Wells Fargo Bank ( 2015 )

NO. COA14-683
NORTH CAROLINA COURT OF APPEALS
Filed: 3 February 2015
WELLS FARGO BANK, N.A.,
successor by merger to Wachovia
Bank, N.A.,
Plaintiff,
v. Davidson County
No. 11-CVS-3357
EDNA S. COLEMAN a/k/a EDNA
COLEMAN, et al.,
Defendants.
Appeal by plaintiff from order entered 20 February 2014 by
Judge A. Robinson Hassell in Davidson County Superior Court.
Heard in the Court of Appeals 20 October 2014.
Womble Carlyle Sandridge & Rice, LLP, by Kenneth B.
Oettinger, Jr., Chad Ewing, and Lee Davis Williams, for
plaintiff-appellant.
Biesecker, Tripp, Sink & Fritts, L.L.P., by Joe E.
Biesecker and Christopher A. Raines, for defendant-
appellee.
DIETZ, Judge.
In 2007, Robert and Edna Coleman refinanced their home
mortgage through Wells Fargo Bank, N.A. (then Wachovia Bank).
The Colemans’ home is situated on two lots adjacent to another
two empty, undeveloped lots. The deed of trust prepared by
Wachovia listed the correct street address for the Coleman home,
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but mistakenly referenced the book and page number and tax
parcel ID of the adjacent, undeveloped lots.
In 2010, Wells Fargo attempted to foreclose on the property
and discovered, for the first time, the mistaken references in
the deed of trust. Wells Fargo sought reformation of the
instrument on the ground of mutual mistake. Defendants Edna
Coleman and the Estate of Ronald Coleman (who passed away) moved
for summary judgment, arguing that had Wells Fargo acted with
reasonable diligence, it would have immediately discovered the
error. Defendants also argued that the reformation claim is
barred by the statute of limitations, the equitable doctrine of
laches, and the non-claim statute. The trial court granted
Defendants’ motion for summary judgment.
We reverse and remand this case for further proceedings. A
claim for reformation does not require proof that the party
seeking reformation acted with reasonable diligence. Indeed,
even if the mistake was the result of negligence or neglect, a
trial court still has the authority to reform the instrument if
there is clear, cogent, and convincing evidence that the mutual
mistake prevents the instrument from embodying the parties’
actual, original agreement. Likewise, this action is one to
enforce a deed of trust, with the reformation claim a necessary
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part of that enforcement effort. Thus, the non-claim statute,
which bars certain untimely claims against a decedent’s estate,
does not apply.
Finally, with respect to the statute of limitations and
laches defenses, there are genuine issues of material fact that
preclude entry of summary judgment. Both defenses turn on when
Wells Fargo should have discovered the mistake in the exercise
of reasonable or due diligence. There is competing evidence on
this issue and it must be resolved by a jury. Accordingly, we
reverse the trial court’s entry of summary judgment and remand
for further proceedings.
Facts and Procedural History
Defendants Edna S. Coleman and the Estate of Ronald G.
Coleman own lots 42, 43, 44, and 45 in the Rockland Shores
Estates subdivision in Davidson County, North Carolina.
Although the lots are neighboring, they are of considerably
different value. Mr. Coleman acquired lots 42 and 43, which are
commonly known as 167 Lakeview Drive, Linwood, North Carolina,
on 3 March 1987. This property is improved with a single-family
home and had a tax value of $95,000 at the time the complaint
was filed in this action. Mr. Coleman and his wife acquired
lots 44 and 45 on 24 September 1996. This unimproved property
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is located adjacent to the developed property and had a tax
value of $11,900 at the time the complaint was filed.
