Contract – Real Property – Lot Purchase Agreement – Title Insurance – Easements

42 East, LLC v. D. R. Horton, Inc. (Lawyers Weekly No. 12-07-0132, 31 pp.) (Martha A. Geer, J.) Appealed from Wake County Superior Court. (Robert H. Hobgood, J.) N.C. App. Click here for full-text opinion.

Holding: The trial court found that the parties had amended their contract, including the closing date; however, the court failed to consider whether the amendment was made in compliance with the terms of the contract.

We vacate the trial court’s judgment in favor of the plaintiff-developer and remand for further proceedings.

This dispute arises out of an unfulfilled contract pursuant to which the plaintiff-developer was to sell lots to the defendant-contractor. The contractor terminated the contract, the developer sued, and the trial court found that the contractor had breached the contract by failing to make a good faith effort to obtain insurable title to the property.

The contractor contends it was not in breach since the contract had a “time is of the essence” clause and the parties did not close by the date set out in the contract.

The trial court’s order does not resolve the issues relating to the “time is of the essence” argument, including whether any waiver occurred. The court had no need to address the contractor’s argument because it found that the parties had agreed to an amendment extending the initial closing date.

However, § 34 of the parties’ contract provides, “Notwithstanding any other provision herein, neither this agreement nor any amendment hereto shall be a valid, binding and enforceable obligation of [the contractor] unless and until such document is ratified in writing by” certain specified “corporate officer[s] of [the contractor].”

The individuals identified in the trial court’s finding of fact as having agreed to the amendment were not included among those specified in § 34 as having authority to ratify an amendment. In any event, the trial court’s finding of fact does not establish that the agreement to the amendment was in writing. Because the trial court’s order does not address § 34, we cannot determine the basis on which the trial court concluded that the parties had agreed to the amendment’s terms.

Therefore, we must remand for additional findings of fact and conclusions of law regarding the issue whether the parties entered into an amendment to the contract.

In the event that the trial court determines that no closing date extension ever became effective, the trial court must then address whether the contractor waived the “time is of the essence” clause.

Even though the contract contains a non-waiver clause, this does not preclude a determination that the contractor waived the “time is of the essence” clause. Whether or not the contractor’s conduct amounted to waiver is a question of fact to be decided by the trial court.

Furthermore, although the contractor notified the developer that it was terminating the contract pursuant to both § 5 and § 40 of the contract, the trial court addressed only § 5.

Nowhere in the order does the trial court address whether, as required by § 40, the developer provided to the contractor “evidence in a form acceptable to  [the contractor] that all of the objections to title to the Property listed in Exhibit H” had been cured or removed or whether the contractor waived this condition precedent.

As the trial court did not address whether the contractor properly terminated the contract under § 40, we must remand the case to the trial court for further findings of fact and conclusions of law on that issue.

Mezzanotte v. Freeland, 20 N.C. App. 11, 200 S.E.2d 410 (1973), and Dysart v. Cummings, 181 N.C. App. 641, 640 S.E.2d 832, aff’d per curium, 361 N.C. 580, 650 S.E.2d 593 (2007), require a determination as to whether the contractor acted in a reasonable manner with respect to receipt of the developer’s “evidence … that all of the objections to title to the Property listed in Exhibit H … have been cured or removed.” In considering the contractor’s determination that it was dissatisfied with the developer’s evidence of cure or removal, the trial court must determine whether the contractor acted in good faith and in the exercise of honest judgment, as set out in Fulcher v. Nelson, 273 N.C. 221, 159 S.E.2d 519 (1968), Midulla v. Howard A. Cain Co., 133 N.C. App. 306, 515 S.E.2d 244 (1999), and Mezzanotte.

Finally, since the trial court made its findings of fact under a misapprehension of law — that the issue was only whether the contractor failed to act in good faith and make a reasonable effort to obtain insurable title to the property — we must vacate the order and remand so that the trial court can consider the evidence in light of both § 5 and § 40.

The record does not support the trial court’s finding that the developer provided the contractor with a copy of the developer’s title insurance policy from Old Republic National Title Insurance Co. Instead, evidence indicates that the developer only provided the Old Republic commitment to the contractor and not the insurance policy itself. That commitment evidenced title exceptions for two easements — the Needham Pathway and the18’ Cart Path — that were at issue in clearing the title for closing. As the contractor did not have a copy of the Old Republic policy, it could not have provided the policy to its closing attorney, contrary to the trial court’s findings of fact.

To the extent that the trial court found the contractor could have obtained title insurance from Old Republic without the Needham Path exception, that finding is not supported by the evidence.

Vacated and remanded.