Alan Votta Construction, Inc. v. Kirkbride

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
MICHAEL LYNN KIRKBRIDE and
DOLORES AVOLINE KIRKBRIDE,
DEBTORS.
ALAN VOTTA CONSTRUCTION, INC.,
Plaintiff,
vs.
MICHAEL L. KIRKBRIDE and
DOLORES A. KIRKBRIDE,
Defendants.
CASE NO. 08-00120-8-JRL
CHAPTER 11
ADVERSARY PROCEEDING
NO. 08-00211-8-JRL
ORDER
This matter is before the court on remand from the United States District Court for the
Eastern District of North Carolina. A trial was held on March 15, 2011, in Wilmington, North
Carolina.
The bankruptcy court’s judgment was entered on August 13, 2009 and appealed to the
district court. The judgment was affirmed in part and remanded to decide the issue of whether
defendants Michael and Dolores Kirkbride (“the Kirkbrides”) are entitled to the return of
SO ORDERED.
SIGNED this 07 day of April, 2011.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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$105,000.00 paid to plaintiff Alan Votta Construction Inc. (“Alan Votta”). In particular, the
district court held that there is a genuine issue of material fact as to whether deposits paid by the
defendants were earnest money deposits subject to refund. Alan Votta Constr., Inc. v. Kirkbride,
No. 7:10-CV-88-BO, at 6 (E.D.N.C. Oct. 15, 2010).
BACKGROUND
During the period of time between February 2004 through January 2005, the Kirkbrides
entered into agreements with Alan Votta. The agreements were for the construction, sale, and
purchase of residential homes in the towns of Kure Beach and Carolina Beach, North Carolina.
The nature of the agreements entailed Alan Votta purchasing land and constructing residential
homes thereon. When certificates of occupancy were issued, the Kirkbrides would obtain
financing to purchase the homes from Alan Votta as development property, intending to resell
the properties. In total there were agreements for the construction, sale, and purchase of six
single-family homes. Three of the six contracts are involved in this action: 103 N. Seahorse
Place, 109 N. Seahorse Place, and 405 Spencer Farlow Drive (“the disputed contracts”).
In April 2006, the Kirkbrides learned they could not obtain the requisite financing to
purchase these homes from Alan Votta for two reasons: 1) they concurrently owned too many
other properties, and 2) there were insufficient reserves. After learning of the Kirkbrides’
inability to obtain financing, Alan Votta listed the three properties for sale. Two of the three
properties were sold to third party purchasers for less than the original purchase agreement price.
The Kirkbrides filed for relief under chapter 11 of the Bankruptcy Code on January 8, 2008.
PROCEDURAL BACKGROUND
Alan Votta sued the Kirkbrides in state court in June 2007. After responsive pleadings
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and counterclaims were filed, each party asserted the other had breached the three disputed
contracts. After the filing of the Kirkbrides’ bankruptcy petition, the parties brought the
litigation into this court’s jurisdiction as an adversary proceeding to which the Kirkbrides filed a
motion for summary judgment. On August 13, 2009, the bankruptcy court found that the
disputed contracts were each subject to the condition precedent that the Kirkbrides acquire
financing to purchase the properties after using their best efforts to secure loans. Alan Votta
Construction, Inc. v. Kirkbride, AP No. 08-00211-8-JRL, at 7 (Bankr. E.D.N.C. Aug. 13, 2009).
The bankruptcy court also found that the Kirkbrides had used their best efforts to obtain
financing, but were unable to do so. Id. As a result of the failed condition, the contract was
found to be unenforceable, entitling the Kirkbrides to the return of their deposits. Id.
On appeal, the district court affirmed the bankruptcy court’s findings as to the Kirbrides’
reasonable efforts to obtain financing. However, the district court found that based on the
language in the contracts, there was a genuine issue of material fact as to whether the deposits
were earnest money deposits that were refundable in light of the unfulfilled condition precedent
or whether the deposits became non-refundable after a certain date. Alan Votta Constr., Inc. v.
Kirkbride, No. 7:10-CV-88-BO, at 6 (E.D.N.C. Oct. 15, 2010).
DISCUSSION
North Carolina tenets of contract interpretation hold that where the plain language of a
contract is clear, the intention of the parties is inferred from the words of the contract. Strong’s
North Carolina Index 4th, Contracts §53 (citing Lake Mary Ltd. P’ship v. Johnston, 551 S.E.2d
546 (N.C. App. 2001), review denied, 354 N.C. 363, 557 S.E.2d 538 (2001)). Where the terms
of a written contract are unambiguous, the court cannot consider parol evidence or other
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extrinsic evidence. First-Citizens Bank & Trust Co. v. 4325 Park Road Assocs., Ltd., 133 N.C.
