Opinion
No. COA09-843
Filed 1 June 2010 This case not for publication
Appeal by plaintiff from an order entered 18 February 2009 by Judge J.B. Allen, Jr. in Durham County Superior Court. Heard in the Court of Appeals 26 January 2010.
Horn Vosburg, PLLC, by Martin J. Horn, for plaintiff-appellant. Hunton Williams LLP, by A. Todd Brown and Stacie C. Knight, for defendants-appellees.
Durham County No. 08 CVS 6238.
J.T. Enterprise, LLC ("plaintiff") appeals from an order of the trial court entered 18 February 2009 granting Countrywide Home Loans, Inc.'s ("Countrywide") and HSBC Bank USA's ("HSBC") (collectively, "defendants") motion to dismiss. For the reasons set forth below, we affirm.
In August 2008, plaintiff and Countrywide executed an agreement ("the contract"), consisting of an offer to purchase and an addendum, in which plaintiff agreed to purchase and Countrywide agreed to sell property located at 400-406 Price Avenue, Durham, North Carolina ("the property"). The addendum contained the following relevant language in clause one:
The record reflects different dates in August 2008 upon which the parties had planned to execute the offer to purchase and addendum.
Notwithstanding any provision to the contrary in the agreement, seller's liability and buyer's sole and exclusive remedy in all circumstances and for all claims . . . arising out of or relating in any way to the agreement or the sale of the property to buyer including, but not limited to, seller's breach or termination of the agreement . . . shall be limited to no more than:
(A) a return of buyer's earnest money deposit if the sale to the buyer does not close[.]
The closing originally was scheduled to occur on or before 29 August 2008, but it did not occur. At the originally scheduled closing, plaintiff reviewed the deed and recognized that Countrywide was executing the deed pursuant to a power of attorney, but it had not provided information relating to recording the power of attorney. On behalf of Countrywide, Kaitlyn Wagnon communicated with plaintiff and stated that the power of attorney would be recorded and mailed to plaintiff the following week.
After the power of attorney was mailed to plaintiff, the parties rescheduled the closing for 5 September 2008. However, the sale of the property did not close on 5 September 2008.
The complaint does not specify the stated reason either scheduled closing did not occur. However, plaintiff alleged in the complaint "[t]hat at all times, [p]laintiff desired to purchase the property and did not consent to terminating the offer to purchase."
On 14 November 2008, plaintiff filed a complaint alleging breach of contract and requesting specific performance. On 6 January 2009, defendants filed a motion to dismiss for failing to state a claim upon which relief could be granted pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. On 18 February 2009, the trial court granted defendants' motion to dismiss. Plaintiff appeals the 18 February 2009 order.
At the 10 February 2008 hearing, plaintiff asserted that the earnest money had not been returned. Countrywide responded that plaintiff had not alleged this in the complaint, but "to the extent [the earnest money] hasn't been returned, [Countrywide will] return it."
On appeal, plaintiff argues that the trial court erred in granting defendants' motion to dismiss for failure to state a claim upon which relief can be granted. We disagree.
The trial court's decision "to dismiss a complaint under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure is reviewed de novo by this Court." Hardy v. Beaufort County Bd. of Educ., ___ N.C. App. ___, ___, 683 S.E.2d 774, 777 (2009). A motion to dismiss pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure requires the court to determine whether, as a matter of law, the allegations of the complaint are sufficient to state a claim upon which relief can be granted. Id. at ___, 683 S.E.2d at 776. "The court must construe the complaint liberally and `should not dismiss the complaint unless it appears beyond a doubt that the plaintiff could not prove any set of facts to support his claim which would entitle him to relief.'" Leary v. N.C. Forest Prods., Inc., 157 N.C. App. 396, 400, 580 S.E.2d 1, 4 (quoting Block v. County of Person, 141 N.C. App. 273, 277-78, 540 S.E.2d 415, 419 (2000)), aff'd, 357 N.C. 567, 597 S.E.2d 673 (2003) (per curiam).
