Kyle v. Felfel , 254 N.C. App. 684 ( 2017 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-1318
Filed: 1 August 2017
Mecklenburg County, No. 15 CVS 16030
JASON KYLE, Plaintiff,
v.
HELMI L. FELFEL and LAURA C. FELFEL, Defendants.
Appeal by defendants from order entered 26 July 2016 by Judge Yvonne M.
Evans in Mecklenburg County Superior Court. Heard in the Court of Appeals 2 May
2017.
Redding Jones, PLLC, by Joseph R. Pellington and David G. Redding, for
plaintiff-appellee.
Hull & Chandler, P.A., by Nathan M. Hull and Andrew S. Brendle, for
defendants-appellants.
DAVIS, Judge.
This case requires us to consider whether a promissory note is unenforceable
where a failure to abide by the statute of frauds invalidated the consideration
intended to support the note. Defendants Helmi L. Felfel and Laura C. Felfel (the
“Felfels”) appeal from the trial court’s order denying their motion for judgment
notwithstanding the verdict following a jury verdict finding that the Felfels breached
their obligations under the note. Because we conclude that the promissory note was
unenforceable for lack of consideration, we reverse.
KYLE V. FELFEL
Opinion of the Court
Factual and Procedural Background
In 2007, the Felfels were living in their home on Bay Harbour Road in
Mooresville, North Carolina (the “Bay Harbour Property”). At the time, Plaintiff
Jason Kyle owned a home on Jetton Road in Cornelius, North Carolina (the “Jetton
Property”). At some point during that year, the Felfels and Kyle were introduced to
each other through a mutual friend. The Felfels and Kyle ultimately engaged in
discussions about a possible “house swap.” The Felfels wanted to sell the Bay
Harbour Property and move to the Jetton Property so that Mr. Felfel could live closer
to his place of employment. Kyle wished to sell the Jetton Property and live
elsewhere.
They decided to structure a transaction whereby the Felfels would rent the
Jetton Property for five years and Kyle would rent the Bay Harbour Property. As
part of this agreement, the Felfels were to give Kyle a promissory note in the amount
of $200,000 that was intended to serve as partial consideration for their receipt of an
option to purchase the Jetton Property at the end of the lease period.
Based upon the parties’ agreement, the Felfels moved into the Jetton Property
in 2008. In 2010, the parties sought to memorialize their agreement through the
execution of two written instruments: (1) a document titled “Amended and Restated
Lease Agreement” (hereinafter the “2010 Lease Document”); and (2) a promissory
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KYLE V. FELFEL
Opinion of the Court
note dated 1 February 2010 (hereinafter the “Note”) executed by the Felfels in Kyle’s
favor.
The 2010 Lease Document provided the terms of the Felfels’ rental of the
Jetton Property and contained a provision stating that the lease would run from 1
January 2010 until 30 November 2014. The 2010 Lease Document also contained the
following language in paragraph 21 purporting to grant an option (hereinafter the
“2010 Option”) giving the Felfels the right to purchase the Jetton Property during the
lease period:
21. OPTION TO PURCHASE. [The Felfels] shall have an
Option . . . to purchase the [Jetton Property] during the
term of this lease including any extensions or renewals
hereof. If [the Felfels] fail[ ] to exercise this option in the
manner described, then the Option shall automatically
cease and be of no further force and effect.
It is undisputed that the 2010 Lease Document was signed by the Felfels on 1
February 2010 — the same date that they signed the Note — as evidenced by a copy
of the document entered into evidence at trial. However, no copy of the 2010 Lease
Document bearing Kyle’s signature was ever produced during discovery or at trial.
The Note, which was in the amount of $200,000 and carried a nine percent
interest rate, was secured by a deed of trust to the Bay Harbour Property. The Note
stated that it was “[d]ue and payable upon the earlier of (i) an Event of Default under
the Lease by [the Felfels], (ii) the termination of the Lease, or (iii) November 30,
2014.” The Note also contained the following provision:
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KYLE V. FELFEL
Opinion of the Court
This Note is being given as partial consideration for the
undersigned’s receipt from Jason Kyle of an option to
purchase that certain property located at . . . Jetton Road,
Cornelius, North Carolina pursuant to the terms of that
certain Amended and Restated Lease Agreement between
the parties of even date herewith[.]
