Anderson v. Walker , 260 N.C. App. 129 ( 2018 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-782
Filed: 3 July 2018
Buncombe County, No. 14 CVS 1006
DAVID ANDERSON, Plaintiff
v.
CHRISTOPHER DAVID WALKER, GEORGE TSIROS and CURTIS T, LLC, a North
Carolina limited liability company, Defendants
Appeal by defendants from judgment entered 9 January 2017 by Judge Sharon
Tracey Barrett in Buncombe County Superior Court. Heard in the Court of Appeals
10 January 2018.
Dungan, Kilbourne & Stahl, P.A., by Robert C. Carpenter, for plaintiff-appellee.
Matney & Associates, P.A., by David E. Matney, III, and Sonya N. Rikhye, for
defendant-appellants George Tsiros and Curtis T, LLC.
No brief filed on behalf of defendant-appellee Christopher David Walker.
CALABRIA, Judge.
George Tsiros (“Tsiros”) and Curtis T, LLC (collectively, “defendants”) appeal
from the trial court’s judgment ordering Christopher David Walker (“Walker”) to
convey certain commercial real property to David Anderson (“plaintiff”). After careful
review, we affirm.
I. Factual and Procedural Background
ANDERSON V. WALKER
Opinion of the Court
On 7 March 2014, plaintiff filed the instant complaint and lis pendens in
Buncombe County Superior Court. Plaintiff alleged that, in December 2010, he
entered into an agreement with Walker to lease a piece of real estate at 1022
Haywood Road in Asheville (“the property”), to operate plaintiff’s business. In
January 2013, plaintiff and Walker executed a new lease that included a notarized
right of first refusal in plaintiff’s benefit (“the ROFR Agreement”). Subsequently,
Curtis T, LLC, through its member and manager Tsiros, entered into an agreement
(“the Option Agreement” or “Memorandum of Option”) to purchase the property from
Walker. In his complaint, plaintiff sought specific performance and a declaratory
judgment of the rights of the parties. Specifically, plaintiff sought to exercise his
interest in the property pursuant to the ROFR Agreement, and to have defendants’
Memorandum of Option declared null and void.
On 9 May 2014, defendants filed a responsive pleading, which included an
answer, multiple motions to dismiss, a motion for judgment on the pleadings, and a
crossclaim requiring Walker to tender the property, or alternatively to pay liquidated
damages. On 21 May 2014, the Clerk of Superior Court of Buncombe County entered
a default against Walker, with regard to plaintiff’s complaint, for failure to plead or
appear.
On 31 October 2014, the trial court entered an order denying plaintiff’s motion
for summary judgment, denying defendants’ motion for judgment on the pleadings,
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ANDERSON V. WALKER
Opinion of the Court
and granting in part defendants’ motions to dismiss. Specifically, the trial court
granted in part and denied in part the motions to dismiss, “in that Plaintiff’s claim to
have the Memorandum of Option declared null and void is dismissed and no other
claims of Plaintiff are dismissed.”
On 27 October 2016, the Clerk of Superior Court of Buncombe County entered
a default against Walker, with regard to defendants’ crossclaim, for failure to plead
or appear. On 9 January 2017, the trial court entered its judgment in this matter.
The court noted the defaults entered against Walker with respect to both plaintiff’s
complaint and defendants’ crossclaim. The court found that although plaintiff and
Walker had executed a notarized right of first refusal with respect to the property in
2013, the document was never recorded. The court also found that when defendants
executed agreements to purchase the property, Walker gave Tsiros a copy of plaintiff’s
lease, and that the ROFR Agreement specifically referenced in the lease had not yet
expired. In addition, in 2014, defendants met with plaintiff, who informed them of
his intent to exercise his right of first refusal.
The court further found that in January of 2014, defendants executed
agreements to purchase the property, which were recorded. The court found that it
was only after plaintiff became aware of defendants’ Option Agreement that he gave
formal notice of his intent to exercise the right of first refusal. However, the court
found that “it would be unjust and inequitable to enforce the Option Agreement
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ANDERSON V. WALKER
Opinion of the Court
procured by [defendants] so as to deprive Plaintiff of” his right of first refusal, and
that defendants, inasmuch as they relied upon equity, failed to comport with the
maxim, “he who comes into equity must come with clean hands.”
The trial court therefore determined that defendants’ conduct in securing the
option contract was “overreaching and oppressive[,]” that plaintiff’s right of first
refusal took precedence, and that defendants maintained a claim against Walker for
breach of contract. The court ordered Walker to convey the property to plaintiff by a
general warranty deed pursuant to the right of first refusal, with the same terms and
conditions, and concluded that defendants had no rights in the property. The court
further ordered Walker to pay damages to defendants for breach of contract, payable
from the proceeds of the sale of the property to plaintiff.
