Opinion
No. COA10-1443
Filed 19 July 2011 This case not for publication
Appeal by Defendants from order entered 24 May 2010 by Judge Catherine C. Eagles in Superior Court, Forsyth County. Heard in the Court of Appeals 12 April 2011.
Bell, Davis Pitt, P.A., by Stephen D. Poe, Alan M. Ruley, and Colleen L. Byers, for Plaintiff-Appellee. J. Brooks Reitzel, Jr. for Defendants-Appellants.
Forsyth County No. 09 CVS 3257.
Michael S. Rush (Mr. Rush) is the president of Rush Industries, Inc. (Rush Industries) (together, Defendants). Rush Industries is a corporation with its principal place of business in High Point, North Carolina.
Rush Industries entered into a Working Capital Management Account Note, Loan and Security Agreement (the loan) with Merrill Lynch Business Financial Services, Inc. on 6 April 1995. Merrill Lynch Commercial Finance Corp. (Plaintiff) is the successor in interest to Merrill Lynch Business Financial Services, Inc. The loan included an integration clause under section 10(m) that stated:
THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
Mr. Rush also entered into an Unconditional Guaranty Agreement on 6 April 1995, which guaranteed payment in full on all amounts due under the loan. Plaintiff admits that the loan was to extend a revolving line of credit to Rush Industries in the original maximum amount of $300,000.00, with an original maturity date of 30 April 1996. The maturity date was extended and the line of credit was increased from time to time, in writing, as the parties agreed. The final amendment of the loan increased the maximum principal amount to $600,000.00 and the final extension extended the maturity date to 31 March 2009.
Defendants received a written Notice of Default and Demand for Payment (the notice), dated 17 April 2009, indicating that the loan had expired on 31 March 2009 and would not be renewed. The notice stated that payment of the loan was due in full immediately and that the loan went into default on 9 April 2009. The notice further indicated that the total sum owed was "$620,082.93 (reflecting (i) $589,211.45 in principal, (ii) $1,563.11 in accrued and unpaid interest and (iii) $29,308.37 late charge)[.]"
Plaintiff filed a complaint on 23 April 2009 seeking judgment against Defendants in the amount of $620,082.93. Plaintiff also alleged that interest would continue to accrue until judgment was entered, and further requested attorneys' fees and post-judgment interest as allowed by law.
Defendants filed an answer and counterclaim on 10 July 2009, asserting a number of defenses to Plaintiff's claims but did not include a defense of fraud, duress, or breach of the covenant of good and fair dealing. Defendants' counterclaim alleged that during the course of dealings between Plaintiff and Defendants, the parties had entered into several oral understandings and agreements, along with the written agreements. Defendants alleged that the termination of the loan breached those agreements, both oral and written, and caused damage to Defendants. Defendants asked that Plaintiff's complaint be dismissed, that Plaintiff recover nothing from Defendants, and that Defendants receive compensatory damages in excess of $10,000.00.
Plaintiff filed a motion for summary judgment on 30 April 2010, contending there was no genuine issue of material fact and that Plaintiff was entitled to summary judgment as a matter of law on its claims and Defendants' counterclaims. Plaintiff sought recovery from Defendants in the amount of $745,404.94, as of 28 April 2010.
Defendants filed a response and affidavit in opposition to Plaintiff's motion for summary judgment on 18 May 2010, alleging the breach of oral agreements between Plaintiff and Defendants. Defendants argued that there were genuine issues of material fact to be determined and that they should not be determined by summary judgment.
The trial court entered an order granting Plaintiff's motion for summary judgment on 24 May 2010. The order also dismissed Defendants' counterclaim and awarded Plaintiff $659,411.65, plus the costs of the action, including attorneys' fees in the amount of $88,616.18, and post-judgment interest. Defendants appeal.
Defendants' sole argument on appeal is that the trial court erred in granting summary judgment in favor of Plaintiff because genuine issues of material fact remain in dispute. Defendants contend that the written agreements between the parties were modified over time by oral agreements and that Plaintiff engaged in fraud, duress, and breach of the covenant of good and fair dealings. We disagree.
"The standard of review for summary judgment is de novo." Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007) (citation omitted). "Summary judgment is appropriate if `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.'" Id. at 523-24, 649 S.E.2d at 385 (citation omitted). "The movant has the burden of showing that summary judgment is appropriate." Leake v. Sunbelt Ltd. of Raleigh, 93 N.C. App. 199, 201, 377 S.E.2d 285, 287 (1989) (citation omitted). "The movant may meet this burden by proving that an essential element of the opposing party's claim is nonexistent, or . . . that the opposing party cannot produce evidence to support an essential element of his claim or cannot surmount an affirmative defense which would bar the claim." Collingwood v. G.E. Real Estate Equities, 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989) (citation omitted). "Once the party seeking summary judgment makes the required showing, the burden shifts to the nonmoving party to produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial." Smith v. Blythe Dev. Co., 192 N.C. App. 219, 221-22, 665 S.E.2d 154, 155 (2008) aff'd, 363 N.C. 119, 678 S.E.2d 657 (2009) (citation omitted).
Thus, "[a]s a general rule, upon a motion for summary judgment, supported by affidavits, `an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.'"
Pacheco v. Rogers Breece, Inc., 157 N.C. App. 445, 448, 579 S.E.2d 505, 507 (2003) (citation omitted). "Furthermore, in considering summary judgment motions, we review the record in the light most favorable to the nonmovant." Leake, 93 N.C. App. at 201, 377 S.E.2d at 287.
Defendants argue that the written agreements between the parties were modified through the course of conduct by numerous oral agreements and understandings and that Plaintiff breached those oral agreements. Defendants contend that Plaintiff's own exhibits serve as "credible evidence of oral modifications of the agreements[.]"
