RME Mgmt., LLC v. Chapel H.O.M. Assocs. , 251 N.C. App. 562 ( 2017 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-596
Filed: 17 January 2017
Orange County, No. 15 CVD 1471
RME MANAGEMENT, LLC, Plaintiff,
v.
CHAPEL H.O.M. ASSOCIATES, LLC and CHAPEL HILL MOTEL ENTERPRISES,
INC., Defendants.
Appeal by plaintiff from order entered 7 March 2016 by Judge Lunsford Long
in Orange County District Court. Heard in the Court of Appeals 3 November 2016.
Hedrick Gardner Kincheloe & Garofalo, LLP, by Patricia P. Shields and James
R. Baker, for plaintiff-appellant.
Troutman Sanders LLP, by Ashley H. Story and D. Kyle Deak, for defendants-
appellees.
ZACHARY, Judge.
Plaintiff RME Management, LLC (RME) appeals an order granting summary
judgment in favor of Defendants Chapel H.O.M. Associates, LLC (HOM) and Chapel
Hill Motel Enterprises, Inc. (CHME). For the reasons that follow, we affirm.
I. Background
RME and HOM are the assignees of the lessor and the lessee, respectively, of
real property located at 1301 Fordham Boulevard in Chapel Hill, North Carolina (the
property). The lease was executed on 17 March 1966, and shortly thereafter, the
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original lessee built a hotel on the property, which is still in operation today. In
January 1967, CHME entered into a sublease to operate the hotel. The lease and
sublease were assigned to HOM in August 1988. RME became the owner and current
lessor of the property in October 2012.
The lease’s initial term commenced on 1 January 1966 and was scheduled to
terminate on 31 December 2015. However, the lease contained a renewal option that
allowed HOM to extend the lease for an additional forty-nine years. HOM exercised
the renewal option in September 2014, and the additional forty-nine-year lease term
was set to commence on 1 January 2016.
Central to this case, the lease contained two provisions that required HOM, as
lessee, to pay taxes assessed against the property. Paragraph 17 of the lease provides,
in pertinent part:
As a further rental hereunder, the Lessee shall pay all ad
valorem and personal property taxes which may be
assessed against the demised premises and the
improvements thereon and personal property located
therein, or any part thereof, for each year of the term of
this lease. . . .
Paragraph 19 further provides that:
The Lessee expressly agrees to pay all installments of taxes
and assessments required to be paid by it hereunder when
due, subject to the right of said Lessee to contest such tax
or assessment, in good faith, provided the title of the
Lessors shall not be placed in jeopardy by forfeiture,
foreclosure, sale under tax warrant, or otherwise.
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(Emphasis added). Although HOM’s obligation to pay property taxes is clear, the
lease does not define the term “when due” as it relates to the date by which the taxes
must be paid. The lease also contains a default provision:
If any default of the Lessee hereunder shall continue
uncorrected for thirty (30) days after notice thereof from
the Lessors, the Lessors may, by giving written notice to
the Lessee, at any time thereafter during the continuance
of such default either (a) terminate the lease, or (b) re-enter
the demised premises by summary process or otherwise,
and expel the Lessee and remove all personal property
therefrom and re-let the premises at the best rent
obtainable. . . .
Property tax notifications and bills were mailed to CHME (which was obligated
to pay property taxes, in full, under the sublease), and HOM appears to have relied
on CHME to make all necessary payments. While the subject of considerable dispute
on appeal, it appears that RME, HOM, and their predecessors never gave much, if
any, attention to when the property taxes were being paid before 2013.
On 23 October 2013, however, RME’s attorney, Jonathan Ganz, sent a letter to
defendants alleging that they had breached the lease by failing to pay property taxes
on or before September 1st in each of the preceding four years. The letter stated that
RME had just recently become aware of these circumstances, and further asserted
that “[i]n Orange County, real property tax bills for a calendar year are due on
September 1 of that year.” HOM responded, through its attorney, by sending a letter
to RME, asserting that the lease did not require the tenant to pay taxes by September
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1st of any fiscal year. Despite the parties’ contrary positions on the issue of exactly
when property tax payments were to be made, RME took no further action at that
time, as Mr. Ganz’s letter failed to comply with the technical requirements of the
lease’s notice and default provisions.
There was no dispute in 2014 as to when the property taxes had to be paid, as
CHME appealed the property’s valuation, thereby tolling the date on which the taxes
were “due” under the lease. However, the 2015 tax bill for the property was issued
in July 2015 and defendants did not pay the taxes by 1 September 2015. As a result,
on 21 September 2015, RME sent HOM a notice of default “for failure to pay all taxes
as required pursuant to the lease.” HOM responded as follows in a letter dated 16
October 2016:
This letter is sent in response to your letter dated
September 21, 2015 which wrongfully alleges a default
under the Lease. We specifically deny that a default exists
for failure to pay all taxes as required under the Lease.
Pursuant to N.C.G.S. § 105-360, 2015 real property taxes
are payable without interest through January 5, 2016.
