Waccamaw Bank v. Keystone Builders Resource Group, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
EAGLE CREEK SUBDIVISION, LLC,
DEBTOR.
WACCAMAW BANK,
PLAINTIFF,
v.
KEYSTONE BUILDERS RESOURCE
GROUP, INC.,
DEFENDANT.
CASE NO. 08-04292-8-JRL
ADVERSARY PROCEEDING
NO. L-09-00049-8-JRL
ORDER
This case is before the court on the motion of Keystone Builders Resource Group, Inc.
for summary judgment and on Waccamaw Bank’s motion for partial summary judgment. On
March 24, 2010, the court conducted a hearing on these matters in Raleigh, North Carolina.
JURISDICTION AND PROCEDURE
This court has jurisdiction over the parties and the subject matter of this proceeding
pursuant to 28 U.S.C. §§ 151, 157, and 1334, and the General Order of Reference entered by the
SO ORDERED.
SIGNED this 07 day of May, 2010.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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United States District Court for the Eastern District of North Carolina on August 3, 1984. This
is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), which this court may hear and
determine.
UNDISPUTED FACTS
1. 	This adversary proceeding involves a project for the construction of a residential
development known as the Eagle Creek Subdivision (“the subdivision”).
2. 	On November 27, 2006, Keystone Resource Builders Group, Inc. (“Keystone”) entered
into two contracts to purchase real property to be developed in the subdivision from
LandCraft Management, LLC (“LandCraft”). One contract was for the purchase of 50,
60-foot-wide lots (“the 60-foot contract”) and the other for 71, 70-foot-wide lots (“the
70-foot contract”) (collectively “the contracts”). Keystone was to purchase a total of 121
lots between the two contracts. The contracts define Keystone as the “Purchaser” and
LandCraft as the “Seller.”
3. 	In accordance with the contracts, Keystone delivered $185,625.00 in earnest money on
the 60-foot contract and $327,495.00 on the 70-foot contract.
4. 	The bilateral contracts expressly condition each party’s performance upon the
performance of the other. (Paragraph 32 Contingent Responsibilities).
5. 	Both contracts define the terms “Contract Lots” and “Lots” to be the entire number of
lots to be purchased under that contract. (Preamble to Statement of Purchase).
6. 	Paragraph 3, Takedown Schedule and Closings of the contracts provides:
Within ten (10) days of completion of the following events: (a) street paving, and
(b) plat map recording, Purchaser agrees to purchase six (6) lots. 	Purchaser
agrees to purchase a minimum of six (6) additional lots within ninety (90) days
of the initial takedown and an additional six (6) lots each ninety (90) day period
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thereafter. Seller represents that it will demonstrate good faith efforts to record
the Lots by September 30, 2008. If Seller has not recorded the Contract Lots by
December 30, 2008, Purchaser may provide notice to Seller of its intent to
terminate the Contract and the Earnest Money . . . shall be refunded to Purchaser.
7. 	The contracts contain mutual default provisions. Paragraph 15, Default by Seller,
grants Seller 30 days to cure any breach after receipt of written notice from
Keystone. In addition, paragraph 15 provides that “if Seller fails to perform any
of its covenants of this Contract, at the option of Purchaser, the Seller shall return
the Earnest Money to Purchaser . . . .” Paragraph 14, Default by Purchaser,
provides that if Keystone does not cure any default within 30 days of receiving
written notice, Seller is entitled to all remedies available at law or in equity.
8. 	LandCraft assigned the contracts to Eagle Creek Subdivision, LLC (“Eagle
Creek” or “the debtor”). Eagle Creek was managed by LandCraft, and Scott
Stover (“Stover”) oversaw both companies.
9. 	Eagle Creek borrowed $14,100,000.00 from Waccamaw Bank (“Waccamaw”)
under a construction loan agreement to develop lots in the subdivision.
10. 	As security for the loan, Eagle Creek executed and delivered to Waccamaw a
collateral assignment and security agreement (“the collateral assignment”), which
pledged as collateral all of Eagle Creek’s contracts and permits related to the
subdivision.
11. 	In the event of default, the collateral assignment directs all parties to assigned
contracts to recognize and accept performance from Waccamaw as assignee.
(Paragraph 7 Irrevocable Direction).
