Brown v. Between Dandelions ( 2020 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA19-1074
Filed: 15 September 2020
Watauga County, No. 18 CVS 414
BRIAN KENT BROWN and BROWN BROTHERS FARMS, Plaintiffs,
v.
BETWEEN DANDELIONS, INC., f/k/a REMODEL AUCTION, INC., Defendant.
Appeal by Plaintiffs from order entered 19 September 2019 by Judge R. Greg
Horne in Watauga County Superior Court. Heard in the Court of Appeals 10 August
2020.
Miller & Johnson, PLLC, by Nathan A. Miller, for the Plaintiff-Appellant.
Moffatt & Moffatt, PLLC, by Tyler R. Moffatt, for the Defendant-Appellee.
BROOK, Judge.
Brian Kent Brown (“Kent Brown”) and Brown Brothers Farms (collectively,
“Plaintiffs”) appeal the trial court’s order granting summary judgment in favor of
Between Dandelions, Inc. (“Defendant”) and denying Plaintiffs’ motion for summary
judgment. We hold that the trial court erred in denying Plaintiffs’ motion for
summary judgment and granting summary judgment in favor of Defendant. Based
on the parties’ stipulation that there is no genuine issue of material fact with respect
to Plaintiffs’ claims, we reverse the order of the trial court.
I. Background
BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
In October of 2007, Plaintiffs accepted two promissory notes from a predecessor
entity of Defendant, Remodel Auction, Inc. (“Remodel Auction”). The promissory note
accepted by Plaintiff Kent Brown was for $10,000, and the promissory note accepted
by Mr. Brown on behalf of Brown Brothers Farms was for $20,000.
In February of 2008, Plaintiffs executed portions of two Subscription
Agreements. The Subscription Agreements contemplated that Remodel Auction
would be a party to them; however, Remodel Auction never executed its portions of
the Subscription Agreements. Under the terms of the Subscription Agreements, the
obligations owing under the notes to Plaintiffs were offered in exchange for common
stock in Remodel Auction. Mr. Brown offered to purchase 100,000 shares in exchange
for discharge of his $10,000 note, and Brown Brothers Farms offered to purchase
200,000 shares in exchange for discharge of its $20,000 note. Plaintiffs thereafter
were issued 12,000 shares of Series “B” Preferred Stock in Remodel Auction, receiving
two certificates reflecting ownership of these shares.
Between October 2007 and July 2018 when Plaintiffs initiated the present
action, Defendant underwent a number of corporate changes, including several name
changes, none of which are relevant to this dispute.
On 22 July 2018, Plaintiffs initiated this action to collect the amounts owing
under the notes, alleging causes of action for breach of promissory note and breach of
contract. Defendant answered on 2 November 2018.
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
On 19 June 2019, Defendant moved to substitute the defendant named in
Plaintiffs’ complaint, Appalachian Mountain Brewery, Inc., with Defendant.
Plaintiffs chose not to oppose this motion, joining a 1 July 2019 consent order
substituting Appalachian Mountain Brewery, Inc. with Defendant.
On 19 June 2019 Defendant also moved for summary judgment, filing an
affidavit in support of the motion by the former chief executive officer and majority
shareholder of Defendant’s predecessor entity, Remodel Auction, as well as a
transcript of Mr. Brown’s deposition. Plaintiffs filed a cross-motion for summary
judgment on 6 September 2019, along with an affidavit in support by Mr. Brown.
The motions came on for hearing before the Honorable R. Greg Horne in
Watauga County Superior Court on 16 September 2019. Judge Horne granted
Defendant’s motion and denied Plaintiffs’ cross-motion by an order entered 19
September 2019. In its order, the trial court concluded that Plaintiffs’ offer to
purchase the shares in Remodel Auction constituted a cancellation of their notes
under N.C. Gen. Stat. § 25-3-604(a) and a discharge of the obligations owed under the
notes.
Plaintiffs timely appealed.
II. Standard of Review
Issues of contract interpretation present questions of law, which we review de
novo. D.W.H. Painting Co., Inc. v. D.W. Ward Const. Co., Inc., 174 N.C. App. 327,
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
330, 620 S.E.2d 887, 890 (2005). The issue of whether a valid contract exists also
presents a question of law, which we review de novo. See M Series Rebuild v. Town
of Mount Pleasant, 222 N.C. App. 59, 67-68, 730 S.E.2d 254, 260 (2012).