(Emphasis added.) The Note was signed by both of the Felfels on 1 February 2010.1
In 2011, the parties entered into a new instrument — also entitled “Amended
and Restated Lease Agreement” (hereinafter the “2011 Lease”) — that adjusted the
amount of monthly rent the Felfels were to pay Kyle for the Jetton Property and
extended the lease term to 31 May 2015. The 2011 Lease also stated, in pertinent
part, the following:
[Kyle] previously granted to [the Felfels] an option to
purchase the [Jetton Property] under Paragraph 21 of the
Original Lease. Said purchase option is hereby terminated
and replaced in full with the following Option . . . hereby
granted to [the Felfels] to purchase the [Jetton Property]
during the term of this Lease, including any extensions or
renewals hereof. The Option is being given in consideration
of [the Felfels’] agreement to enter into this Lease. If [the
Felfels] fail[ ] to exercise this option in the manner
described, then the Option shall automatically cease and
be of no further force and effect.
(Emphasis added.)
Thus, the 2011 Lease contained a new option (hereinafter the “2011 Option”).
A copy of the 2011 Lease entered into evidence at trial shows that it was signed by
1 The Note was not signed by Kyle.
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KYLE V. FELFEL
Opinion of the Court
the Felfels on 10 January 2011 and by Kyle on 15 February 2011. Thus, unlike the
2010 Lease Document, the 2011 Lease was signed by both Kyle and the Felfels.
After occupying the Jetton Property and making their monthly rental
payments during the lease period, the Felfels vacated the Jetton Property when the
2011 Lease term ended on 31 May 2015. At no point did the Felfels ever attempt to
exercise their option to purchase the Jetton Property.
Despite Kyle’s demand that the Felfels pay the sums due under the Note, they
refused to do so. On 26 August 2015, Kyle filed the present lawsuit in Mecklenburg
County Superior Court in which he alleged as his sole cause of action that the Felfels
had breached the Note when they failed to pay him the $200,000, plus interest, upon
his demand for payment. In both their initial answer and their amended answer, the
Felfels asserted the defense that the Note was unenforceable for lack of consideration.
A jury trial was held before the Honorable Yvonne M. Evans beginning on 27
June 2016. Both at the close of Kyle’s evidence and at the close of all of the evidence,
the Felfels moved for a directed verdict. Both motions were denied by the trial court.
The jury entered a verdict in Kyle’s favor, answering the following questions in the
affirmative: (1) “Did Mr. Kyle and the Felfels enter into a contract?”; and (2) “Did the
Felfels breach the contract by failing to pay Mr. Kyle the amount owed?” The jury
determined that Kyle was entitled to recover $250,000 in damages from the Felfels.
The trial court entered judgment upon the verdict on 1 July 2016.
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KYLE V. FELFEL
Opinion of the Court
On 7 July 2016, the Felfels filed a motion for judgment notwithstanding the
verdict (“JNOV”) in which they asserted, among other grounds, that Kyle had failed
to offer any evidence at trial showing that he provided legally sufficient consideration
in exchange for the Felfels’ execution of the Note. After holding a hearing on 20 July
2016, the trial court entered an order denying the JNOV motion on 26 July 2016. The
Felfels filed a timely notice of appeal from that order.
Analysis
The Felfels argue on appeal that the trial court erred in denying their motion
for JNOV given that the Note was unenforceable for lack of consideration. This
assertion is premised upon their contention that the 2010 Lease Document (which
contained the 2010 Option that purported to be the consideration for the Note)
violated the statute of frauds because it was not signed by Kyle. The Felfels contend
that this failure to comply with the statute of frauds, in turn, means that the 2010
Option was illusory in that it could not have been legally enforced by them against
Kyle. Accordingly, the Felfels reason, consideration for the Note was never actually
given by Kyle and thus the Note is unenforceable.
Kyle, conversely, asserts that either the 2010 Option or the 2011 Option did,
in fact, serve as the necessary consideration for the Note. Alternatively, he argues
that the doctrine of quasi-estoppel precludes the Felfels from contesting the validity
of the Note.
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KYLE V. FELFEL
Opinion of the Court
In order to survive a JNOV motion,
the non-movant must present more than a scintilla of
evidence to support its claim. While a scintilla is very slight
evidence, the non-movant’s evidence must still do more
than raise a suspicion, conjecture, guess, surmise, or
speculation as to the pertinent facts in order to justify its
submission to the jury. The trial court must construe the
evidence in the light most favorable to the non-movant and
resolve all evidentiary conflicts in the non-movant’s favor.
Morris v. Scenera Research, LLC, 368 N.C. 857, 861, 788 S.E.2d 154, 157-58 (2016)
(internal citations and quotation marks omitted). We review the trial court’s ruling
on a JNOV motion de novo. Id.