12. 	Paragraph 10, Lender Not Obligated, of the collateral assignment provides:
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Nothing contained herein or elsewhere shall operate to obligate, or be construed
to obligate, lender to perform any of the terms, covenants or conditions contained
in the Assigned Contracts and Permits or otherwise to impose any obligation
upon Lender with respect to the Assigned Contracts and Permits or other
collateral prior to written notice by Lender to Assignor and to the applicable
contracting party of Lender’s election to assume Assignor’s obligations under
one or more of the Assigned Contracts . . . . At all times Assignor retains the
obligation to reimburse Lender promptly upon demand or otherwise to pay when
due all obligations and liabilities incurred by Lender in connection with the
Assigned Contracts . . . .
13. 	Eagle Creek defaulted on the construction loan, which caused Waccamaw to
accelerate the balance due and demand that Eagle Creek pay the note in full.
14. 	On June 27, 2008, Eagle Creek filed a voluntary petition for relief under chapter
11 of the Bankruptcy Code.
15. 	In July, Stover and J. Daniel Hardy (“Hardy”), Senior Vice President of
Waccamaw, exchanged a series of emails concerning the possibility of extending
the contractual recording deadline. Stover informed Hardy that he had asked “if
[Keystone] would entertain pushing back their lot delivery date one year.” Stover
wrote:
In order to remain in compliance with their current contract, we would need to
make this decision fairly quickly so as to not jeopardize the current delivery date
(should they decide not to extend). 	If you are in agreement with this, please
reply . . . . We will then execute an amendment to their purchase contract
accordingly.
(Deposition Ex. 10, July 5, 2008 (parenthetical in original)). Stover again
emailed Hardy about the extension and said “I’d be quite disappointed to lose our
window to complete their lots within the current contract and them [sic] have
them walk.” (Id. July 12, 2008).
16. 	Later that month, Hardy asked Stover about the status of the negotiations with
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1 Eastwood Homes was a separate developer in the Eagle Creek Subdivision.
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Keystone. Stover replied:
Keystone just left me a voice mail that they don’t want to make a decision on
extending for one year until they see “an outcome” with Eastwood Homes.
Given this, it would be our suggestion to build the required Keystone lots and
tender them for closing late this year. (Deposition Ex. 11, July 22, 2008).1
17. 	Hardy communicated directly with Doug Jones of Keystone by email on August
22, 2008. Jones had received a copy of the recording plat for Phase I, and he
asked Hardy if he was correct that only 61 lots were being recorded in Phase I.
Hardy replied:
That is my understanding. Balance of phase 1 could be completed fairly quickly
if we sell first area out. Are you committed to taking those??? If so, we can
move pretty quickly!
Jones responded:
Where is the second phase? Just the 50 foot lots on the other side of the wetlands
continuing along Eagle Creek Drive, or all of the remaining Eastwood lots?
Hardy did not reply. (Deposition Ex. 14).
18. 	Waccamaw’s counsel wrote to Keystone’s counsel on September 22, 2008, and informed
Keystone’s counsel that the success of the debtor’s case was dependent on Keystone’s
willingness to perform under the contracts and that Waccamaw was lending significant
funds with the goal of meeting the takedown schedule. The letter states:
Of course, this assumes that the debtor is able to comply with its contractual
obligations to deliver in accordance with those contracts. . . . If, regardless of
whether the debtor meets its obligations under the contracts and delivers the lots
in a timely fashion, your client does not intend to meet its contractual
obligations, then it would be helpful for us to know that now. With that in mind,
please advise me of your client’s intentions.
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(Deposition Ex. 16).
19. 	Keystone’s counsel responded on September 24, 2008:
As I have mentioned before, Keystone is skeptical that LandCraft and the Debtor
will be able to live up to their contractual obligations or successfully reorganize.
. . . Keystone intends to meet any enforceable legal and contractual obligations.
It appears, however, that further investigation may prove that any obligations are
void or voidable due to fraud by one or more of the parties to this bankruptcy.
(Deposition Ex. 17).
20. 	Waccamaw and Eagle Creek entered into a settlement agreement, whereby Eagle Creek
agreed to assume the 60-foot and 70-foot contracts and Waccamaw agreed to fund the
remaining costs of the debtor’s performance obligations. The court approved Eagle
Creek’s motion to assume the contracts on November 24, 2008. Keystone was permitted
to retain all of its rights, remedies and defenses as set forth in the contracts.
