Chemical Bank v. Belk
255 S.E.2d 421
N.C. Ct. App.
1979
Check Treatment
MARTIN (Robert M.), Judge.

We note at the outset that, according to an addendum to the record filed by the parties, the property in question has been sold by mutual consent of the parties, mooting any discussion of foreclosure on these facts. We also have noted the opinion of our Supreme Court in Ross Realty Co. v. Trust Co., 296 N.C. 366, 250 S.E. 2d 271 (1979), reversing the ruling of this Court in the same case at 37 N.C. App. 33, 245 S.E. 2d 404 (1978). Under Ross Realty, it is clear that where a mortgage or deed of trust is executed by a vendee to secure to the vendor the balance of the purchase price of real property, the vendor is limited, in the event of default by the vendee, to the security and may not sue upon the note. Accordingly, in the case before us, if the note sued upon is *364 determined to be a purchase money note, plaintiff’s recovery will be limited to the proceeds identifiable under the sale of the hotel property. Therefore, the principal question for our review is whether the trial judge ruled correctly when he determined that G.S. § 45-21.38 did not apply to the instant transaction. We conclude that he did not rule correctly and reverse the order entered below.

Plaintiff vigorously contends that the anti-deficiency statute is not applicable to this transaction for several reasons. First, plaintiff argues that the note executed by defendant was not marked as a “purchase money note” and therefore does not conform to the statutory prerequisites for asserting G.S. § 45-21.38 as a defense. Second, plaintiff contends that its rights are as those of a holder in due course, and that therefore no defenses to the note may be asserted against it. And third, plaintiff contends that defendant, through his actions, has waived the protection of the statute and is estopped from asserting it as a defense.

Defendant controverts all of these assertions by plaintiff, contending that the note was adequately identified as a purchase money note, that no holder in due course status may be found to exist on plaintiff’s part, and that he has not waived or by his conduct estopped himself from asserting the benefits and protection of the anti-deficiency statute; he argues further that the very nature of N.C. Gen. Stats. § 45-21.38 prevents any waiver or estoppel from effectively acting to remove him from its protective umbra. Defendant also contends that the second proviso of the statute (which makes a seller liable for any deficiency judgment recovered against a purchaser where the instruments evidencing and securing the debt were prepared under the seller’s supervision, the instruments secured what in fact was a purchase money obligation, and the identifying notátion of “Purchase Money” was not included on the face of the instruments) will make plaintiff liable for any deficiency in any event, even if the note is determined not to be a purchase money note, since the seller (Charlotte Venture Corp.) caused to be prepared all of the instruments pertinent to the transaction now before us and the protection of the second proviso of the statute is applicable to the assignees of the seller.

It is a long-standing rule governing related written instruments executed contemporaneously that they are to be con *365 sidered as one instrument and are to be read and construed as such to determine the intent of the parties, provided the instruments are not contradictory. This rule is applicable to notes and deeds of trust. See generally 11 Am. Jur. 2d Bills and Notes, § 70; 55 Am. Jur. 2d Mortgages, § 176. This proposition has been supported in North Carolina. See Frye v. Crooks, 258 N.C. 199, 128 S.E. 2d 257 (1962) (holding that cross-reference from note to deed of trust and vice versa were sufficient to incorporate due date from deed of trust into note); Gambill v. Bare, 32 N.C. App. 597, 232 S.E. 2d 00870, rev. denied, 292 N.C. 640, 235 S.E. 2d 61 (1977) (suggesting that purchase money nature of debt may be shown on either note or deed of trust). In view of the liberality of interpretation that our Supreme Court has indicated to be appropriate in effecting the Legislature’s intent in enacting N.C. Gen. Stats. § 45-21.38, we hold that where a note and deed of trust cross-refer to each other, and incorporate each other by reference, and only one of the documents clearly indicates the purchase money nature of the transaction, the other document may be deemed to include the same language indicating the nature of the transaction. Therefore, nothing present or absent from the face of the note now before us will serve to block the applicability of N.C. Gen. Stats. § 45-21.38 to it.

Having thus determined that the provisions of N.C. Gen. Stats. § 45-21.38 are applicable to the note, we must determine if any of the actions or conduct of the defendant will serve to remove him from its protection. Plaintiff has contended that, even should the statute otherwise be found applicable, application of it to the specific facts before us would be improper, citing theories of waiver, estoppel and guaranty. We do not agree and find, for the reasons stated below, that defendant has not removed himself from the protective umbra of the anti-deficiency judgment statute.