On 19 January 2007, Mr. Coleman borrowed money from Wells
Fargo’s predecessor in interest, Wachovia Bank, N.A., in the
principal amount of $138,567.00. A promissory note was
completed that same day, secured by a deed of trust executed by
both Mr. and Mrs. Coleman. The deed of trust, prepared by
Wachovia and recorded in the Davidson County Registry on 8
February 2007, identified the property as:
All that real property situated in the
County of Davidson, State of North Carolina:
Being the same property conveyed to the
Grantor by Deed recorded in Book 1007, Page
1013, Davidson County Registry, to which
deed reference is hereby made for a more
particular description of this property.
Property Address: 167 Lakeview Drive
Parcel ID: 06-027-A-000-0044
The property address in the deed of trust identifies the
developed property on lots 42 and 43, but the book and page
description and the parcel ID identify the unimproved property
on lots 44 and 45.
About a month before the deed of trust was executed,
Wachovia obtained an appraisal of the developed property in
connection with its loan to Mr. Coleman. That appraisal
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estimated the property’s value at $215,000 as of 15 December
2006. The report specifically identified lot 42 and recites
“Deed Book: 5700 Page: 664” as the legal description of the
property being appraised. Although the Davidson County Register
of Deeds does not have a book 5700, the deed at book 570, page
664 refers to lots 42 and 43, the developed property on which
the Colemans built their home. Wachovia did not obtain an
appraisal of the adjacent, undeveloped property.
Defendants applied approximately $131,699.27 of the loan to
pay off their existing mortgage on the developed property.
Sadly, Mr. Coleman died on 28 October 2008. Mrs. Coleman
notified Wachovia shortly after her husband’s death. In
addition, as administratrix of the Ronald G. Coleman Estate,
Mrs. Coleman provided notice to creditors through publication in
a local newspaper on four dates throughout January and February
2009.
Wells Fargo acquired the loan at issue in this case on or
about 20 March 2010, when it obtained substantially all of
Wachovia’s assets by way of merger. After the Coleman Estate
defaulted on its payment obligations under the terms of the
note, Wells Fargo initiated foreclosure proceedings in Davidson
County on 8 December 2010. Defendants contested the foreclosure
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proceedings on the ground that the deed of trust contained the
legal description of the unimproved property, rather than the
developed property upon which Wells Fargo sought to foreclose.
Wells Fargo voluntarily dismissed the foreclosure
proceedings and instituted this action seeking reformation of
the deed of trust and judicial foreclosure of the developed
property. In the alternative, Wells Fargo sought a declaratory
judgment or equitable lien and judicial foreclosure of the
undeveloped property described in the deed of trust.
Both parties moved for summary judgment. At the hearing,
the parties agreed that there were no contested issues of
material fact and that their respective arguments were based on
“basically the same information.” Defendants argued that Wells
Fargo was barred from relief by the statute of limitations,
laches, lack of reasonable diligence, and the non-claim statute.
Without specifying the grounds on which it based its
judgment, the superior court entered an order granting
Defendants’ motion for summary judgment and dismissing Wells
Fargo’s claims with prejudice. Wells Fargo timely appealed.
Analysis
Summary judgment is appropriate where “the pleadings,
depositions, answers to interrogatories, and admissions on file,
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together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.” N.C. Gen. Stat. §
1A-1, Rule 56(c) (2013). In ruling on a motion for summary
judgment, the trial court has no authority to resolve factual
issues and must deny the motion if there is any genuine issue of
material fact. Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d
382, 385 (2007). “Moreover, all inferences of fact . . . must
be drawn against the movant and in favor of the party opposing
the motion.” Id. (internal quotation marks omitted). An issue
of fact is genuine where supported by substantial evidence, and
“is material if the facts alleged would constitute a legal
defense, or would affect the result of the action, or if its
resolution would prevent the party against whom it is resolved
from prevailing in the action.” Koontz v. City of Winston-
Salem, 280 N.C. 513, 518, 186 S.E.2d 897, 901 (1972). This
Court reviews appeals from summary judgment de novo. Stratton
v. Royal Bank of Canada, 211 N.C. App. 78, 81, 712 S.E.2d 221,
226 (2011).
