218 N.C. App. 503
N.C. Ct. App.2012Background
- Horton agreed to buy 273 developed lots from 42 East for $10,828,300 under a Lot Purchase Agreement (May 19, 2006).
- Earnest money comprised a $400,000 letter of credit payable as liquidated damages if Horton defaulted.
- Closing contingent on conditions including good and marketable title insurable by the designated insurer; Section 8 defines good title; Section 9 allows a 60-day inspection with a possible automatic termination.
- Multiple amendments extended closing dates and adjusted takedown, culminating in discussions of a Fourth Amendment that Horton claimed would modify title-related contingencies.
- Horton terminated the Agreement in January 2008; 42 East sued in August 2008 alleging breach of contract and bad faith handling of title objections; trial court found Horton breached and awarded liquidated damages plus interest.
- The appellate court vacates and remands to address both Section 5 (title delivery) and Section 40 (title objections cured) and to determine whether Horton waived time in closing and properly terminated under Section 40, with ongoing issues related to an Old Republic title insurance policy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver of time-is-of-the-essence clause. | 42 East argues waiver may arise from conduct; no formal Fourth Amendment required. | Horton contends no waiver unless express in writing; Section 30(k) bars waiver. | Remanded to resolve whether a Fourth Amendment exists and whether waiver occurred. |
| Whether Horton properly terminated under Sections 5 and 40. | 42 East maintained Horton failed to obtain insurable title and to cure title objections under 40. | Horton claimed proper termination under both sections. | Remanded to determine compliance with both sections and interplay with good faith/fair dealing. |
| Standard for discretionary determinations (good faith vs. reasonableness). | Fulcher, Midulla, Mezzanotte require good-faith/honest judgment in discretionary terminations. | Trial court applied a reasonableness standard. | Court rejects reasonableness as controlling; case remand to apply correct standard. |
| Sufficiency of findings related to Old Republic title policy. | Findings showed Horton could obtain insurable title; policy details matter. | Findings misstate Horton’s knowledge; Horton did not have Old Republic policy in hand. | Remand to revisit findings and their impact on liability and section 5 analysis. |
Key Cases Cited
- S.N.R. Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601 (N.C. App. 2008) (time-is-of-the-essence breach requires timely closing; waiver possible)
- Fairview Developers, Inc. v. Miller, 187 N.C. App. 168 (N.C. App. 2007) (waiver of time-for-closing may occur by conduct despite no-waiver clause)
- Phoenix Ltd. P’ship of Raleigh v. Simpson, 201 N.C. App. 493 (N.C. App. 2009) (demonstrates waiver can be inferred from conduct indicating延期)
- Whitehurst v. FCX Fruit & Vegetable Serv., Inc., 224 N.C. 628 (1927) (nonwaiver clause may be waived by conduct)
- Fulcher v. Nelson, 273 N.C. 221 (1968) (good faith governs satisfaction-based termination)
- Midulla v. Howard A. Cain Co., 133 N.C. App. 306 (1999) (discretion to terminate must be exercised in good faith)
- Mezzanotte v. Freeland, 20 N.C. App. 11 (1973) (two-prong analysis: reasonable efforts and good faith in discretionary acts)
- Dysart v. Cummings, 181 N.C. App. 641 (1989) (applies good faith/ fair play in discretionary title-related decisions)