Plaintiff asserts the contract supports its claims for specific performance and breach of contract because (1) defendants had discretionary power that they failed to exercise in a reasonable manner and in good faith; (2) clause one of the contract is illusory and unenforceable, and it should be removed from the contract; and (3) clause one also is unconscionable, and it should be removed from the contract.
Plaintiff claims that clause one of the contract does not invalidate its claims for specific performance and breach of contract because defendants failed to exercise their discretionary power in a reasonable manner and in good faith. We disagree.
This Court has recognized that, when "`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.'" Dysart v. Cummings, 181 N.C. App. 641, 647, 640 S.E.2d 832, 836 (quoting Mezzanotte v. Freeland, 20 N.C. App. 11, 17, 200 S.E.2d 410, 414 (1973)), aff'd, 361 N.C. 580, 650 S.E.2d 593 (2007) (per curiam). Discretionary power within a contract confers a contingent power on one party that affects the other. See, e.g., id. at 648, 640 S.E.2d at 836-37 (explaining that the plaintiff had discretionary power when the plaintiff had the option to terminate the contract if the total cost of repairs to the property equaled or exceeded $10,000.00); Midulla v. Howard A. Cain, Inc., 133 N.C. App. 306, 309, 515 S.E.2d 244, 246 (1999) (noting the plaintiffs' discretionary power when the "plaintiffs had the discretion to cancel the [c]ontract if they were not satisfied with the covenants and restrictions governing the area where the property was located").
In the instant case, no discretionary power was conferred upon defendants. Plaintiff claims that clause twenty-five of the addendum, providing defendants' remedies in the event of plaintiff's default, confers discretionary power upon defendants, which, in turn, must be exercised in good faith. Clause twenty-five states:
In the event of Buyer's material breach or material misrepresentation of any fact under the terms of the Agreement, (1) the Seller, at its option, may retain the earnest money deposit and any other funds then paid by the Buyer as liquidated damages and/or invoke any other remedy expressly set out in the Agreement or available under applicable law, (2) the Seller is automatically released from the obligation to sell the Property to the Buyer, and (3) Seller and the Indemnified Parties shall not be liable to the Buyer for any Claims arising out of or relating in any way to the Seller's failure to sell and convey the Property to Buyer.
However, plaintiff fails to demonstrate how clause twenty-five — providing the sole and exclusive remedies for defendants in the event of plaintiff's breach — gives defendants discretionary power. Unlike Dysart or Midulla, defendants have no discretion to terminate or cancel the contract. The contract is straightforward and provides the sole and exclusive remedies in the event of default by either party. See Dysart, 181 N.C. App. at 647, 640 S.E.2d at 836 ("A contract that is plain and unambiguous on its face will be interpreted by the court as a matter of law." (citation omitted)).
Next, plaintiff argues that clause one of the contract is illusory and should be removed from the contract. We disagree.
To contract, there must be a promise, "an assurance that a thing will or will not be done." Bowman v. Hill, 45 N.C. App. 116, 117, 262 S.E.2d 376, 377 (1980). This Court has defined an illusory promise by explaining that "[a]n apparent promise which, according to its terms, makes performance optional with the promisor no matter what may happen, or no matter what course of conduct in other respects he may pursue, is in fact no promise." Id. at 117-18, 262 S.E.2d at 377. When a party is not bound by promises, the contract may be set aside for lack of consideration. See Hejl v. Hood, Hargett Assocs., Inc., ___ N.C. App. ___, ___, 674 S.E.2d 425, 429 (2009) (explaining that the plaintiff's employment agreement with the defendant must be supported by consideration to bind the parties to their promises); see also Milner Airco, Inc. v. Morris, 111 N.C. App. 866, 870, 433 S.E.2d 811, 814 (1993) (explaining that, where the contract recited consideration but did not actually bind the employer to any promise, the consideration was illusory at best and the contract was unenforceable).