Defendants also argue that "testimony and email, together with the evidence of representations by [a vice president of Plaintiff] . . . supports a reasonable inference of fraud, duress, breach of the covenant of good and fair dealing, or other `plan of deception' by [Plaintiff], sufficient to defeat summary judgment." These defenses were not pleaded or argued before the trial court, and Defendants argue these affirmative defenses for the first time before our Court.
Defendants cite Bank v. Gillespie, 291 N.C. 303, 230 S.E.2d 375 (1976), Miller Building Corp. v. Bell, 94 N.C. App. 213, 379 S.E.2d 695 (1989), and Chrysler Credit Corp. v. Belk, 56 N.C. App. 86, 286 S.E.2d 886 (1982), in support of their argument "that unpleaded defenses, when raised by the evidence, should be considered in resolving a motion for summary judgment." Gillespie, 291 N.C. at 306, 230 S.E.2d at 377. These cases are distinguishable from the case before us. In the three cases cited by Defendants, the non-movant had presented, or had attempted to present, the unpleaded affirmative defense to the trial court before entry of summary judgment.
"Pursuant to the North Carolina Rules of Civil Procedure, a party shall affirmatively set forth any matter constituting an avoidance or affirmative defense. N.C.G.S. § 1A-1, Rule 8(c) (1990)." Robinson v. Powell, 348 N.C. 562, 566, 500 S.E.2d 714, 717 (1998); see also County of Rutherford ex rel. Hedrick v. Whitener, 100 N.C. App. 70, 394 S.E.2d 263 (1990). N.C. Gen. Stat. § 1A-1, Rule 8 (2009) lists fraud, duress, "and any other matter constituting an avoidance or affirmative defense[]" as defenses among those that must be affirmatively plead. "Failure to raise an affirmative defense in the pleadings generally results in a waiver thereof." Robinson, 348 N.C. at 566, 500 S.E.2d at 717. In Robinson, our Supreme Court stated:
Under certain circumstances this Court has permitted affirmative defenses to be raised for the first time by a motion for summary judgment. . . . This Court further stated that
if an affirmative defense required to be raised by a responsive pleading is sought to be raised for the first time in a motion for summary judgment, the motion must ordinarily refer expressly to the affirmative defense relied upon. Only in exceptional circumstances where the party opposing the motion has not been surprised and has had full opportunity to argue and present evidence will movant's failure expressly to refer to the affirmative defense not be a bar to its consideration on summary judgment.
[ Dickens v. Puryear, 302 N.C. 437, 443, 276 S.E.2d 325, 329]; see also Miller v. Talton, 112 N.C. App. 484, 487, 435 S.E.2d 793, 796 (1993) (holding that in the absence of an express reference to the affirmative defense in the motion for summary judgment, the trial court may still grant the motion on that ground if the affirmative defense was clearly before the court). Defendant not having pled the affirmative defense . . . in either his answer or his motion for summary judgment, the issue of [the unpled defense] was not before the trial court. In fact, the Court of Appeals sua sponte raised the issue on appeal. Defendant's failure to assert [the] affirmative defense bars that issue being raised by him, or by the Court of Appeals, on appeal.
Id. at 566-67, 500 S.E.2d at 717.
Defendants failed to raise the affirmative defenses of fraud, duress, or breach of the covenant of good and fair dealing in their pleadings; nor did they argue them before the trial court. Defendants' attempt to raise these potential defenses for the first time on appeal fails and Defendants have waived their right to argue these affirmative defenses. Id.
Because Defendants have waived any right to argue fraud, their argument regarding the inapplicability of the merger clause fails as well. Defendants contend that "inferences of fraud" in the record were enough to create an exception to the parol evidence rule and render the merger clause unenforceable, thereby allowing the alleged oral agreements to be admissible as evidence of modification of the loan. Our Court has held that "[t]he parol evidence rule prohibits the admission of parol evidence to vary, add to, or contradict a written instrument intended to be the final integration of the transaction." Hall v. Hotel L'Europe, Inc., 69 N.C. App. 664, 666, 318 S.E.2d 99, 101 (1984). Defendants claim exception on the basis of fraud. Fox v. Southern Appliances, 264 N.C. 267, 270, 141 S.E.2d 522, 525 (1965). Defendants argue that the merger clause is inapplicable because "giving effect to the merger clause would frustrate and distort the parties' true intentions and understanding regarding the contract[.]" Zinn v. Walker, 87 N.C. App. 325, 333, 361 S.E.2d 314, 318 (1987).
Our Court has held that "[m]erger clauses create a rebuttable presumption that the writing represents the final agreement between the parties. Generally, in order to effectively rebut the presumption, the claimant must establish the existence of fraud, bad faith, unconscionability, negligent omission or mistake in fact." Id. Because we have held that Defendants waived any defense based on Plaintiff's alleged fraud, Defendants are precluded from arguing on appeal that fraud serves as a basis to invalidate the merger clause in this case. The merger clause is enforceable and it clearly states that the written agreement is the "full and final agreement between the parties" and that the agreement "may not be contradicted by evidence of . . . prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements of the parties." (Emphasis omitted). Any oral agreements between Defendants and Plaintiff were properly disregarded by the trial court.
Defendants did not "produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that [they] can at least establish a prima facie case at trial." Smith, 192 N.C. App. at 221-22, 665 S.E.2d at 155. Defendants failed to show that there was a genuine issue of material fact before the trial court. The trial court properly entered summary judgment for Plaintiff and dismissed Defendants' counterclaims.
Affirmed.
Judges STROUD and BEASLEY concur.
Report per Rule 30(e).