21. 	Derek Ezzell, Waccamaw’s account officer for the Eagle Creek loan, emailed Hardy on
December 30, 2008, the lot recording deadline. He informed Hardy that the plat was
being recorded that day and further advised:
[T]here is a default by Seller clause in the contract that gives the seller 30 days
to cure any breach under this contract after having received written notice from
Purchaser. If Keystone Builders sends written notice of a breach, it would appear
that we have 30 days to cure any breach once we receive notice. However, to my
knowledge we have not received such notice of any kind at this point.
(Deposition Ex. 21).
22. 	On December 30, 2008, Seller recorded a plat with 61 lots, comprised of a mixture of 60-
foot and 70-foot lots. Seller did not record the full amount of lots to be purchased under
either contract.
23. 	Keystone received a copy of the recorded plat and a request to schedule a walk through
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of the 12 lots to be purchased under the initial takedown schedule. (Deposition Ex. 23).
24. 	By letter (“the December 31st letter”) dated December 31, 2008, Keystone informed
Seller that the recordation did not comply with the contract terms in several way,
including the failure to record all of the Contract Lots. Keystone asked Seller to consider
the letter its “notice of intent to terminate both Contracts” and request for refund of the
earnest money under paragraph 3 of the contracts. (Deposition Ex. 24).
25. 	On January 7, 2009, Keystone filed with the Bankruptcy Court its Notice of Intent to
Terminate Assumed Contracts (“the January 7th notice”), which incorporated the
December 31st letter.
26. 	In early January, Eagle Creek defaulted under the settlement agreement, which caused
the automatic stay to lift, permitted Waccamaw to exercise its rights to assume the 60-
foot and 70-foot contracts, and rendered Waccamaw “Seller” under the contracts.
27. 	Waccamaw replied to Keystone’s letter on January 13, 2009, and asserted that Keystone
was contractually obligated to begin taking down lots according to the takedown
schedule in paragraph 3. The letter further states:
We do not believe that the Contract language requires all 121 lots to be recorded
before the closing of the first twelve lots. Eagle Creek has recorded all lots in
Phase 1, which is more than sufficient for the initial take-down, especially in
light of your client’s representations and conduct indicating that it does not
intend to purchase any of the lots, much less all 121. . . . 	Eagle Creek has
satisfied all conditions precedent to Keystone’s obligation to purchase the initial
12 lots required by the Contracts. . . . This letter serves as notice of Keystone’s
default, and Keystone has thirty days from the date of this letter to cure its
default by closing on six lots under the 60 ft. Lots Contract and six lots under the
70 ft. Lots Contract.
(Deposition Ex. 26).
28. 	To date, Seller has not recorded any additional lots, nor has Keystone purchased any lots
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2 The deposition transcript indicates that Hardy was aware that he spoke on behalf of the
corporation and that the answers he provided would bind the corporation.
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under the contracts.
29. 	The contracts are unmodified by any agreement.
30. 	Keystone had purchased lots from LandCraft under prior contracts. Out of the five
contracts that pre-date the 60-foot and 70-foot contracts Keystone extended the recording
deadline under three contracts, terminated one due to LandCraft’s failure to comply with
the lot recording deadline, and the fifth did not contain a minimum number of lots to be
recorded prior to the first takedown. (Keystone’s Answers to Interrogatories 14, 17).
31. 	Keystone did not, at any point, represent that it had agreed to extend the recording
deadline under the 60-foot and 70-foot contracts.
32. 	Waccamaw filed a verified complaint against Keystone on February 23, 2009, and
asserted claims for breach of contract, fraudulent misrepresentation, and unfair and
deceptive trade practices. Keystone counterclaimed for return of the escrow money
deposits. The parties exchanged written discovery, and Keystone deposed Hardy as
Waccamaw’s Rule 30(b)(6) representative.2
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56(c), incorporated by Bankruptcy Rule 7056,
summary judgment is proper “if the pleadings, depositions, answers to interrogatories and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law.” FED . R.