Defendants appeal.
II. Right of First Refusal
In two separate arguments, defendants contend on appeal that the trial court
erred in specifically enforcing an unrecorded right of first refusal in favor of plaintiff.
We disagree.
A. Standard of Review
“The sole function of the equitable remedy of specific performance is to compel
a party to do that which in good conscience he ought to do without court compulsion.
The remedy rests in the sound discretion of the trial court, and is conclusive on appeal
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ANDERSON V. WALKER
Opinion of the Court
absent a showing of a palpable abuse of discretion.” Munchak Corp. v. Caldwell, 46
N.C. App. 414, 418, 265 S.E.2d 654, 657 (1980) (citations omitted), modified on other
grounds, 301 N.C. 689, 273 S.E.2d 281 (1981).
B. Analysis
It is well established that “a binding contract to convey land, when there has
been no fraud or mistake or undue influence or oppression, will be specifically
enforced.” Hutchins v. Honeycutt, 286 N.C. 314, 318, 210 S.E.2d 254, 256-57 (1974)
(citations and quotation marks omitted). Specific performance “is granted or
withheld according to the equities that flow from a just consideration of all the facts
and circumstances of the particular case.” Id. at 319, 210 S.E.2d at 257.
A right of first refusal, also known as a “preemptive right,” “requires that,
before the property conveyed may be sold to another party, it must first be offered to
the conveyor or his heirs, or to some specially designated person.” Smith v. Mitchell,
301 N.C. 58, 61, 269 S.E.2d 608, 610 (1980) (citation and quotation marks omitted).
Although analogous to option contracts, preemptive provisions “are technically
distinguishable.” Id. Whereas “[a]n option creates in its holder the power to compel
sale of land, . . . [a] preemptive provision, on the other hand, creates in its holder only
the right to buy land before other parties if the seller decides to convey it.” Id. at 61,
269 S.E.2d at 610-11 (citations omitted). “Preemptive provisions may be contained
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ANDERSON V. WALKER
Opinion of the Court
in leases, in contracts, or . . . in restrictive covenants contained in deeds or recorded
in chains of title.” Id. at 61, 269 S.E.2d at 611 (citations omitted).
A right of first refusal is enforceable against a subsequent purchaser for value
who has “actual or constructive knowledge of the preemptive right.” Legacy Vulcan
Corp. v. Garren, 222 N.C. App. 445, 449, 731 S.E.2d 223, 226 (2011). Generally, a
person is
charged with notice of what appears in the deeds or
muniments in his grantor’s chain of title, including . . .
instruments to which a conveyance refers. . . . Under this
rule, the purchaser is charged with notice not only of the
existence and legal effects of the instruments, but also of
every description, recital, reference, and reservation
therein. . . . If the facts disclosed in a deed in the chain of
title are sufficient to put the purchaser on inquiry, he will
be charged with notice of what a proper inquiry would have
disclosed.
Id. at 449, 731 S.E.2d at 226-27 (citation and quotation marks omitted).
However, “[a]n innocent purchaser takes title free of equities of which he had
no actual or constructive notice.” Id. at 449, 731 S.E.2d at 227 (citation and quotation
marks omitted). Accordingly,
[w]here the defense of “innocent purchaser” is interposed
and there has been a bona fide purchase for a valuable
consideration, the matter which debases the apparent fee
must have been expressly or by reference set out in the
muniments of record title or brought to the notice of the
purchaser in such a manner as to put him upon inquiry.
Id. (citation and quotation marks omitted).
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ANDERSON V. WALKER
Opinion of the Court
In the instant case, plaintiff and Walker executed the ROFR Agreement on 29
January 2013. Plaintiff paid Walker $2,000.00 in consideration for a two-year
preemptive right to the property. This ROFR Agreement was incorporated by
reference in a new, 1.5-year lease. The agreement was effective until 31 December
2014, barring a mutual written agreement or an offer to purchase between plaintiff
and Walker. Nonetheless, on 18 December 2013, Walker signed an Offer to Purchase
and Sale Memorandum with Tsiros, without giving plaintiff any written notice. At
that time, Walker provided Tsiros with a copy of the lease and the ROFR Agreement
that was specifically referenced in the lease. On 10 January 2014, defendants
informed plaintiff that Walker had contracted to sell the property to Tsiros.