Plaintiff argues that clause one of the contract essentially deprives plaintiff of all legal remedies, but does not deprive defendants of the same legal remedies, and is, therefore, an illusory clause. Clauses numbered one and twenty-five of the contract provide remedies in the event of breach by either party. The consideration in the contract is defendants' promise to sell the property to plaintiff and plaintiff's promise to buy the property from defendants. These promises were not optional and bound each party to the agreement. See Hilliard v. Thompson, 81 N.C. App. 404, 407, 344 S.E.2d 589, 591 (1986) ("`[t]o make an agreement valid and binding, the promises must be mutual[.]'" (quoting Rankin v. Mitchem, 141 N.C. 277, 283, 53 S.E. 854, 856 (1906))). Furthermore, plaintiff acknowledged in its complaint that the consideration was "fair and reasonable." There is no additional requirement that the remedies for breach of contract be the same for both parties. See, e.g., Fairview Developers, Inc. v. Miller, 187 N.C. App. 168, 173, 652 S.E.2d 365, 369 (2007) (recognizing the ability to contractually limit remedies to which a party otherwise might be entitled), disc. rev. denied, 362 N.C. 176, 658 S.E.2d 484 (2008). Accordingly, clause one is not illusory, and plaintiff's argument to the contrary is without merit.
Plaintiff's final argument is that clause one of the contract renders the contract unconscionable. We disagree.
For a contract to be unconscionable, there must be a showing of both substantive and procedural unconscionability. Raper v. Oliver House, L.L.C., 180 N.C. App. 414, 420, 637 S.E.2d 551, 555 (2007). Procedural unconscionability entails "`bargaining naughtiness' in the formation of the contract." Id. Substantive unconscionability requires "harsh, oppressive, and one-sided terms of a contract." Id. While a finding of both procedural and substantive unconscionability is required for an ultimate finding of unconscionability, "a finding may be appropriate when a contract presents pronounced substantive unfairness and a minimal degree of procedural unfairness, or vice versa." Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 103, 655 S.E.2d 362, 370 (2008). Furthermore, "`when parties are on equal footing, competent to contract, enter into an agreement on a lawful subject, and do so fairly and honorably, the law does not permit inquiry as to whether the contract was good or bad, whether it was wise or foolish.'" Brenner v. School House, Ltd., 302 N.C. 207, 214, 274 S.E.2d 206, 211 (1981) (quoting Roberson v. Williams, 240 N.C. 696, 700-01, 83 S.E.2d 811, 814 (1954)).
Plaintiff argues that, although there is more substantive than procedural unconscionability in the case sub judice, both exist. With respect to procedural unconscionability, plaintiff argues that Countrywide is a much larger corporation, has more experience in selling property, and therefore, has an advantage in selling the property. Additionally, plaintiff asserts that the offer to purchase and addendum were presented at different times, and the addendum was unexpected. However, there is nothing in the record to support plaintiff's contentions, and therefore, plaintiff's argument must fail. See Tillman, 362 N.C. at 102-03, 655 S.E.2d at 369-70 (recognizing that factors such as unequal bargaining power can result in procedural unconscionability but explaining that the party claiming unconscionability has the burden of proof).
With respect to substantive unconscionability, plaintiff claims that clause one is substantively unconscionable because it limits plaintiff's remedies so that, in the event of breach, plaintiff is completely deprived of its rights. However, clause one does not deprive plaintiff of all remedies. To the contrary, clause one places plaintiff in the exact same position it would have been in had there been no contract. Plaintiff is entitled to a return of its earnest money deposited. See Lee Cycle Ctr., Inc. v. Wilson Cycle Ctr., Inc., 143 N.C. App. 1, 10, 545 S.E.2d 745, 750 (2001) ("For a breach of contract the injured party is entitled as compensation therefor[e] to be placed, insofar as this can be done by money, in the same position he would have occupied if the contract had been performed." (quoting Service Co. v. Sales Co., 259 N.C. 400, 415, 131 S.E.2d 9, 21 (1963))). Because plaintiff had a remedy and failed to show that it was subject to "harsh, one-sided, and oppressive contract terms[,]" plaintiff failed to prove that the terms of the contract are substantively unconscionable. Tillman, 362 N.C. at 103, 655 S.E.2d at 370.
For the foregoing reasons, we affirm the trial court's decision to dismiss plaintiff's complaint pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. Affirmed.
Judges McGEE and HUNTER, Jr., Robert N. concur.
Report per Rule 30 (e).