III. Analysis
In their sole argument on appeal, Plaintiffs contend that their execution of the
Subscription Agreements constituted an offer to exchange their promissory notes for
stock in Remodel Auction—an offer Remodel Auction never accepted. Because the
offer was not accepted by Remodel Auction and the shares in Remodel Auction
received by Plaintiffs were not the shares Plaintiffs offered to purchase, Plaintiffs
argue there was no contract to exchange the notes for the shares of stock and that the
amounts owing under the notes are due and payable. We agree.
In the formation of a contract an offer and an acceptance
are essential elements; they constitute the agreement of
the parties. The offer must be communicated, must be
complete, and must be accepted in its exact terms.
Mutuality of agreement is indispensable; the parties must
assent to the same thing in the same sense, idem re et
sensu, and their minds must meet as to all the terms.
Dodds v. St. Louis Union Tr. Co., 205 N.C. 153, 156, 170 S.E. 652, 653 (1933) (internal
citations omitted). An acceptance is not effective unless it is “(a) absolute and
unconditional; (b) identical with the terms of the offer; (c) in the mode, at the place,
and within the time . . . required by the offer.” Morrison v. Parks, 164 N.C. 197, 197,
80 S.E. 85, 85 (1913) (citation and internal marks omitted). The offeror is thus said
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
to be “master of his offer.” MacEachern v. Rockwell Int’l Corp., 41 N.C. App. 73, 76,
254 S.E.2d 263, 265 (1979). As such, the offeror may “require acceptance in precise
conformity with his offer[,]” and also may by the terms of the offer permit acceptance
“by performing a specific act rather than by making a return promise.” Id., 254 S.E.2d
at 265-66.
The Subscription Agreements executed by Plaintiffs both state as follows:
This Subscription Agreement sets forth the terms under
which the undersigned (“Investor”) will invest in Remodel
Auction, Inc., a Delaware corporation, (“Corporation”).
This Subscription is one of a limited number of
subscriptions for up to a maximum of 2,435,000 shares of
common stock in the Corporation (the “Shares”) in an
aggregate amount of up to $243,500 offered on behalf of the
Corporation to a limited number of Investors holding
promissory notes issued by the Corporation (the “Notes”).
Each Share is payable $0.10 by an agreement by the
Investor by execution of this Subscription Agreement to
cancel all amounts due under the Notes, including
principal and all accrued and unpaid interest, upon
execution of this Subscription Agreement. Execution of this
Subscription Agreement by the Investor shall constitute an
offer by the Investor to subscribe for the Shares set forth in
this Agreement on the terms and conditions specified
herein. The Corporation reserves the right to reject such
subscription offer, or, by executing a copy of this
Subscription Agreement, to accept such offer. If the
Investor’s offer is accepted, the Corporation will execute this
Subscription Agreement and return an executed copy of the
Subscription Agreement to the Investor.
(Emphasis added.)
The Subscription Agreement executed by Plaintiff Kent Brown goes on to state:
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Investor hereby subscribes for 100,000 (Number) of Shares
for a total purchase price of $10,000 (Number of Shares x
$0.10) and hereby submits a Note with the principal and
accrued interest amount of $10,000 (Number of Shares x
$0.10 per Share) to Remodel Auction, Inc. for full
cancellation and satisfaction of said Note.
The Subscription Agreement executed by Mr. Brown individually additionally
provides:
THE NAME OF THE OWNER OF THE SHARE(S)
SHOULD BE MADE OUT ON THE CERTIFICATE IN
THE FOLLOWING MANNER (PLEASE PRINT):
Kent Brown
The Subscription Agreement executed by Mr. Brown on behalf of Brown
Brothers Farms likewise states:
Investor hereby subscribes for 200,000 (Number of Shares
for a total purchase price of $20,000 (Number of Shares x
$0.10) and hereby submits a Note with the principal and
accrued interest amount of $20,000 (Number of Shares x
$0.10 per Share) to Remodel Auction, Inc. for full
cancellation and satisfaction of said Note.
The Subscription Agreement executed by Brown Brothers Farms additionally
provides:
THE NAME OF THE OWNER OF THE SHARE(S)
SHOULD BE MADE OUT ON THE CERTIFICATE IN
THE FOLLOWING MANNER (PLEASE PRINT):
Brown Bros. Farms
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Nobody signed either of the Subscription Agreements on behalf of Remodel Auction,
and Mr. Brown testified at deposition that he never received the 300,000 shares
referenced in the Subscription Agreements, nor did he ever receive copies of the
agreements executed by anyone on behalf of Remodel Auction.
