Lee v. CooperÂ
253 N.C. App. 734
| N.C. Ct. App. | 2017Background
- Owner (Cooper) owned a single-family home subject to an adjustable-rate mortgage (~$366,000 in 2011) and wanted to sell but the property needed repairs.
- Tenants (Kent and Christy Lee) could not obtain financing, so parties executed a "Lease and Option to Purchase Agreement": four-year lease through June 2015, monthly payments equal to Owner’s mortgage payment, and a $31,500 "option fee."
- Agreement provided Tenants could purchase for the mortgage balance; language also discussed sale at $371,100 and potential refund of "equity" to Tenants if they did not exercise the option.
- Tenants stayed past June 2015, allegedly defaulted on payments; Owner obtained summary ejectment in Oct. 2015 (no appeal by Tenants). Tenants then sued seeking recovery of accrued "equity."
- Trial court granted summary judgment for Owner on Tenants’ claims and for Tenants on Owner’s counterclaims (including unpaid rent and repair damages); both sides appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tenants are entitled to recover "equity" accrued under the Agreement after failing to exercise the option | Lees: Agreement entitles them to recoup equity (option fee and/or proceeds up to $371,100) if they do not exercise the option | Cooper: Agreement did not obligate Owner to pay Tenants equity once option expired; Tenants lost interest when option not exercised | Reversed trial court; Agreement ambiguous as to Tenants' right to recover equity — genuine factual dispute; remanded |
| Proper legal characterization of the Agreement (lease-option vs. contract for deed/mortgage) and consequences for Tenants' equitable interest | Lees: Parties intended lease/option but effectively created equitable ownership and interest enforceable against Owner | Cooper: Characterized as lease/option that expired and left Tenants without property interest when option not exercised | Court: Evidence supports either characterization; factual question exists whether arrangement was mortgagor/mortgagee (which would preserve equitable interest) — remand needed |
| Whether Owner was entitled to summary judgment on counterclaim for damages for Tenants' failure to repair | Cooper: Tenants failed to make required repairs and owe damages | Lees: Trial court found for Tenants on counterclaim | Reversed trial court’s grant for Tenants on repair counterclaim; material factual disputes exist — remand |
| Whether Owner’s counterclaim for unpaid rent was properly dismissed | Cooper: unpaid rent claim merited recovery | Lees: trial court granted summary judgment for Tenants on unpaid rent and Cooper did not contest on appeal | Affirmed trial court as Cooper made no appellate argument on unpaid rent |
Key Cases Cited
- Wachovia Bank v. Medford, 258 N.C. 146 (discusses option contracts and time being essence in options)
- Szabo Food v. Balentine, 285 N.C. 452 (courts look to the contract's essential character, not labels, to distinguish lease/option from sale retaining lien)
- Wilson v. Fisher, 148 N.C. 535 (equity of redemption cannot be clogged by contemporaneous agreement)
- Thorpe v. Ricks, 21 N.C. 613 (historical disfavor of attempts to clog equity of redemption)