633 B.R. 145
Bankr. M.D.N.C.2021Background:
- Property at 2530 Pittsburg Ave., Winston-Salem (1.41 acres; former daycare) was conveyed by the City and County to Northwest Child Development Centers in 1998 subject to a deed restraint: use only for "not-for-profit child day care and related purposes," with a reversion/right of reentry if breached.
- Defendant operated a daycare there until it surrendered the site's state license effective February 11, 2014 and has not operated a daycare in Winston-Salem/Forsyth County since; it used the property mainly to store childcare equipment and technology for its remaining Davie County facility.
- Plaintiffs (City and County) filed an adversary declaratory-judgment action in the debtor’s Chapter 11 bankruptcy to obtain a determination that the Use Restriction was breached and title reverted to them; the bankruptcy court retained the matter.
- Parties filed cross-motions for summary judgment. The facts about nonuse and storage are undisputed; Defendant had repeatedly certified compliance through 2018 but ceased operating the site after 2014 and discontinued water/sewer in 2019.
- The court concluded (1) the deed created a fee simple subject to a condition subsequent (not an automatic determinable fee), (2) storage use is not a permissible "related purpose," (3) Plaintiffs’ declaratory action suffices as reentry, and (4) judgment for Plaintiffs was entered.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is declaratory relief in bankruptcy appropriate to resolve ownership? | Plaintiffs: Yes—declaratory judgment will settle rights and affect estate property (11 U.S.C. §541). | Defendant: Consented to bankruptcy adjudication earlier but argued merits on use. | Court: Yes; declaratory relief appropriate and useful to resolve estate issues. |
| Did the deed create a fee simple determinable (automatic reverter) or a fee simple subject to a condition subsequent (right of reentry)? | Plaintiffs: Argued determinable, so reverter triggered on nonuse. | Defendant: Argued condition subsequent; Plaintiffs must exercise reentry. | Court: Deed language ("may"/"at its option") creates a condition subsequent; Plaintiffs’ suit constitutes reentry. |
| Does using the property for storage of childcare equipment/technology constitute "related purposes" to "not-for-profit child day care"? | Plaintiffs: No—storage is tangential/incidental and does not serve Winston-Salem/Forsyth public purpose. | Defendant: Yes—storage is related and thus compliant with the restriction. | Court: No—storage is passive/token compliance, not a "related purpose" within the deed; it does not serve the local public use. |
| Would construing "related purposes" to include storage conflict with law governing municipal conveyances? | Plaintiffs: Such a construction would violate N.C. Gen. Stat. §160A-279 because the conveyance must assure use for a public purpose. | Defendant: Construction was within parties' intent. | Court: Construction allowing storage would conflict with §160A-279 and fixed rules of law; cannot adopt it. |
| Were Defendant's affirmative defenses (estoppel, waiver, laches) preserved? | Plaintiffs: Defendant abandoned them by not pressing them on summary judgment. | Defendant: Offered no supporting factual showing in opposition. | Court: Defenses abandoned for lack of development; they do not prevent summary judgment. |
Key Cases Cited
- Station Assocs., Inc. v. Dare Cnty, 350 N.C. 367 (1999) (distinguishes fee simple determinable from condition subsequent and requires precise language for automatic termination)
- Higdon v. Davis, 315 N.C. 208 (1985) (quiet-title action can constitute reentry under a condition subsequent)
- Runyon v. Paley, 416 S.E.2d 177 (N.C. 1992) (court determines parties’ intent when construing deeds; use extrinsic evidence only if language ambiguous)
- Mattox v. State, 186 S.E.2d 378 (N.C. 1972) ("token compliance" with a deed condition insufficient to satisfy conveyance purposes)
- Piedmont Triad Airport Auth. v. Urbine, 554 S.E.2d 331 (N.C. 2001) (two-prong test for public use: reasonable connection to municipal needs and public benefit)
- Griffin v. Springer, 92 S.E.2d 682 (N.C. 1956) (deed construction: give effect to grantor intent unless it conflicts with fixed rules of law)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (standard for summary judgment and evaluation of genuine issues of material fact)