CIV . P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, (1986). The “plain language of Rule
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56(c) mandates the entry of summary judgment, after adequate time for discovery and upon
motion, against a party who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of proof at
trial.” Celotex, 477 U.S. at 322. In making this determination conflicts are resolved by viewing
all facts and all reasonable inferences in the light most favorable to the nonmoving party. United
States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
ANALYSIS
A. Breach of Contract
Waccamaw argues that Keystone committed breach of contract by terminating the
contracts after Seller recorded 61 lots on December 30, 2008, by terminating the contracts
without providing Seller with notice of default and a 30 day cure period, and by failing to
purchase any lots. Keystone asserts that Seller’s failure to record all of the Contract Lots by
December 30, 2008, was a material breach that entitled Keystone to terminate and excused
Keystone’s obligation to perform under the contracts. Keystone further asserts that it properly
provided Seller with notice and opportunity to cure the breach.
1. 	Was Keystone entitled to enforce the contracts’ termination provisions upon Seller’s
failure to record all of the lots required under either contract by December 30, 2008?
Keystone asserts that the contracts expressly require Seller to record all of the lots to be
purchased under each contract by December 30, 2008, and that Seller’s failure to comply with
this condition gives Keystone an absolute right to terminate the contracts. Waccamaw counters
by arguing that the contracts do not, in fact, require all of the lots to be recorded by December
30, 2008. Referring to numerous provisions within the contracts which indicate that the parties
intended the lots to be recorded and purchased in phases, rather than all at once, and other
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provisions which use the term “Lots” inconsistently, Waccamaw contends that it is reasonable to
interpret the contracts as requiring only a portion of the lots to be recorded by December 30,
2008. Based on the aforementioned inconsistencies, Waccamaw asserts that the contracts are
ambiguous and thus extrinsic evidence is necessary to clarify the parties’ intentions. Finally,
Waccamaw argues that, even if the contracts did require all of the lots to be recorded by
December 30, 2008, Keystone was not entitled to terminate because Seller had substantially
performed under the contracts or that Seller was entitled to a “reasonable time” after December
30th to complete performance because the contracts lack time is of the essence clauses.
Contrary to Waccamaw’s assertions, the court finds that the contracts clearly and
unambiguously require Seller to record all 121 lots by December 30, 2008. If the plain language
of a contract is clear and unambiguous, the parties’ intentions must be inferred exclusively from
the terms of the contract as a matter of law. Weaver v. St. Joseph of the Pines, Inc., 652 S.E.2d
701, 709 (N.C. Ct. App. 2007). “Individual clauses in an agreement and particular words must
be considered in connection with the rest of the agreement, and all parts of the writing, and every
word in it, will, if possible, be given effect.” Robbins v. C.W. Myers Trading Post, Inc., 117
S.E.2d 438, 440-41 (N.C. 1960).
Each party’s argument rests primarily on the construction of paragraph three of the
contracts, which require Keystone to begin taking-down lots according to a set schedule and also
provide: “ If Seller has not recorded the Contract Lots by December 30, 2008, Purchaser may
provide notice to Seller of its intent to terminate the Contract . . . .” Although Waccamaw
correctly asserts that the contractual language allows for lots to be recorded and purchased in
phases, rather than in one lump group, the conclusion drawn by Waccamaw cannot be reconciled
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3Waccamaw also refers to provisions in paragraph 8 of the contracts to support its
assertion that the recording and takedown schedule was to be performed in phases. The court’s
interpretation of the contractual terms is congruent with those provisions.
4 This rule applies equally to Waccamaw’s argument that the contracts do not contain a
time is of the essence clause and thus Seller was entitled to a “reasonable time” after the
recording deadline to complete performance. Time is generally not regarded as of the essence in
land sale contracts, except when a specific time for performance is set forth in the express terms
of the contract. 77 AM. J UR . 2D Vendor and Purchaser § 69 (2010). Paragraph 3 of the contracts
provides a specific time for performance, and thus the court finds no merit in Waccamaw’s
argument that the recording deadline was not of the essence under the contracts.
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with the clear requirement that Seller must record the Contract Lots by December 30, 2008.
However, if the contracts are construed as intending for the lots to be recorded and purchased in
phases over the two year period between contract execution and the December 30th deadline,
then every provision of the contracts can be given effect. 3 The court further finds that
inconsistent usage of the term “Lots” does not create ambiguity as to the term “Contract Lots,”
which is consistently used to refer to the whole of the lots. Because there is no ambiguity as to
whether the contracts require all 121 lots to be recorded by December 30, 2008, extrinsic
evidence is neither necessary nor admissible on this issue.