I. Timeliness of Wells Fargo’s Claims
A. Statute of Limitations
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Defendants argue that Wells Fargo’s reformation claim is
barred by the statute of limitations. To address this argument,
we must first determine which statute of limitations to apply in
this appeal. In the trial court, both parties relied entirely
on the three-year statute of limitations “[f]or relief on the
ground of fraud or mistake” under N.C. Gen. Stat. § 1-52(9)
(2013). On appeal, Wells Fargo argues for the first time that
the ten-year statute of limitations applicable to sealed
instruments, N.C. Gen. Stat. § 1-47(2), is the proper
limitations statute for this action.
Wells Fargo concedes that this argument was not raised
below, but asks this Court in its discretion to suspend the
Appellate Rules and permit the company to raise the argument for
the first time on appeal. We decline to do so and find this
argument waived on appeal.1 See N.C. R. App. P. 10 (2013);
Westminster Homes, Inc. v. Town of Cary Zoning Bd. of Adjust.,
354 N.C. 298, 309, 554 S.E.2d 634, 641 (2001) (“[I]ssues and
theories of a case not raised below will not be considered on
appeal.”). We therefore apply the three-year statute of
limitations in N.C. Gen. Stat. § 1-52(9).
1
Our finding of waiver on appeal does not bar the trial court
from addressing this issue on remand.
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An order granting summary judgment “based on the statute of
limitations is proper when, and only when, all the facts
necessary to establish the limitation are alleged or admitted,
construing the non-movant’s pleadings liberally in his favor and
giving him the benefit of all relevant inferences of fact to be
drawn therefrom.” Huss v. Huss, 31 N.C. App. 463, 468, 230
S.E.2d 159, 163 (1976). For a claim based on fraud or mistake
subject to section 1-52(9), “the cause of action shall not be
deemed to have accrued until the discovery by the aggrieved
party of the facts constituting the fraud or mistake.” N.C.
Gen. Stat. § 1-52(9). A plaintiff “discovers” the mistake—and
therefore triggers the running of the three-year limitations
period—when he actually learns of its existence or should have
discovered the mistake in the exercise of due diligence. See
Hyde v. Taylor, 70 N.C. App. 523, 528, 320 S.E.2d 904, 908
(1984).
Our case law is clear that the question of whether a
plaintiff has exercised due diligence is ordinarily one for the
jury. See, e.g., Huss, 31 N.C. App. at 468, 230 S.E.2d at 163.
“This is particularly true when the evidence is inconclusive or
conflicting.” Forbis, 361 N.C. at 524, 649 S.E.2d at 386.
Thus, where there is a dispute of material fact concerning when
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the plaintiff should have discovered the mistake in the exercise
of due diligence, summary judgment is inappropriate, and the
case must be submitted to a jury. See Spears v. Moore, 145 N.C.
App. 706, 708, 551 S.E.2d 483, 485 (2001).
Defendants argue that Wells Fargo should have discovered
the mistake in the deed of trust at the time it was executed and
recorded, more than three years prior to the filing of this
action. They argue that Wells Fargo, in the exercise of due
diligence, should have cross-referenced the legal description in
the loan documents with the description contained in the
Davidson County Registry. Although the deed of trust listed the
correct street address of the developed property, the book and
page number and parcel ID number referenced the undeveloped
property. Defendants also contend that Wells Fargo should have
discovered discrepancies between the information in the deed of
trust and the same information in the appraisal report (which
contained the correct book and page number for the developed
property, albeit with an apparent typo). Defendants maintain
that, had Wells Fargo done any of this follow-up diligence, it
would have discovered the mistake. Thus, Defendants assert that
they have shown as a matter of law that Wells Fargo failed to
exercise due diligence. We disagree.