Real property taxes are not delinquent, and interest does
not begin to accrue until January 6, 2016. As such, there
exists no delinquency in the payment of real property taxes
and no default under the terms of the Lease.
For whatever reason, defendants chose not to pay the property tax bill immediately,
an action that would have cured the alleged default. Consequently, RME sent HOM
a written notice that the lease had been terminated and instructed HOM and CHME
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to vacate the premises.
The notice of termination was dated 27 October 2015, the same day that RME
filed a summary ejectment action against defendants in the Small Claims Division of
Orange County District Court. RME paid the taxes on the morning of 3 November
2015. Later that same day, Federal Express delivered a tax payment from CHME to
the Orange County Tax Administrator’s Revenue Division. Thereafter, HOM tried to
tender the amount of the 2015 tax payment to RME on two occasions, but RME
refused to accept reimbursement.
The complaint seeking summary ejectment was dismissed by an Orange
County Magistrate on 10 November 2015. RME noted an appeal to Orange County
District Court on 18 November 2015, and also filed a motion for summary judgment.
After conducting a hearing on the matter, the trial court denied RME’s motion for
summary judgment and granted summary judgment in favor of defendants. The trial
court’s order held:
Here, the course of dealing clearly shows that the parties
historically did not construe the lease to require that the
taxes be paid by midnight on September 1 each year; they
understood the terms “pay” and “pay when due” to have
been used in their ordinary sense, rather than within the
technical, literal definitional requirements of N.C. Gen.
Stat. § 105-360.
The ordinary meaning of “pay” and “pay when due”
customarily includes an implicit grace period during which
payment can be made without being overdue; few
obligations, and certainly not property taxes, are expected
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to be paid on the very first day they become due.
The taxes were paid during the implicit grace period which
the lease afforded, given the ordinary meaning of the terms
used, and in light of the course of dealing.
Accordingly, there is no genuine issue as to any material
fact, Defendants are entitled to judgment as a matter of
law, Plaintiff's motion for summary should be denied, and
summary judgment should be entered for Defendants[.]
RME appeals.
II. Analysis
RME’s principal arguments on appeal are that the trial court erred in denying
its summary judgment motion and in granting summary judgment in favor of
defendants. We disagree.
A. Standard of Review
“Our standard of review of an appeal from summary judgment is de novo; such
judgment is appropriate only when the record shows 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.’ ” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting
Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)). “In ruling on a motion
for summary judgment the evidence is viewed in the light most favorable to the non-
moving party.” Hinson v. Hinson, 80 N.C. App. 561, 563, 343 S.E.2d 266, 268 (1986)
(citation omitted). “A defendant may show entitlement to summary judgment by (1)
proving that an essential element of the plaintiff’s case is non-existent, or (2) showing
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through discovery that the plaintiff cannot produce evidence to support an essential
element of his or her claim, or (3) showing that the plaintiff cannot surmount an
affirmative defense.” Draughon v. Harnett Cty. Bd. of Educ., 158 N.C. App. 705, 708,
582 S.E.2d 343, 345 (2003) (citation and internal quotation marks omitted). “A trial
court may enter summary judgment in a contract dispute if the provision at issue is
not ambiguous and there are no issues of material fact.” Malone v. Barnette, __ N.C.
App. __, __, 772 S.E.2d 256, 259 (2015) (citing Metcalf v. Black Dog Realty, LLC, 200
N.C. App. 619, 633, 684 S.E.2d 709, 719 (2009) (“[W]hen the language of a contract is
not ambiguous, no factual issue appears and only a question of law which is
appropriate for summary judgment is presented to the court.”), and other citation
omitted). Furthermore, if a grant of “summary judgment can be sustained on any
grounds, it should be affirmed on appeal.” Shore v. Brown, 324 N.C. 427, 428, 378
S.E.2d 778, 779 (1989).
B. “When Due”
RME argues that the trial court improperly denied its motion for summary
judgment on the summary ejectment claim and that that the court erred in granting
summary judgment in favor of defendants. More specifically, RME contends that
Paragraph 19 of the lease, which states that taxes must be paid “when due,” required
defendants to pay the taxes immediately on 1 September 2015. RME’s argument, as
we understand it, is that because tax payments became “due” under N.C. Gen. Stat.
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§ 105-360 on September 1st, any payment made after that date was late, or “past
due,” such that RME was entitled to send a notice of default and terminate the lease.
In contrast, defendants argue that because the taxes first became due on September
1st and were not delinquent until January 6th, the taxes were “due,” i.e., payable, at
any time from September 1st to January 5th (of the following year). We agree with
defendants.
“A lease is a contract which contains both property rights and contractual
rights.” Strader v. Sunstates Corp., 129 N.C. App. 562, 570, 500 S.E.2d 752, 756
(citation omitted), disc. review denied, 349 N.C. 240, 514 S.E.2d 274 (1998). The
provisions of a lease are, therefore, interpreted according to general principles of
contract law. Martin v. Ray Lackey Enters., Inc., 100 N.C. App. 349, 354, 396 S.E.2d
327, 330 (1990).