App. 153, 515 S.E.2d 51 (1999). Interpretation of an unambiguous contract is a matter of law
determined by the court. Barrett Kays & Assocs, P.A. v. Colonial Bldg. Co., Inc. of Raleigh,
129 N.C. App. 525, 500 S.E.2d 108 (1998).
The disputed contracts are standard offer to purchase contracts approved by the North
Carolina Bar Association and North Carolina Association of Realtors. The issue of whether the
deposits are refundable arises because some of the language in the form was struck through by
the parties. The first two of the three disputed contracts have matching “strike throughs” in
paragraph four, which concerns the earnest money deposit. In these two contracts, the word
“earnest” has been struck through such that only the words “money deposit” remain. The words
“escrow agent” as a descriptor of Alan Votta Construction, Inc have also been struck. Taking
out these cancelled words, the paragraph regarding the deposit reads as follows:
$30,000.00, MONEY DEPOSIT with this offer by personal check to be deposited
and held in escrow by Alan Votta Construction, Inc. until the sale is closed, at
which time it will be credited to the Buyer, or until this contract is otherwise
terminated. In the event: (1) this offer is not accepted; or (2) any of the
conditions hereto are not satisfied, then all earnest monies shall be returned to
Buyer. In the event of breach of this contract by Seller, upon Buyer’s request, all
earnest monies shall be returned to Buyer, but such return shall not affect any
other remedies available to Buyer for such breach. In the event this offer is
accepted and Buyer breaches this contract, then all earnest monies shall be
forfeited upon Seller’s request, but receipt of such forfeited earnest monies shall
not affect any other remedies available to Seller for such breach. NOTE: In the
event of a dispute between Seller and Buyer over the return or forfeiture of
earnest money held in escrow by a broker, the broker is required by state law to
retain said earnest money in the broker’s trust or escrow account until a written
release from the parties consenting to its disposition has been obtained or until
disbursement is ordered by a court of competent jurisdiction.
In the third contract, which differs slightly from the first two, the words “earnest money” have
been struck through and the word “deposit” remains in the paragraph regarding the deposit. The
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1At the hearing, the parties admitted prior contracts into evidence, some of which
included a triggering date or condition, explicitly stating that the deposit would become “non-
refundable” upon that date or condition in a similar Addendum C. Clearly, these sophisticated
parties knew how contractually to make a deposit non-refundable if that was their mutual intent.
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term “Escrow Agent” as a descriptor of Alan Votta Construction, Inc. remains. It reads as
follows:
$15,000.00, DEPOSIT with this offer by personal check to be deposited and held
in escrow by Alan Votta Construction, Inc. (“Escrow Agent”) until the sale is
closed, at which time it will be credited to the Buyer, or until this contract is
otherwise terminated. In the event: (1) this offer is not accepted; or (2) any of the
conditions hereto are not satisfied, then all earnest monies shall be returned to
Buyer. . . .
The remainder of the paragraph is identical to the paragraph quoted above.
The only other provision in all three contracts that might shed light on the purpose of the
deposit is Addendum C, entitled “New Construction Deposit.” The first two disputed contracts
have an “Addendum C,” but the third does not. Addenda C to the first two contracts are
identical. They state that if the Builder does not close on the lots upon which the construction is
to take place within 30 days, “this Offer to Purchase shall become Null and Void and deposit
shall be returned to Buyers.” There is no other language indicating a condition upon which the
deposit would become non-refundable or describing the deposit as non-refundable. 1
Examining the four corners of the disputed contracts, the court finds the terms regarding
the deposits to unambiguously indicate that the deposits were refundable to the Kirkbrides in the
event the conditions of the contract were not fulfilled. Although the initial description of the
deposit does not include the term “earnest,” it is nonetheless described as a “deposit” or “money
deposit” that is immediately thereafter and repeatedly referred to as “earnest monies” to be
returned or forfeited based on various circumstances. Of most importance to the parties is the
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circumstance in which “any of the conditions hereto are not satisfied.” Here, the Kirkbrides
were unable to satisfy the condition precedent of obtaining financing. In this event, the contract
states, “all earnest monies shall be returned to Buyer.”
The court recognizes that at the summary judgment phase, the issue of whether the
deposits were refundable was a genuine one of material fact, as found by the district court.
However, after trying the issue on remand, the court finds the terms of the contract are
unambiguous and thus not open to interpretation based on extrinsic evidence. As such, the
contracts dictate that the deposits, totaling $105,000.00, must be refunded to defendants Michael
and Dolores Kirkbride.
END OF DOCUMENT
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