The former Chief Executive Officer and majority shareholder of Remodel
Auction, Clinton F. Walker, averred in the affidavit filed in support of Defendant’s
motion for summary judgment that the 300,000 shares referenced in the Subscription
Agreements were “delivered” to Plaintiffs by recording their ownership of the shares
in the books maintained by the company, which existed in an Excel spreadsheet. Mr.
Walker averred further that following a re-organization of Remodel Auction,
Plaintiffs were issued 12,000 shares of Series “B” Preferred Stock in addition to the
300,000 shares of common stock previously “delivered” to them by recording their
ownership in the company’s books. At deposition Kent Brown testified that while he
never received the 300,000 shares of common stock he offered to purchase, he did
receive two share certificates representing 12,000 series “B” preferred shares in
Remodel Auction; however, these shares were not the shares he offered to purchase,
and he was unable to reach Mr. Walker to resolve the discrepancy between the
300,000 shares of common stock he offered to purchase and the 12,000 series “B”
preferred shares for which received certificates, despite repeated attempts to do so.
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Under the terms of the Subscription Agreements, the execution of each by Mr.
Brown “constitute[d] an offer . . . to subscribe for the Shares set forth in [the]
Agreement[s] on the terms and conditions specified [therein].” Those terms included
that the subject matter of the offer was
a limited number of subscriptions for up to a maximum of
2,435,000 shares of common stock in the Corporation (the
“Shares”) in an aggregate amount of up to $243,500 offered
on behalf of the Corporation to a limited number of
Investors holding promissory notes issued by the
Corporation (the “Notes”).
(Emphasis added.) No part of the offers by Mr. Brown and Brown Brothers Farms
were to purchase 12,000 series “B” preferred shares in Defendant’s predecessor
entity; instead, as previously noted, Mr. Brown offered to purchase 100,000 shares of
common stock in exchange for cancellation of $10,000 in promissory notes owed to
him individually and Brown Brothers Farms offered to purchase 200,000 shares of
common stock in exchange for cancellation of $20,000 in promissory notes owed to it.
The terms of the Subscription Agreements also contemplated that the shares of
common stock Plaintiffs were offering to purchase in exchange for cancellation of
their notes were certificated securities, requiring Plaintiffs to indicate the manner in
which “the name of the owner of the share(s) should be made out on the certificate[.]”
(Capitalization removed.)
Defendant offers Mr. Walker’s sworn statement that the ownership interests
in Remodel Auction the Plaintiffs offered to purchase through execution of the
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Subscription Agreements were uncertificated securities as Delaware law defines that
term to support the idea that Mr. Walker’s “delivery” of the 300,000 shares of common
stock to Plaintiffs by recording their ownership in the company’s books was an
acceptance of Plaintiffs’ offer by performance. Setting aside the absence of evidence
that this acceptance was ever communicated to Plaintiffs prior to the filing of Mr.
Walker’s affidavit, and Mr. Brown’s testimony that in essence he had no knowledge
of this purported acceptance by performance, Mr. Walker’s sworn statement that the
subject matter of the Agreements were uncertificated securities is at best an
admission that Remodel Auction was unable to accept Plaintiffs’ offer or unable to
perform the contract contemplated by the Subscription Agreements.1 We hold that
no valid contract existed to purchase the shares in Remodel Auction because there
was no acceptance of Plaintiffs’ offer to purchase the shares through execution of the
Subscription Agreements by Remodel Auction; any attempted acceptance of
Plaintiffs’ offers by Remodel Auction by performance varied materially from the
terms of Plaintiffs’ offers and was therefore ineffective.
1 Were it true that the ownership interests in Defendant’s predecessor at the time qualified as
uncertificated securities under Delaware law, as Mr. Walker has averred, this would not have provided
any justification or excuse for accepting Plaintiffs’ offer in a manner other than that contemplated by
its terms. See, e.g., Beauford Cty. Lumber Co. v. Cottingham, 173 N.C. 323, 329, 92 S.E. 9, 12 (1917)
(“The acceptance . . . should have been in the terms of the offer, and, if it was not so, the plaintiff had
the right to treat the offer as rejected[.]”).
