R. Webb and Christopher G. Browning, for petitioner-appellee. The Vincent Law Firm, P.C., by Branch W. Vincent, III, for respondent-appellant.
Appeal by respondent from order entered 11 May 2011 by Judge Walter H. Godwin, Jr. in Currituck County Superior Court. Heard in the Court of Appeals 20 February 2012. Williams Mullen, by Camden R. Webb and Christopher G. Browning, for petitioner-appellee. The Vincent Law Firm, P.C., by Branch W. Vincent, III, for respondent-appellant.
HUNTER, Robert C., Judge.
Old Oak Estates Community Association (“Old Oak Estates”) appeals from the trial court's order concluding that Area Storage, Inc. (“Area Storage”) acted in good faith in its dealings pursuant to a written contract between the parties. After careful review, we affirm.
Background
Area Storage is a storage unit business located in Currituck County, North Carolina. Old Oak Estates is an association of homeowners that owns property in the subdivision adjacent to Area Storage's business; the parties share a property line. In 2003, Area Storage decided to expand its storage facility and purchased land on which to expand that was located behind its existing facility and adjacent to the common property line with Old Oak Estates. The expansion, however, would require Area Storage to obtain a re-zoning of the purchased land to commercial-use zoning. Old Oak Estates expressed concerns that the planned expansion could negatively impact its property.
In order to address Old Oak Estates' concerns, the parties entered into an agreement dated 21 February 2004. The agreement stated that “if [Area Storage's] request for re-zoning (Commercial) is approved and building permit is issued, [Area Storage] will provide the owners of the [Old Oak Estates] Subdivision with the following:” (1) the deed to a fifty-foot buffer area between the parties' properties; (2) a fence or vegetative buffer in the deeded area, estimated to cost $10,000; (3) an additional $20,000 to be used at the discretion of Old Oak Estates; (4) removal of the existing vapor lights from Area Storage's property in order to reduce light pollution. The deed to the buffer area and a total of $30,000 were then placed in escrow. The deed and $20,000 were to be delivered to Old Oak Estates “upon approval of the re-zoning and the issuance of the building permit”; the fence, or vegetative buffer, and the removal of vapor lights were to be completed using the remaining escrowed funds within six months of the re-zoning and the issuance of the building permit.
Area Storage was successful in obtaining the re-zoning of the property but it did not apply for a building permit and did not move forward with the planned expansion. According to Michael Burnette, president of Area Storage, the company's business declined shortly after the re-zoning due to an increase in competition and a downturn in the economy; the company's occupancy rate had declined to approximately 70 percent of capacity. Area Storage determined the expansion of its business was no longer feasible and sought permission from Old Oak Estates for the return of the escrowed funds; Old Oak Estates did not consent.
On 21 December 2010, Area Storage filed a complaint seeking a declaratory judgment of the parties' rights under the agreement. The case was heard without a jury and on 11 May 2011 Judge Godwin entered judgment in favor of Area Storage. The trial court found there were two conditions precedent in the agreement that had to be met before Old Oak Estates was entitled to the $30,000 held in escrow; that one of the two conditions precedent, issuance of the building permit, did not occur; and that “there was a valid good faith basis” for it not occurring.
The trial court ordered Area Storage to obtain a $30,000 bond to secure the release of the $30,000 in escrow to Area Storage. Additionally, the trial court ordered that if within the three years following the entry of the order Area Storage applied for and was granted a building permit for the expansion of its business—and construction commenced—Area Storage shall pay $30,000 to Old Oak Estates. If, however, Area Storage did not apply for and receive a building permit within three years from the date of the order the bond would dissolve. Old Oak Estates appeals.
Discussion
“[W]here a declaratory judgment action is heard without a jury and the trial court resolves issues of fact, the court's findings of fact are conclusive on appeal if supported by competent evidence in the record, even if there exists evidence to the contrary, and a judgment supported by such findings will be affirmed.” First Union Nat'l Bank v. Ingold, 136 N.C.App. 262, 264, 523 S.E.2d 725, 727 (1999). The trial court's conclusions of law are reviewed de novo. Cross v. Capital Transaction Grp., Inc., 191 N.C.App. 115, 117, 661 S.E.2d 778, 780 (2008).
Old Oak Estates argues that the trial court erred in finding that Area Storage acted in good faith in its dealings with Old Oak Estates. Specifically, Old Oak Estates suggests that Area Storage should have made an effort to apply for a building permit; the mere fact that Area Storage's business had decreased after entering into the agreement is not sufficient to fulfill its duty of good faith and fair dealing. We disagree.
This Court has previously stated that where “a contract confers on one party a discretionary power affecting the rights of the other, this discretion must be exercised in a reasonable manner based upon good faith and fair play.” Mezzanotte v. Freeland, 20 N.C.App. 11, 17, 200 S.E.2d 410, 414 (1973). In Mezzanotte, the defendant property sellers argued that the prospective buyer's promise that he would attempt to acquire “satisfactory” financing was illusory and did not provide consideration for an enforceable purchase contract. Id. at 16–17, 200 S.E.2d at 414. This Court rejected the seller's argument and found that the contract included an implied promise that the prospective buyer would use “reasonable effort” and exercise “good faith” in obtaining a satisfactory loan. Id. at 18–19, 200 S.E.2d at 415–16 (citing with approval Richard Bruce & Co. v. J. Simpson & Co., 243 N.Y.S.2d 503, 506 (Sup.Ct.1963) where that court concluded a contract provision granting one party absolute discretion to terminate the contract if that party determined market conditions were undesirable required the party to exercise “reasonable discretion” in reaching its decision); see Weyerhaeuser Co. v. Godwin Bldg. Supply Co., Inc., 40 N.C.App. 743, 746, 253 S.E.2d 625, 627 (1979) (noting that “[i]t is a basic principle of contract law that a party who enters into an enforceable contract is required to act in good faith and to make reasonable efforts to perform his obligations under the agreement”).
Old Oak Estates mistakenly relies on Ultra Innovations, Inc. v. Food Lion, Inc., 130 N.C.App. 315, 502 S.E.2d 685 (1998) for the proposition that this Court has rejected “ ‘the economy’ defense”—that a party's refusal to perform due to an alleged decrease in business does not comport with the reasonable efforts required of each party to a contract. In Ultra Innovations, this Court did not conclude that a party's refusal to perform under a contract was in bad faith if premised on unfavorable economic conditions. Rather, we held that whether the defendant had used “reasonable commercial efforts” in fulfilling its obligations under a contract was, in that case, an issue that the trial court properly placed before the jury. Id. at 318, 502 S.E.2d at 687.
In keeping with the general principles described above, the parties' agreement contained an implied promise that Area Storage would act in good faith and make reasonable efforts to obtain the re-zoning of the land on which they intended to expand and to obtain a building permit. There is no indication that Area Storage did not satisfy these requirements in deciding not to obtain a permit. The evidence supports the trial court's conclusion that Area Storage decided not to pursue the building permit due to an “economic downturn” and a reduction in their business's occupancy rates. We conclude the trial court did not err in concluding as a matter of law that Area Storage acted in good faith under the terms of the parties' agreement. The trial court's order is affirmed.
Affirmed. Chief Judge MARTIN and Judge STEPHENS concur.
Report per Rule 30(e).