I. Lack of Consideration
In order to recover on a promissory note, “the party seeking relief must show
execution, delivery, consideration, demand, and nonpayment.” Kane Plaza Assocs. v.
Chadwick, 126 N.C. App. 661, 664, 486 S.E.2d 465, 467 (1997) (citation omitted). At
issue here is whether Kyle provided consideration, which “consists of any benefit,
right, or interest bestowed upon the promisor, or any forbearance, detriment, or loss
undertaken by the promisee.” McLamb v. T.P. Inc., 173 N.C. App. 586, 590, 619
S.E.2d 577, 581 (2005) (citation and quotation marks omitted), disc. review denied,
360 N.C. 290, 627 S.E.2d 621 (2006).
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KYLE V. FELFEL
Opinion of the Court
Kyle asserts that the option to purchase the Jetton Property was the
consideration that the Felfels received in exchange for executing the Note.2
Therefore, in order to prove that consideration existed to support the Note, Kyle was
required to establish either that (1) the 2010 Option contained in the 2010 Lease
Document — which was executed contemporaneously with the Note — was a legally
enforceable agreement; or (2) the 2011 Option contained in the 2011 Lease served as
retroactive consideration for the Note. We address each issue in turn.
A. 2010 Option as Consideration for the Note
The Felfels contended in the trial court, and maintain in this appeal, that the
option contained in the 2010 Lease Document could not serve as the consideration
necessary to support the Note because the 2010 Lease Document violated the statute
of frauds in that it was not signed by Kyle. North Carolina’s statute of frauds states
as follows:
All contracts to sell or convey any lands, tenements or
hereditaments, or any interest in or concerning them . . .
and all other leases and contracts for leasing lands
exceeding in duration three years from the making thereof,
shall be void unless said contract, or some memorandum or
note thereof, be put in writing and signed by the party to
be charged therewith, or by some other person by him
thereto lawfully authorized.
2Indeed, neither Paragraph 21 of the 2010 Lease Document nor the Note itself indicate that
anything other than the 2010 Option was to serve as consideration for the Felfels’ execution of the
Note.
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KYLE V. FELFEL
Opinion of the Court
N.C. Gen. Stat. § 22-2 (2015). It is well established that the “statute of frauds . . . is
applicable to option contracts for the purchase of property[.]” Craig v. Kessing, 36
N.C. App. 389, 392, 244 S.E.2d 721, 723 (1978), aff’d, 297 N.C. 32, 253 S.E.2d 264
(1979).
With regard to documents required by the statute of frauds to be in writing,
the only admissible evidence to establish the agreement — including the fact that it
was signed — is the writing itself. See Jamerson v. Logan, 228 N.C. 540, 544, 46
S.E.2d 561, 564 (1948) (“A contract which the law requires to be in writing can be
proved only by the writing itself, not as the best, but as the only admissible evidence
of its existence.” (citation and quotation marks omitted)).
Here, it is undisputed that the 2010 Lease Document purported to contain both
an agreement for the Felfels to lease the Jetton Property for a period exceeding three
years and an option for them to purchase that property. Therefore, the 2010 Lease
Document (including the 2010 Option contained therein) was subject to the statute of
frauds. Because neither party introduced a version of the 2010 Lease Document that
had been signed by Kyle, the statute of frauds would have barred any attempt by the
Felfels to enforce the 2010 Option against Kyle. Accordingly, because the 2010 Option
was unenforceable against Kyle, it cannot serve as consideration for the Note. See
McLamb, 173 N.C. App. at 591, 619 S.E.2d at 581 (“[O]ur courts have held that
consideration which may be withdrawn on a whim is illusory consideration which is
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KYLE V. FELFEL
Opinion of the Court
insufficient to support a contract.”); see also Milner Airco, Inc. of Charlotte, N.C. v.
Morris, 111 N.C. App. 866, 870, 433 S.E.2d 811, 814 (1993) (holding contract
unenforceable for lack of consideration because “while reciting consideration, [the
contract] does not bind the employer to any promise”).
B. 2011 Lease as Consideration for the Note
Kyle also argues, in the alternative, that even if the 2010 Lease Document —
standing alone — did not serve as consideration for the Note, consideration was
provided retroactively by the 2011 Lease, which both referenced the 2010 Option and
purported to grant the Felfels a new option. We reject this argument for several
reasons.
First, the Note clearly stated on its face that the consideration for its execution
was the option granted in the 2010 Lease Document: “This Note is being given as
partial consideration for the [Felfels’] receipt from Jason Kyle of an option to purchase
[the Jetton Property] pursuant to the terms of that certain Amended and Restated
Lease Agreement between the parties of even date herewith[.]” (Emphasis added.)