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Our Supreme Court, applying N.C. Gen. Stat. § 1-52(9), has
held that “the mere registration of a deed, containing an
accurate description of the locus in quo and indicating on the
face of the record facts disclosing the alleged fraud, will not,
standing alone, be imputed for constructive notice of the facts
constituting the alleged fraud, so as to set in motion the
statute of limitations.” Vail v. Vail, 233 N.C. 109, 117, 63
S.E.2d 202, 208 (1951). Instead, “there must be facts and
circumstances sufficient to put the defrauded person on inquiry
which, if pursued, would lead to the discovery of the facts
constituting the fraud.”2 Id.In other words, the mere fact that there were indications
of fraud or mistake on the face of the document does not trigger
the statute of limitations as a matter of law. Instead, the
running of the limitations period turns on the factual
determination of when, in the exercise of due diligence, the
party reasonably should have been expected to follow up and
ultimately discover the mistake. This is a factual
determination that ordinarily must be resolved by a jury. See
id. at 118, 63 S.E.2d at 209.
2
Section 1-52(9) applies equally to both fraud and mutual
mistake.
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This Court confirmed the Vail holding in Huss, where we
reversed the trial court’s grant of summary judgment in a
reformation case based on the statute of limitations. 31 N.C.
App. at 467-68, 230 S.E.2d at 163. In Huss, a litigant
petitioned for a partition sale of real property allegedly owned
by her and her ex-husband as tenants in common. Id. at 465, 230
S.E.2d at 161. The ex-husband sought reformation, arguing that
the inclusion of his wife’s name on the deed was the result of a
mutual mistake, and that he had specifically requested
assurances from the grantors of the property that it would be
recorded solely in his name. Id. The husband conceded that he
did not even read the deed. Nevertheless, this Court held that
“[w]hether failure to read a deed will bar relief depends on the
facts and circumstances in each case” and that it was for the
jury to determine what constituted the exercise of due diligence
on those particular facts. Id. at 468, 230 S.E.2d at 163.
Under Vail and Huss, summary judgment is inappropriate in
this case. The deed of trust listed the correct street address
of the developed property. Although the legal description was
not accurate, that mistake would have been discovered only if
Wells Fargo had double-checked the accuracy of the book and page
description and the parcel ID, which would have disclosed the
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mistaken references to the adjacent, undeveloped property.
Wells Fargo maintains that, given the accurate property address,
its failure to immediately double-check the legal description
and discover the mistake was not unreasonable. Under Vail and
Huss, whether this type of double-checking would be necessary
“in the exercise of due diligence,” and at what point it should
have taken place, are factual determinations that cannot be
resolved at summary judgment. Accordingly, we hold that summary
judgment was not appropriate based on Defendants’ statute of
limitations defense.
B. Laches
Defendants next argue that summary judgment was appropriate
because Wells Fargo’s claims are barred by the equitable
doctrine of laches. As with Defendants’ statute of limitations
defense, we hold that their laches defense raises issues of fact
that cannot be resolved at summary judgment.
“The doctrine of laches is designed to promote justice by
preventing surprises through the revival of claims that have
been allowed to slumber until evidence has been lost, memories
have faded, and witnesses have disappeared.” Stratton, 211 N.C.
App. at 88-89, 712 S.E.2d at 230 (internal quotation marks
omitted). “Delay which will constitute laches depends upon the
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facts and circumstances of each case. When the action is not
barred by the statute, equity will not bar relief except upon
special facts demanding extraordinary relief.” Huss, 31 N.C.
App. at 469, 230 S.E.2d at 163.
Laches is an affirmative defense which must be pleaded, and
the burden of proof is on the party asserting the defense.
Taylor v. City of Raleigh, 290 N.C. 608, 622, 227 S.E.2d 576,
584 (1976). To succeed on the defense of laches, the defendant
must show that the delay “resulted in some change in the
condition of the property or the relation of the parties.” MMR
Holdings, LLC v. City of Charlotte, 148 N.C. App. 208, 209, 558
S.E.2d 197, 198 (2001). “[T]he mere passage or lapse of time is
insufficient to support a finding of laches; for the doctrine of
laches to be sustained, the delay must be shown to be
unreasonable and must have worked to the disadvantage, injury or
prejudice of the person seeking to invoke it.” Taylor, 290 N.C.
at 622-23, 227 S.E.2d at 584-85.