We are of the opinion that the benefits of this statute cannot be waived. As interpreted by our Supreme Court in Ross Realty, it effects the broad public purpose of abolishing deficiency judgments in purchase money transactions if foreclosure on the security yields an insufficient fund to satisfy the indebtedness secured. The protection it offers is afforded to all purchasers of realty who secure any part of the purchase price with a deed of trust on the realty they are purchasing. We are persuaded that *366 this protection was enacted as an expression of public policy by the 1933 General Assembly. Considering the depressed state of the economy at that time, and also looking to the chaos which could have occurred upon the wholesale foreclosure of deeds of trust followed by executions upon deficiency judgments, leaving a potentially substantial group of purchasers without their land or adequate general assets to subsist, we have no difficulty in concluding that the protection of the anti-deficiency judgment statute was designed for the benefit of the general public and was not intended to be merely a right which could be waived (or which purchasers could be compelled to waive as a prerequisite for obtaining financing). We are buttressed in our conclusion by our Supreme Court’s analysis of the intent of N.C. Gen. Stats. § 45-21.38 in Ross Realty, and also by our careful study of an article quoted in that opinion, Currie and Lieberman, Purchase-Money Mortgages and State Lines: A Study in Conflict-of-Laws Method, 1960 Duke Law Journal 1. As to waiver of benefits conferred by statutes designed to protect public interests, the law is well settled. Ordinarily, effect will not be given to an attempted waiver of a protective public policy by an individual. “A waiver is not . . . allowed to transgress public policy or morals.” Memorial Hospital v. Wilmington, 237 N.C. 179, 190, 74 S.E. 2d 749, 757 (1953). Also see generally 28 Am. Jur. 2d Estoppel and Waiver §§ 161 and 164; 3 Powell on Real Property, § 474 at 696.55. Ector v. Osborne, 179 N.C. 667, 103 S.E. 388 (1920), cited by plaintiff, is wholly distinguishable on its facts and is simply not applicable. Waiver by implication is not looked upon with favor by the courts; in fact, every reasonable intendment will be indulged against the waiver of fundamental rights, the courts never presuming acquiescence in their loss. See 28 Am. Jur. 2d Estoppel and Waiver, § 173; c.f Bunn v. Braswell, 139 N.C. 135, 51 S.E. 927 (1905). We find no express waiver of the statute’s protection anywhere in the record; nor do we find any facts of record sufficient to imply such a waiver. Even if an attempted waiver could be said to exist, however, it would be void notwithstanding the form it was in because we conclude that the allowance of any waiver would defeat the legislative purpose of N.C. Gen. Stats. § 45-21.38 and would attempt, by private action of parties, to confer upon the courts that jurisdiction over the question that was expressly taken away by the enactment of the statute. See Bullington v. Angel, 220 N.C. 18, 16 S.E. 2d 411 (1941). We therefore *367 sustain defendant’s exceptions to this portion of the trial court’s order.

For many of the same reasons that the statute’s protection may not be waived, the doctrine of estoppel will not deprive defendant of his right to assert N.C. Gen. Stats. § 45-21.38 in his defense to a deficiency proceeding. Were a purchaser able, either by his action or by contract, to deny to himself the protection afforded him by the legislature, it would be to allow by indirection that which was directly forbidden. Plaintiff contends that the “estoppel certificate” executed by defendant to Nyhaco denies him the privilege of asserting any defense to the note. That certificate provided, in pertinent part, that “there [were] no defenses, counterclaims or offsets to the above mentioned deed of trust or note secured thereby [the purchase money note and deed of trust being the same which are the crux of this litigation].” It was signed by Henderson Belk personally. The instrument twice refers to the “purchase money deed of trust and note.” As to many possible defenses which might ordinarily be asserted to a suit on a note, no doubt this certificate would be an efficacious bar. However, in order to avoid the frustration of the intent of the legislature in enacting the anti-deficiency statute as it has been heretofore construed by our courts, we hold that such a writing will not operate as an estoppel so as to bar its assertion.