The substantiality of Seller’s performance is not at issue because the recording deadline
is an express condition, and the contracts specifically provide that breach of that condition is
grounds for termination. “Express provisions that a contract will come to an end at the option of
one or either of the parties are enforceable.” 4 17B C.J.S. Contracts § 442 (2009); see generally
State Farm Mut. Auto. Ins. Co. v. Atlantic Indem. Co., 468 S.E.2d 570 (N.C. Ct. App. 1996)
(affirming trial court’s enforcement of termination clause in insurance policy); Miller v. Parlor
Furniture of Hickory, Inc., 339 S.E. 2d 804, 805 (N.C. Ct. App. 1986) (enforcing termination
clause in lease agreement). Where the express provisions of a contract require strict
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5 “Q: So under your theory of an understanding of the contract, then Keystone would
have had the right to terminate the contract since they’re not yet recorded. Is that right? A: All
121? Q: Correct. A: Yes. Q: So they would have had the right to terminate because those were
not all recorded by December 30th of 2008. Correct? A: Correct.” (Deposition 42-43).
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performance, the breaching party cannot rely on the doctrine of substantial performance as a
basis for recovery. See Coastal Seafood Company, Inc. v Alcoa South Carolina, Inc., 381 S.E.2d
502, 503 (Ct. App. S.C. 1989) (citing 17A C.J.S. Contracts § 508 (1963)). 	In the Rule 30(b)(6)
deposition, Waccamaw’s corporate representative unequivocally admitted that Seller’s failure to
record all of the lots by the December 30th deadline triggered Keystone’s right to terminate the
contracts according to the unmodified contractual terms.5 Based on the undisputed facts, the
court finds that Seller breached an express condition of the contracts by recording only a portion
of the lots on December 30, 2008, and that Keystone was lawfully entitled to enforce the
contractual termination clauses upon such breach.
2. 	Did Keystone unlawfully terminate the contracts by failing to provide Seller with notice
and opportunity to cure Seller’s breach?
Under North Carolina law, breach of contract occurs when a party terminates or
repudiates a contract without providing the notice and cure period required by the contract.
Dishner Developers, Inc. v. Brown, 549 S.E.2d 904, aff’d, 557 S.E.2d 528 (N.C. Ct. App. 2001).
In Dishner, a contract for the sale of land required the purchaser to allow the seller 30 days to
cure a title defect after the purchaser provided written notice of the same. When the purchaser
learned that the title was encumbered by outstanding deeds of trust, she indicated that she could
not close the deal under those circumstances, and a week later notified her realtor that she
declared the contract “null and void” and ordered the realtor to “halt the deal.” Id. at 905. The
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court found the purchaser in breach of contract based on her failure to provide the seller with
written notice and an opportunity to cure the default before terminating the contract and held that
the purchaser’s breach relieved the seller’s duty to perform. Id. at 206.
Relying on Dishner, Waccamaw argues that Keystone deprived Seller of proper notice
and opportunity to cure the breach, excusing Seller from any obligation to cure its breach.
Paragraph 15 of the contracts provides Seller with 30 days to cure any breach after receipt of
written notice of the default. On December 31, 2008, Keystone sent a letter to Seller which
specifically identified the inadequacies in Seller’s performance and stated “please consider this
letter, pursuant to paragraph 3 of the Contracts, as Purchaser’s notice of intent to terminate both
Contracts . . . .” Rather than attempt to cure the breach upon receipt of this notice, Seller instead
told Keystone it was in default and therefore that Seller was not obligated to cure.
Waccamaw asserts that Keystone did not provide adequate notice because the December
31st letter failed to advise Seller of its right to a 30 day cure period. Additionally, Waccamaw
contends that even if the notice was sufficient, Keystone deprived Seller of the right to cure in
violation of the contracts because the December 31st letter and January 7 th notice effectively
terminated the contracts, excusing Seller from any further duty to perform. Keystone asserts that
the December 31st letter properly notified Seller of the breach as required by the contracts, which
was not a repudiation and did not, in any way, hinder Seller’s ability to cure the breach within
the 30 day cure period.