On appeal, defendants contend that Curtis T, LLC’s right to purchase the
property was superior to plaintiff’s, because unlike the Option Agreement, neither
the lease nor the ROFR Agreement were ever recorded. We disagree.
Our recordation statute, N.C. Gen. Stat. § 47-18, provides, in pertinent part:
No (i) conveyance of land, or (ii) contract to convey, or (iii)
option to convey, or (iv) lease of land for more than three
years shall be valid to pass any property interest as against
lien creditors or purchasers for a valuable consideration
from the donor, bargainer or lesser but from the time of
registration thereof in the county where the land lies[.] . . .
[I]nstruments registered in the office of the register of
deeds shall have priority based on the order of registration
as determined by the time of registration[.]
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ANDERSON V. WALKER
Opinion of the Court
N.C. Gen. Stat. § 47-18(a) (2017). Therefore, according to the plain language of the
statute, a right of first refusal need not be recorded in order to be valid.
Furthermore, “[o]ur registration statute does not protect all purchasers, but
only innocent purchasers for value.” Hill v. Pinelawn Mem’l Park, Inc., 304 N.C. 159,
165, 282 S.E.2d 779, 783 (1981). “While actual notice of another unrecorded
conveyance does not preclude the status of innocent purchaser for value, actual notice
of pending litigation affecting title to the property does preclude such status.” Id.Where a purchaser claims protection under our registration laws, he has the burden
of proving by a preponderance of the evidence that he is an innocent purchaser for
value, i.e., that he paid valuable consideration and had no actual notice, or
constructive notice by reason of lis pendens, of pending litigation affecting title to the
property.
According to the terms of the ROFR Agreement, if Walker wanted to transfer
his interest in the property within two years of the date of the agreement, he was to
give plaintiff at least ninety days’ notice before the date of the proposed transfer.
Later, plaintiff agreed to only sixty days to exercise his right of first refusal.
Defendants were aware that plaintiff was interested in exercising his right of first
refusal, because all three parties signed a document acknowledging the sixty-day
notice requirement. Despite this knowledge, defendants subsequently signed and
recorded the Option Agreement.
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ANDERSON V. WALKER
Opinion of the Court
The trial court found that, after discovering the existence of the Option
Agreement in the Buncombe County Register of Deeds, plaintiff “made arrangements
as quickly as possible to secure the funding he would need to purchase the Property.
Plaintiff gave formal notice of his intent to purchase the Property under the ROFR
by way of the Complaint[.]” Plaintiff secured a lender to loan him the money and was
ready, willing and able to purchase the Property on 7 March 2014, which was within
the sixty-day period. That day, immediately after filing the complaint, plaintiff also
filed a lis pendens upon the property, asserting a right to enforce his preemptive right.
On 9 May 2014, defendant Curtis T, LLC gave notice of its intent to exercise its
purchase rights under the Option Agreement by letter to defendant Walker. It is
clear, therefore, that defendant Curtis T, LLC only exercised its rights after the filing
of plaintiff’s complaint and lis pendens, at which point all parties had knowledge of
plaintiff’s rights under the ROFR Agreement. Therefore, defendants had actual
notice.
Moreover, the trial court found that defendant Tsiros was personally aware of
plaintiff’s right of first refusal as early as 18 December 2013. The trial court found
that Tsiros had multiple meetings with Walker and plaintiff; that “[a]ll present knew
that Plaintiff was interested in exercising the ROFR”; and that plaintiff had explicitly
informed Tsiros “that [plaintiff] was working to line up investors to allow him to
exercise his rights under the ROFR.” The trial court found that it was only after one
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ANDERSON V. WALKER
Opinion of the Court
such meeting that Tsiros “arranged to have an Option Agreement prepared[,]” despite
knowing “that Plaintiff was a tenant in possession who had preemptive rights under
the ROFR and that Plaintiff was planning to exercise those rights.”
The right of an innocent purchaser for value to take priority over an
unrecorded right in real property only applies to those purchasers who acquire title
without knowledge, actual or constructive, of another’s unrecorded rights. Here,
defendants knew – whether from personally speaking with plaintiff or from the filing
of plaintiff’s complaint and lis pendens – that plaintiff had rights in the property
which he sought to exercise. Therefore, defendants were not innocent purchasers for
value. Furthermore, the fact that the ROFR Agreement was not recorded did not
protect their subsequent Option Agreement.
We hold therefore that the trial court did not err in ruling that the ROFR
Agreement was enforceable, ordering that it be enforced, and concluding that
defendants were not entitled to specific performance of the Option Agreement. We
affirm the trial court’s judgment.
AFFIRMED.
Judges ZACHARY and ARROWOOD concur.
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