The phrase “even date” means “the same date.” Black’s Law Dictionary 635 (9th ed.
2009). Thus, it is clear that the option being referenced in the Note was the one
contained in the 2010 Lease Document as that was the “Amended and Restated Lease
Agreement” signed by the Felfels on the same date as the Note — not the 2011 Lease
signed a year later. This fact is fatal to Kyle’s argument. See, e.g., In re Head Grading
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KYLE V. FELFEL
Opinion of the Court
Co., Inc., 353 B.R. 122, 123-24 (Bankr. E.D.N.C. 2006) (applying North Carolina law
to invalidate deed of trust secured by “Promissory Note of even date herewith”
because promissory note was executed on later date than deed of trust).
Second, we are not persuaded by Kyle’s contention that because multiple
writings may in some circumstances be construed together to satisfy the statute of
frauds, we should hold that in this case “the [2011] Lease, with its internal references
to the 2010 Lease [Document] and the Note, is sufficient to comply with the statute
of frauds.” The cases Kyle cites in support of this argument stand merely for the
proposition that an agreement comprising separate, cross-referenced writings does
not necessarily violate the statute of frauds simply because the documents are not
physically attached. See, e.g., Fuller v. Southland Corp., 57 N.C. App. 1, 7, 290 S.E.2d
754, 758 (“[T]he writings need not be physically connected if they contain internal
reference to other writings[,]” and “unconnected writings must contain a reference to
the other writings, not merely a reference to the same subject matter.” (emphasis
omitted)), disc. review denied, 306 N.C. 556, 294 S.E.2d 223 (1982); Mezzanotte v.
Freeland, 20 N.C. App. 11, 16, 200 S.E.2d 410, 414 (1973) (explaining that “[t]he
papers need not be physically attached if they are connected by internal reference”
and holding that document referenced within sales agreement and delivered
contemporaneously with that agreement constituted part of the “writing” for
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KYLE V. FELFEL
Opinion of the Court
purposes of statute of frauds), disc. review denied, 284 N.C. 616, 201 S.E.2d 689
(1974).
Here, however, the Note did not cross-reference the 2011 Lease.3 Rather, the
Note only cross-referenced the “Amended and Restated Lease Agreement between
the parties of even date herewith” — that is, the 2010 Lease Document.4 Accordingly,
the Note is unenforceable for lack of consideration.
II. Quasi-Estoppel
Kyle’s fallback argument is that the doctrine of quasi-estoppel prohibits the
Felfels from denying the validity of the Note. “Under a quasi-estoppel theory, a party
who accepts a transaction or instrument and then accepts benefits under it may be
estopped to take a later position inconsistent with the prior acceptance of that same
transaction or instrument.” Whitacre P’ship v. Biosignia, Inc., 358 N.C. 1, 18, 591
S.E.2d 870, 881-82 (2004) (citation and quotation marks omitted). “[T]he essential
3The lack of such a cross-reference is logical given that the 2011 Lease was not executed until
approximately one year after the Note was signed.
4 We are also unpersuaded by Kyle’s citation to Millikan v. Simmons, 244 N.C. 195, 93 S.E.2d
59 (1956). We are not presented with a situation, as occurred in Millikan, where an agreement was
entered verbally on a certain date, memorialized and signed on a later date, and properly construed
as having been in effect on the earlier of the two dates. See id. at 199-200, 93 S.E.2d at 62-63 (“It is
not necessary . . . that a writing be signed at the time a contract is made. The writing is not the
contract; it is the party’s admission that the contract was made. It is sufficient if subsequent to the
contract a memorandum thereof is reduced to writing and signed by the party to be charged. The
extension agreement, if made on the 13th and reduced to writing and signed on the 15th, would be
enforceable between the parties as of the 13th.” (internal citation and quotation marks omitted)).
Here, the 2011 Lease was not simply the memorialization of an earlier verbal agreement; rather, it
was a separate agreement made a year after the Note and the 2010 Lease Document were executed.
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KYLE V. FELFEL
Opinion of the Court
purpose of quasi-estoppel is to prevent a party from benefitting by taking two clearly
inconsistent positions.” Id. at 18-19, 591 S.E.2d at 882 (citation, quotation marks,
and ellipsis omitted). Quasi-estoppel “rests upon principles of equity and is designed
to aid the law in the administration of justice when without its intervention injustice
would result. Equity serves to moderate the unjust results that would follow from
the unbending application of common law rules and statutes.” Brooks v. Hackney,
329 N.C. 166, 173, 404 S.E.2d 854, 859 (1991) (internal citation and quotation marks
omitted).