Based on the record, the court finds that Keystone complied with the contractual default
provisions via the written notice of default provided on December 31, 2008, which afforded
Seller the opportunity to cure and was not a repudiation of the contracts. The facts are not
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analogous to Dishner because written notice was not provided in that case. Here, Seller received
written notice of the default in the December 31st letter as required by paragraph 15. The
contracts do not obligate Keystone to reference the cure provision in the notice, and Waccamaw
concedes that it can offer no authority to support its position on this issue. Furthermore, the
record contains an interoffice email from Ezzell to Hardy, sent on December 30, 2008, notifying
Hardy of the default provision and cure period. The record clearly shows that Waccamaw was
fully aware of its right to cure the breach when it received such written notice from Keystone but
took no action to cure the defective performance.
Moving on to the second prong of Waccamaw’s argument, that Keystone terminated the
contracts prior to the expiration of the 30 day cure period, the court finds that no such
repudiation occurred. On its face, the forward looking language of the December 31st letter
purports to provide notice of Keystone’s intent to terminate the contracts, rather than notice of
termination of the contracts. The same is true for the January 7th filing. To contravene the
express language of the documents, Waccamaw urges the court to look to Keystone’s answers to
interrogatories in support of its assertion. However, Waccamaw relies on the alleged
anticipatory repudiation made in the December 31st letter and January 7 th notice to justify Seller’s
failure to take any action to cure the breach within the cure period, arguing that Keystone
breached first and thus should be held responsible for the failed performance. As such, the court
finds that it must look first to the documents for evidence of anticipatory repudiation, and given
that no such evidence exists, the court will not allow Waccamaw to rely on contradictory
indications extracted from answers to interrogatories provided months after the fact.
Based on the undisputed record, the court grants summary judgment in favor of Keystone
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6 Despite this clear concession, Waccamaw attempts to rely on the prior course of
dealings between Keystone and LandCraft to justify its accusation that Keystone wrongfully
terminated the contracts. The record belies the existence of any consistent course of dealings
between Keystone and LandCraft upon which Waccamaw could have relied in believing that
Seller was not obligated to comply with the recording deadline.
7 On page 24 of Waccamaw’s memorandum of law in opposition to Keystone’s motion
for summary judgment, Waccamaw states: “Waccamaw is not claiming that Keystone
misrepresented that it would extend the contractual deadline, but that it misrepresented that it
would honor its obligation to purchase lots if Waccamaw continued funding the project.”
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on Waccamaw’s claim for breach of contract.
B. Fraudulent Misrepresentation
To prevail on a claim of fraudulent misrepresentation at summary judgment, the record
must show: “(1) false representation or concealment of a material fact, (2) reasonably calculated
to deceive, (3) made with intent to deceive, (4) which does in fact deceive, and (5) resulting in
damage to the injured party.” Hospira, Inc. v. Alphagary Corp., 671 S.E.2d 7, 11 (N.C. Ct. App.
2009). Upon careful review of the record, the court finds no false representation or concealment
of any material fact to support Waccamaw’s claim for fraudulent misrepresentation.
Waccamaw contends that Keystone fraudulently misrepresented its willingness to honor
its contractual obligations and argues the determination of Keystone’s intent in making this
misrepresentation is a matter of fact that precludes summary judgment. Abandoning any
argument that Keystone agreed to extend the contractual recording deadline,6 Waccamaw insists
instead that Keystone had no intention of performing under the contracts, regardless of whether
the Seller was able to comply with its performance obligations.7 The record contains numerous
statements indicating that Keystone intended to honor its contractual duties despite the debtor’s
bankruptcy, and it is these affirmative statements upon which Waccamaw claims to have relied
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in continuing to fund the project.
Waccamaw’s fraudulent misrepresentation claim is premised on the assumption that
Keystone breached its contractual duties by providing Seller with notice of its intent to terminate
the contracts based on Seller’s failure to record all of the Contract Lots by the recording
deadline. In the Rule 30(b)(6) deposition, Hardy repeatedly stated that Keystone assured him
that “if [Waccamaw] continued forward at that point, that they would honor the contract as such.
And they did not indicate to me that their intent was to back out of the contract.” The record
clearly shows that, when Waccamaw asked Keystone if it would perform under the contracts,
Waccamaw assumed that the debtor would also perform. In the letter dated September 22, 2008,
Waccamaw directly inquired as to Keystone’s willingness to perform under the contracts. The
letter explicitly states:
Of course, this assumes that the debtor is able to comply with its contractual obligations
to deliver in accordance with those contracts. . . . If, regardless of whether the debtor
meets its obligations under the contracts and delivers the lots in a timely fashion, your
client does not intend to meet its contractual obligations, then it would be helpful for us
to know that now. With that in mind, please advise me of your client’s intentions.