Here, Defendants failed to show that they are entitled to
summary judgment on the issue of laches. On the question of
whether the delay was reasonable, Wells Fargo forecast evidence
explaining its delay in seeking reformation, including the fact
that the street address on the deed of trust correctly
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referenced the developed property. It was only the book and
page numbers and the parcel ID that allegedly were mistaken, and
those mistakes were not apparent on the face of the document.
Reasonableness is a quintessential fact issue, see Radford v.
Norris, 63 N.C. App. 501, 503, 305 S.E.2d 64, 65 (1983), and the
evidence Wells Fargo presented in this case is sufficient to
create a genuine issue of material fact concerning whether its
delay in discovering the mistake was reasonable. Accordingly,
Defendants’ laches defense cannot be resolved at summary
judgment.
C. Non-Claim Statute
Defendants next argue that because Wells Fargo failed to
present its reformation claim within the statutory window to
present claims against a decedent’s estate, this cause of action
is barred by the non-claim statute, N.C. Gen. Stat. § 28A-19-
3(a) (2013). We reject this argument because the non-claim
statute does not preclude actions that seek to effectuate and
enforce a deed of trust.
Like a statute of limitations, the non-claim statute works
to limit the time in which a claimant may bring the suit against
a decedent’s estate. Azalea Garden Bd. & Care, Inc. v. Vanhoy,
196 N.C. App. 376, 386-87, 675 S.E.2d 122, 129 (2009). The
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purpose of the non-claim statute is “to provide faster and less
costly procedures for administering estates” by allowing the
personal representative to efficiently identify all claims
against the estate and requiring that creditors present their
claims within a specified time frame. Id. at 387, 675 S.E.2d at
129. However, the statute balances these interests in
efficiency against the rights of real property creditors,
explicitly providing that “[n]othing in this section affects or
prevents any action or proceeding to enforce any mortgage, deed
of trust, pledge, lien (including judgment lien), or other
security interest upon any property of the decedent’s estate,
but no deficiency judgment will be allowed if the provisions of
this section are not complied with.” N.C. Gen. Stat. § 28A-19-
3(g).
This is an action to “enforce . . . [a] deed of trust.”
Wells Fargo expressly seeks enforcement of the deed of trust at
issue in this case, and its claim for reformation of the deed of
trust—seeking to correct an alleged mutual mistake preventing
enforcement—is a necessary part of the overall enforcement
action. Accordingly, we hold that the non-claim statute does
not apply and thus cannot support the trial court’s entry of
summary judgment.
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II. Wells Fargo’s Claim for Reformation
Finally, we address the merits of Wells Fargo’s reformation
claim. “Reformation is a well-established equitable remedy used
to reframe written instruments where, through mutual mistake or
the unilateral mistake of one party induced by fraud of the
other, the written instrument fails to embody the parties’
actual, original agreement.” Metropolitan Prop. & Cas. Ins. Co.
v. Dillard, 126 N.C. App. 795, 798, 487 S.E.2d 157, 159 (1997).
Where a legal instrument does not express the true intentions of
the parties due to mutual mistake or the mistake of the
draftsman, reformation is available. McBride v. Johnson Oil &
Tractor Co., 52 N.C. App. 513, 515, 279 S.E.2d 117, 119 (1981).
On appeal, Defendants argue that summary judgment was
appropriate on the merits based entirely on a single legal
argument: that reformation is impermissible because Wells Fargo
did not use “reasonable diligence” in drafting the deed of
trust. As explained above, there is a fact dispute concerning
whether Wells Fargo used reasonable diligence, and thus summary
judgment would be inappropriate on this ground. But there is a
more fundamental flaw in Defendants’ argument: there is no
“reasonable diligence” requirement in an action for reformation
based on mutual mistake.