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Defendant argues that Plaintiffs’ offer to cancel their notes in exchange for
stock is sufficient to constitute a cancellation or discharge under N.C. Gen. Stat. § 25-
3-604(a). Under N.C. Gen. Stat. § 25-3-604(a),
[a] person entitled to enforce an instrument, with or
without consideration, may discharge the obligation of a
party to pay the instrument (i) by an intentional voluntary
act, such as surrender of the instrument to the party,
destruction, mutilation, or cancellation of the instrument,
cancellation or striking out of the party’s signature, or the
addition of words to the instrument indicating discharge,
or (ii) by agreeing not to sue or otherwise renouncing rights
against the party by a signed writing.
N.C. Gen. Stat. § 25-3-604(a) (2019). The trial court concluded that Plaintiffs’ offer
to cancel their notes through execution of the Subscription Agreements constituted a
cancellation of the notes, drawing an equivalence between Plaintiffs’ execution of the
Subscription Agreements and full execution of the Subscription Agreements on the
one hand—execution by Remodel Auction having never occurred—and between an
offer to cancel a promissory note and an agreement to cancel a promissory note, on
the other.
We hold that Plaintiffs’ offer to cancel the notes in exchange for stock did not
qualify as the “intentional voluntary act” required by N.C. Gen. Stat. § 25-3-604(a).
Had Plaintiffs’ offer to cancel the notes been accepted by Remodel Auction either
through Remodel Auction’s execution of the Subscription Agreements or performance
according to the terms of Plaintiffs’ offer, we would reach a different conclusion. N.C.
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Gen. Stat. § 25-3-604(a) does not by its terms limit the voluntary act requirement to
the acts it lists but the listed acts are all of a final and permanent character we believe
differs fundamentally from an unaccepted offer. See, e.g., N.C. Gen. Stat. § 25-3-
604(a) (2019) (listing voluntary acts of “surrender,” “destruction,” “mutilation,”
“striking out,” and “renouncing”). We hold that conflating an unaccepted offer to
cancel the notes and a complete agreement to cancel the notes was error.
Defendant argues in the alternative that the obligations under the notes have
been satisfied by payment under N.C. Gen. Stat. § 25-3-602, which provides that “an
instrument is paid to the extent payment is made (i) by or on behalf of a party obliged
to pay the instrument, and (ii) to a person entitled to enforce the instrument.” N.C.
Gen. Stat. § 25-3-602 (2019). According to Defendant, the “delivery” of the 300,000
shares by recording Plaintiffs’ ownership in the books of Remodel Auction constituted
a payment under N.C. Gen. Stat. § 25-3-602. The language of the promissory notes,
however, does not provide for payment in shares of stock. The notes specify that
payment is to be made to Plaintiffs in the quarterly amounts of $300 and $600
respectively, plus three percent interest until the obligations are satisfied. We
therefore hold that the delivery of the 300,000 shares by recording Plaintiffs’
ownership of them in the company’s books did not constitute payment of the notes
under N.C. Gen. Stat. § 25-3-602.
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BROWN ET AL. V. BETWEEN DANDELIONS, INC.
Opinion of the Court
Defendant argues in the alternative that the doctrine of laches should apply as
a bar to Plaintiffs’ recovery on the notes because of Plaintiffs’ delay in filing suit.
To establish the affirmative defense of laches, our case law
recognizes that 1) the doctrine applies where a delay of
time has resulted in some change in the condition of the
property or in the relations of the parties; 2) the delay
necessary to constitute laches depends upon the facts and
circumstances of each case; however, the mere passage of
time is insufficient to support a finding of laches; 3) the
delay must be shown to be unreasonable and must have
worked to the disadvantage, injury or prejudice of the
person seeking to invoke the doctrine of laches; and 4) the
defense of laches will only work as a bar when the claimant
knew of the existence of the grounds for the claim.
MMR Holdings, LLC v. City of Charlotte, 148 N.C. App. 208, 209-10, 558 S.E.2d 197,
198 (2001). Despite Plaintiffs’ delay in filing suit, we decline Defendant’s invitation
to apply the equitable doctrine of laches to Plaintiffs’ claims. We do not believe
Plaintiffs’ delay was unreasonable. Furthermore, Defendant has not argued and we
discern no particular prejudice this delay has caused Defendant.
IV. Conclusion
We reverse the order of the trial court because Plaintiffs’ offer to cancel their
notes and discharge Defendant’s obligations under the notes was never accepted and
the amounts outstanding under the notes are due and payable, with interest.
REVERSED.
Judges BRYANT and STROUD concur.
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