Keystone’s September 24 th response conveyed its skepticism as to the debtor’s ability to perform
and extreme concern about allegations of fraud pertaining to the debtor, followed by a
commitment “to meet any enforceable legal and contractual obligations.” Then Keystone
qualified this statement with its belief that those obligations may be void or voidable based on
the alleged fraud. Far from evidencing a commitment by Keystone to purchase lots under the
contracts regardless of whether the debtor met its obligations, these letters show that Keystone
promised to perform only to the extent required by the law and the mutually agreed-upon terms
of the contracts.
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Waccamaw also argues that Keystone’s responses were ambiguous to such an extent that
the lack of disclosure equates to a misrepresentation of the facts. Citing to the August 22, 2008
email between Hardy and Jones, Waccamaw contends Keystone had a duty to affirmatively state
that recording only 61 lots was a violation of the contracts or that Keystone would not perform
unless all 121 lots were recorded. The court notes that in August of 2008, Seller would not have
been in default of the contracts if only 61 lots were recorded. In fact, if Seller had recorded 61
lots at that time, Keystone would have been obligated to begin purchasing lots according to the
takedown schedule. Not only did Waccamaw fail to respond to Keystone’s question about the
remainder of the lots not included on the plat, which ended the correspondence before Keystone
obtained a definitive answer, but the facts do not indicate that Waccamaw was deceived by
Keystone’s response. In July, Stover told Hardy that without an amendment to the contracts,
which Keystone was not willing to grant at that time, failure to complete the lots by the
recording deadline could result in Keystone’s termination of the contracts. By September
Keystone had made it clear to Waccamaw that it would perform only if legally obligated.
The record does not contain even a scintilla of evidence that Waccamaw ever believed, or
that Keystone ever represented, that Keystone would perform under the contracts if Seller failed
to meet its performance obligations on time. Waccamaw’s fraudulent misrepresentation claim
could only prevail if Keystone had breached the contracts by exercising its right to terminate
upon Seller’s failure to record the Contract Lots by December 30, 2008. Based on the court’s
determination that Keystone was legally entitled to terminate the contracts due to Seller’s
breach, the court finds that the record is void of any false representation or concealment of a
material fact made by Keystone with the intent to deceive, or any representation that, in fact,
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deceived Waccamaw to its detriment. Keystone’s motion for summary judgment is granted as to
Waccamaw’s claim for fraudulent misrepresentation.
C. Unfair and Deceptive Trade Practices
Based on the aforementioned analysis, Keystone’s motion for summary judgment on
Waccamaw’s claim for unfair and deceptive trade practices under North Carolina General
Statute § 75-1.1 is granted. To withstand summary judgment on a claim for unfair and deceptive
trade practices, the record must show evidence of: (1) an unfair or deceptive act or practice, (2)
in or affecting commerce, and (3) which proximately caused actual injury to the plaintiff. See
N.C.G.S. § 75-1.1 (2009). The record shows no evidence of any unfair or deceptive act or
practice by Keystone which harmed Waccamaw.
Under N.C.G.S. § 75-16.1 attorney’s fees are available to the prevailing party upon a
finding that the party instituting the action knew, or should have known, that the action was
frivolous and malicious. The record shows that Waccamaw’s fraud claim was not grounded in
any factual or legal basis, but rather that it was based on the erroneous assertion that Keystone
had somehow breached the contracts. In its verified complaint, Waccamaw admitted that only
61 lots were recorded, but stated that Keystone breached by terminating the contracts after Seller
had fulfilled all conditions precedent to Keystone’s obligation to purchase. Then in the 30(b)(6)
deposition, Waccamaw initially asserted that all 121 lots had been recorded, such that Seller was
in compliance with the contracts, and admitted that Keystone had a right to terminate if Seller
failed to record all 121 lots. Hardy’s testimony completely contradicts the factual allegations in
Waccamaw’s verified complaint. It is clear from the record that Waccamaw knew, or should
have known, that Keystone had complied with its contractual obligations in accordance with the
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representations made to Waccamaw.
Given that the record contains absolutely no indication that Keystone ever represented or
implied that it would perform under the contracts in the face of Seller’s breach, the court finds
that Waccamaw should have known that the action was frivolous and malicious. Waccamaw’s
argument simply does not follow from any reasonable construction of the facts or the law.