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A mutual mistake is one that is shared by both parties to
the contract, “wherein each labors under the same misconception
respecting a material fact, the terms of the agreement, or the
provisions of the written instrument designed to embody such
agreement.” Dillard, 126 N.C. App. at 798, 487 S.E.2d at 159.
A party seeking reformation on the ground of mutual mistake must
prove that the parties agreed upon a material stipulation to be
included in the written instrument, that the stipulation was
omitted by the parties’ mistake, and that because of the
mistake, the written instrument does not express the parties’
intention. See Branch Banking & Trust Co. v. Chicago Title Ins.
Co., 214 N.C. App. 459, 464, 714 S.E.2d 514, 518 (2011). The
party seeking reformation must prove the existence of the mutual
mistake by “clear, cogent and convincing evidence.” Hice v. Hi-
Mil, Inc., 301 N.C. 647, 651, 273 S.E.2d 268, 270 (1981); see
also Durham v. Creech, 32 N.C. App. 55, 59, 231 S.E.2d 163, 166
(1977).
Notably, “[n]egligence on the part of one party which
induces the mistake does not preclude a finding of mutual
mistake.” Dillard, 126 N.C. App. at 798, 487 S.E.2d at 159(brackets omitted). In Dillard, for example, the defendant
provided the wrong street number on his application for a
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property insurance policy. Id. at 797-98, 487 S.E.2d at 158-59.
This Court affirmed reformation of the policy to cover the
correct property address despite the fact that the
policyholder’s own neglect caused the mistake. Id. at 799, 487
S.E.2d at 159. And in Huss, as explained above, a husband
claimed that his ex-wife’s name was mistakenly included on a
deed to his property. Huss, 31 N.C. App. at 465, 230 S.E.2d at
161. The husband conceded that the existence of his ex-wife’s
name was apparent on the face of the deed, and admitted that he
did not even read the deed. Id. We nevertheless concluded that
he had stated a claim for reformation, explaining that “[i]t is
not required that the pleader allege facts as to how and why the
mutual mistake came about.” Id. at 467, 230 S.E.2d at 162.
Simply put, a party seeking reformation of a written
instrument need not allege or prove that the mutual mistake was
a reasonable or neglect-free mistake. Even if the mistake
resulted from that party’s failure to exercise reasonable
diligence, reformation is available if there is clear, cogent,
and convincing evidence that the mistake was a mutual one and
that it prevents the instrument from embodying the parties’
actual, original agreement. Dillard, 126 N.C. App. at 798-99,
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487 S.E.2d at 159; see also 25A Strong’s N.C. Index 4th
Reformation of Instruments § 1, at 82 (2006).
Here, Wells Fargo presented uncontested evidence that the
deed of trust includes the correct property address of the
developed property. The appraisal conducted during the loan
origination process was performed on the developed property.
Defendants applied the vast majority of the loan to pay off
their existing mortgage on that developed property. Finally,
and most importantly, Defendants did not forecast any evidence
at trial tending to show that the deed of trust was intended to
reference the undeveloped, empty lots.
Because Defendants have not forecast any evidence to rebut
Wells Fargo’s showing of mutual mistake, Wells Fargo is entitled
to reformation unless Defendants prevail on one of their
defenses. As discussed above, Defendants’ statute of
limitations and laches defenses raise issues of fact that cannot
be resolved at summary judgment. Accordingly, we reverse the
trial court’s entry of summary judgment and remand this case for
further proceedings below.
Conclusion
For the reasons set forth above, there are material issues
of fact precluding resolution of this case as a matter of law.
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Accordingly, we reverse the trial court’s entry of summary
judgment and remand for further proceedings consistent with this
opinion.
REVERSED AND REMANDED.
Chief Judge McGEE and Judge STEPHENS concur.