Additionally, there appear no grounds of record upon which to base a claim of estoppel in favor of plaintiff in any event. The certificate referred to clearly gave notice as to the purchase money nature of the transaction. Unlike the note and deed of trust, the certificate was never transferred to the successive assignees, stopping in the chain of assignments at Nyhaco. There is absolutely no evidence of record to indicate that plaintiff in any way knew of the certificate or had any reliance upon it. It has always been the law of this State that an essential element of provable estoppel is the “reliance upon the conduct of the party sought to be estopped.” Hawkins v. Finance Co., 238 N.C. 174, 178, 77 S.E. 2d 669, 672 (1953). Plaintiff’s answers to interrogatories submitted by defendant show that plaintiff was simply unaware of the existence of the certificate at the time it acquired the note and deed of trust executed by defendant. We find no authority for the proposition that such an estoppel in favor of the holder of the note would be transferred to successive purchasers *368 of the note; the authority cited by plaintiff (derived chiefly from cases involving covenants and questions of title to real property in a chain of conveyances) is not applicable. Accordingly, we conclude that no estoppel operates to preclude defendant from asserting the defense of the anti-deficiency statute.

Finally, we consider whether defendant’s guaranty of the obligations of Belk Hotel Corporation under the lease/purchase agreement will take him out from under the protection of the anti-deficiency statute, making him liable for the entire face amount of the note. A guaranty is defined as the promise of one person (or entity) to answer for the debt of another. So long as the Belk Hotel Corporation retained the rights and interests under its agreement with Charlotte Venture, Belk’s guaranty would operate to make him personally liable for the obligation of the corporation, and his promise to pay would be independent of and in addition to the promises made by Belk Hotel Corp. See Southern National Bank of North Carolina v. Pocock, 29 N.C. App. 52, 223 S.E. 2d 518; certiorari denied 290 N.C. 94, 225 S.E. 2d 324 (1976). However, when the option to purchase was assigned to Belk personally and he exercised it, taking title to the hotel property in himself and personally signing the note and deed of trust, there was no longer any “other” whose obligation was being guaranteed; all of the obligations and promises merged in defendant who became an ordinary purchaser of realty who financed his acquisition of the property by a purchase money note and deed of trust. Defendant, having executed the note and proffered security for it, had made all the “guaranty” of the indebtedness he was able or required to do. Although the lease and option to purchase agreement contained language that would hold defendant to his guaranty contract even though the lease and option agreement were assigned, logically that language would contemplate only assignments to persons or corporations other than defendant, since, as stated above, the extent to which an individual can “guarantee” his own obligation is.defined by the ordinary rules applicable to vendor and purchaser. Therefore, N.C. Gen. Stats. § 45-21.38 remains applicable. (Arguably, defendant could have asserted the statute in defense to a suit on the guaranty even if he had not taken title and executed the note personally, in that Belk Hotel Corporation (or any other person) as purchaser would have the same rights under the statute as he does and *369 even a guarantor could likely assert that defense. See Trust Co. v. Dunlop, 214 N.C. 196, 198 S.E. 645 (1938)).

Defendant’s appeal from the denial of his motion for summary judgment on his tenth defense and counterclaim, asking for a set-off equivalent to any deficiency determined to be recoverable by plaintiff (pursuant to the second proviso of N.C. Gen. Stats. § 45-21.38, which provides:

. . . further, that when said note or notes are prepared under the direction and supervision of the seller or sellers, he, it, or they shall cause a provision to be inserted in said note disclosing that it is for puchase money of real estate; in default of which the seller or sellers shall be liable to purchaser for any loss which he might sustain by reason of the failure to insert said provisions as herein set out.)

is made moot by our holding above, and we therefore do not consider it.

Plaintiff’s cross-appeal from the denial of its motion for summary judgment on defendant’s eleventh defense and counterclaim (which sought recovery for plaintiff’s wrongful termination of foreclosure of the hotel property) and defendant’s appeal from denial of his motion for summary judgment on the same defense and counterclaim are interlocutory and are therefore dismissed. See Stonestreet v. Motors, Inc., 18 N.C. App. 527, 197 S.E. 2d 579 (1973); Motyka v. Nappier, 9 N.C. App. 579, 176 S.E. 2d 858 (1970).

The order of the trial court is reversed and the cause is remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.

Judges Mitchell and Webb concur.