Because the Felfels accepted benefits in connection with the Note, Kyle asserts,
they should be estopped from taking the inconsistent position of denying the Note’s
validity. However, Kyle did not assert this doctrine at any time prior to the beginning
of trial. Rather, his counsel raised the general doctrine of estoppel for the first time
while arguing in favor of the denial of the Felfels’ motion for a directed verdict at the
close of evidence at trial. Kyle’s attorney did not specifically refer to quasi-estoppel
until the JNOV stage of the proceeding.5
In Parkersmith Properties v. Johnson, 136 N.C. App. 626, 525 S.E.2d 491
(2000), we stated the following in assessing the timeliness of the plaintiff’s attempt
to invoke quasi-estoppel:
Defendants argue Plaintiff cannot raise the issue of
estoppel on appeal because Plaintiff did not allege a theory
5 We note that the applicability of the quasi-estoppel doctrine was never expressly ruled upon
by the trial court.
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KYLE V. FELFEL
Opinion of the Court
of estoppel in its complaint. Plaintiff did, however, assert a
theory of estoppel in its motion in opposition to summary
judgment. Because estoppel is an affirmative defense and
Defendants had notice of the defense prior to the summary
judgment hearing, Plaintiff properly raised the theory of
estoppel and the issue is, therefore, properly before this
Court.
Id. at 632 n.3, 525 S.E.2d at 495 n.3.
However, Kyle has failed to point us to any legal authority standing for the
proposition that quasi-estoppel may be raised as an alternative theory of recovery for
the first time after a trial has begun — much less at the directed verdict or JNOV
stages. Moreover, there is no valid justification for Kyle’s delay in raising this issue
given that the Felfels asserted the defense of lack of consideration in their answer.
Notably, it was Kyle’s burden in this lawsuit to prove that the Note was an enforceable
agreement. The doctrine of quasi-estoppel constituted a discrete theory of recovery
in this case — i.e., that this equitable doctrine allowed enforcement of the Note
despite the absence of consideration. Therefore, we deem this theory of recovery to
have been waived.
We note that our Supreme Court has held that the closely-related doctrine of
equitable estoppel may present a jury question. See Creech v. Melnik, 347 N.C. 520,
528, 495 S.E.2d 907, 913 (1998) (“[W]here the evidence raises a permissible inference
that the elements of equitable estoppel are present, but where other inferences may
be drawn from contrary evidence, estoppel is a question of fact for the jury, upon
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KYLE V. FELFEL
Opinion of the Court
proper instructions from the trial court.” (emphasis added)). Although Creech dealt
with equitable estoppel rather than quasi-estoppel, the Supreme Court has
characterized quasi-estoppel as a “branch of equitable estoppel,” Whitacre, 358 N.C.
at 18, 591 S.E.2d at 881, and we see no distinction between the two doctrines for
purposes of this issue. Creech is, therefore, consistent with the proposition that a
party seeking to rely upon a theory of quasi-estoppel must invoke the doctrine in
advance of trial.
Moreover, even assuming arguendo that Kyle had not waived this issue, quasi-
estoppel would not apply under the facts of this case. The 2010 Option (which is the
primary benefit Kyle claims the Felfels received in exchange for executing the Note)
was only in effect for approximately one year. It was superseded by the 2011 Option
contained in the 2011 Lease. By the express terms of the 2011 Lease, the payment
of rent by the Felfels during the lease period served as consideration for the 2011
Option.
We do not believe that the facts of this case are sufficient to invoke the doctrine
of quasi-estoppel, which is designed to “prevent a party from benefitting by taking
two clearly inconsistent positions.” Id. at 18-19, 591 S.E.2d at 882 (citation and
quotation marks omitted). Kyle has failed to show that the Felfels unfairly benefited
from taking inconsistent positions as they never attempted to exercise the 2010
Option (or, for that matter, the 2011 Option). In short, this case simply does not cry
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KYLE V. FELFEL
Opinion of the Court
out for the need to “moderate . . . unjust results that would follow from the unbending
application of common law rules and statutes.” Brooks, 329 N.C. at 173, 404 S.E.2d
at 859.
Accordingly, because the Note failed for lack of consideration and the doctrine
of quasi-estoppel is inapplicable, the Felfels were entitled to JNOV. Therefore, the
trial court erred in denying their JNOV motion.
Conclusion
For the reasons stated above, we reverse the trial court’s 26 July 2016 order
and remand for entry of judgment consistent with this opinion.
REVERSED AND REMANDED.
Judges BRYANT and STROUD concur.
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