Keystone is awarded its reasonable attorney’s fees according to the affidavit of John R. Buric
submitted to the court on February 25, 2010.
D. Recovery of Earnest Money Deposits
Under paragraph 15 of the contracts, Seller is obligated to return the earnest money
deposits to Keystone if Seller fails to perform. Keystone asserts that as assignee of Seller,
Waccamaw is obligated on any claims arising from the original agreement, including the
obligation to refund the earnest money. Arguing that the collateral assignment expressly limits
its liability under the contracts, Waccamaw contends that the obligation to refund the earnest
money was not assumed and moves for summary judgment on Keystone’s counterclaim.
North Carolina has adopted the Restatement rule pertaining to the effect of acceptance of
an assignment:
(1) Where a party to a bilateral contract which is at the time wholly or partially executory
on both sides, purports to assign the whole contract, his action is interpreted, in the
absence of circumstances showing a contrary intention, as an assignment of the
assignor’s rights under the contract and a delegation of the performance of the assignor’s
duties.
(2) Acceptance by the assignee of such an assignment is interpreted, in the absence of
circumstances showing a contrary intention, as both an assent to become an assignee of
the assignor’s rights and as a Promise to the assignor to assume the performance of the
assignor’s duties.
Rose v. Vulcan Materials Co., 194 S.E.2d 521, 533 (N.C. 1973) (quoting RESTATEMENT (FIRST )
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OF CONTRACTS § 164 (1932)). Under Rose, a promise to assume both the benefits and the
obligations of a contract is implied upon assumption, absent circumstances that show a contrary
intention. Applying this standard, the court looks to the record for circumstances showing that
Waccamaw did not intend to assume, or that the debtor did not intend to assign, the debtor’s
obligations under the contracts. The collateral assignment includes a provision that limits
Waccamaw’s liability in the event of the debtor’s default and Waccamaw’s assumption of the
contracts. Paragraph 10 of the bilateral contracts, titled “Lender Not Obligated,” specifically
provides that:
Nothing contained herein or elsewhere shall operate to obligate, or be construed to
obligate, lender to perform any of the terms, covenants or conditions contained in the
Assigned Contracts and Permits or otherwise to impose any obligation upon Lender with
respect to the Assigned Contracts and Permits or other collateral prior to written notice
by Lender to Assignor and to the applicable contracting party of Lender’s election to
assume Assignor’s obligations under one or more of the Assigned Contracts . . . . At all
times Assignor retains the obligation to reimburse Lender promptly upon demand or
other to pay when due all obligations and liabilities incurred by Lender in connection
with the Assigned Contracts . . . .
According to the express terms of the collateral assignment, Waccamaw could not become
obligated under an assigned contract without providing written notice to both the debtor and the
other contracting party of its election to assume the debtor’s obligations under the contract.
Keystone argues that Waccamaw’s use of the term “assignee” in the verified complaint and in a
letter to Keystone’s counsel constitutes such written notice. However, upon careful review of
the record, the court finds no evidence that written notice was provided to Keystone specifying
Waccamaw’s election to assume the debtor’s obligations under either contract. Furthermore, by
requiring Eagle Creek to reimburse Waccamaw for any obligations incurred by Waccamaw, the
language of the collateral assignment shows Eagle Creek’s intention to retain its obligations
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under the contracts. Because the contractual language is clear and unambiguous, the parties’
intentions must be inferred exclusively from the terms of the contracts as a matter of law. See
Weaver v. Saint Joseph of the Pines, Inc., 652 S.E.2d 701, 709 (N.C. Ct. App. 2007). 	Based on
the record, the court grants Waccamaw’s motion for partial summary judgment.
CONCLUSION
Based on the foregoing, Keystone’s motion for summary judgment is granted on
Waccamaw’s claims for breach of contract, fraudulent misrepresentation, and unfair and
deceptive trade practices. Waccamaw’s motion for partial summary judgment on Keystone’s
counterclaim for return of the escrow deposits is also granted. It is hereby ordered that
Waccamaw pay Keystone’s reasonable attorney’s fees under N.C.G.S. § 75-16.1, according to
the affidavit of John R. Buric filed with the court on February 25, 2010.
“END OF DOCUMENT”
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