“Interpreting a contract requires the court to examine the language of the
contract itself for indications of the parties’ intent at the moment of execution.” State
v. Philip Morris USA, Inc., 359 N.C. 763, 773, 618 S.E.2d 219, 225 (2005) (citing Lane
v. Scarborough, 284 N.C. 407, 409-10, 200 S.E.2d 622, 624 (1973)). “If the plain
language of a contract is clear, the intention of the parties is inferred from the words
of the contract.” Walton v. City of Raleigh, 342 N.C. 879, 881, 467 S.E.2d 410, 411
(1996) (citation omitted). “When the language of a contract is plain and unambiguous
then construction of the agreement is a matter of law for the court.” Whirlpool Corp.
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v. Dailey Constr., Inc., 110 N.C. App. 468, 471, 429 S.E.2d 748, 751 (1993). In such a
case, “ ‘the court may not ignore or delete any of [the contract’s] provisions, nor insert
words into it, but must construe the contract as written, in the light of the undisputed
evidence as to the custom, usage, and meaning of its terms.’ ” Hemric v. Groce, 169
N.C. App. 69, 76, 609 S.E.2d 276, 282 (quoting Martin v. Martin, 26 N.C. App. 506,
508, 216 S.E.2d 456, 457-58 (1975)), cert. denied, 359 N.C. 631, 616 S.E.2d 234 (2005).
If the contract’s terms are ambiguous, however, “then resort to extrinsic
evidence is necessary and the question is one for the jury.” Whirlpool Corp., 110 N.C.
App. at 471, 429 S.E.2d at 751 (citation omitted). Even so, “ambiguity . . . is not
established by the mere fact that [one party] makes a claim based upon a construction
of its language which the [other party] asserts is not its meaning.” Wachovia Bank
& Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970).
Instead, “[a]n ambiguity exists where the language of a contract is fairly and
reasonably susceptible to either of the constructions asserted by the parties.”
Holshouser v. Shaner Hotel Grp. Props. One Ltd. P’ship, 134 N.C. App. 391, 397, 518
S.E.2d 17, 23 (1999), aff’d per curiam, 351 N.C. 330, 524 S.E.2d 568 (2000) (citations
and internal quotation marks omitted).
An additional principle of contract construction is that “parties are generally
presumed to take into account all existing laws when entering into a contract.” Wise
v. Harrington Grove Cmty. Ass’n, 357 N.C. 396, 406, 584 S.E.2d 731, 739 (2003)
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(citation omitted). “When the language of a statute is clear and without ambiguity,
‘there is no room for judicial construction,’ and the statute must be given effect in
accordance with its plain and definite meaning.” AVCO Fin. Servs. v. Isbell, 67 N.C.
App. 341, 343, 312 S.E.2d 707, 708 (1984) (citation omitted). Mindful that our central
task is to interpret the parties’ intent “at the moment of [the lease’s] execution,”
Philip Morris USA, Inc., 359 N.C. at 773, 618 S.E.2d at 225, we first note that the
relevant statute—in terms of intent—is the one that was in effect in 1966, N.C. Gen.
Stat. § 105-345 (1965).1 However, there is no material difference between the 1965-
version of section 105-345 and its successor, N.C. Gen. Stat. § 105-360(a) (2015),
which provides:
Taxes levied under this Subchapter by a taxing unit are
due and payable on September 1 of the fiscal year for which
the taxes are levied. Taxes are payable at par or face
amount if paid before January 6 following the due date.
Taxes paid on or after January 6 following the due date are
subject to interest charges. Interest accrues on taxes paid
on or after January 6 as follows. . . .
(emphasis added). Therefore, we base our analysis, as have the parties, on the
language contained in section 105-360. Here, we must interpret the phrase “when
due” in relation to defendants’ obligation to pay property taxes under Paragraph 19
of the lease and section 105-360. More precisely, the issue presented is whether a
1 Section 105-345 provided that all property taxes were “due and payable on the first Monday
of October in which they [were] . . . assessed or levied.” It also provided that if tax payments were
made in cash “[a]fter the first day of November and on or before the first day of February next after
due and payable, the tax shall be paid at par or face value.” N.C. Gen. Stat. § 105-345(2) (1965).
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lessee fails to perform its obligation when property taxes are not paid at the moment
they become due when a lease requires the lessee to pay taxes “when due.” No
appellate decisions in North Carolina have addressed this exact question, but the
Court of Appeals of Michigan has confronted the issue.
In Roseborough v. Empire of America, the plaintiffs claimed that the defendant
bank had failed to pay the real estate taxes in a timely manner, as required by the
parties’ mortgage agreement. 168 Mich. App. 92, 93, 423 N.W.2d 578, 579 (1987) (per
curiam). The plaintiffs contended that the bank’s agreement to pay the taxes “when
due” required payment of the 1984 taxes on 1 December 1984, the date on which
property tax collection commenced and the amounts assessed became a lien on the
property. Id. at 95, 423 N.W.2d at 579. As a result, the Roseborough Court had to
interpret the mortgage contract language “when due” in relation to the obligation to
pay property taxes under the law. Id. The Court held that “when due” meant when
payable, which under Michigan law was a period commencing December 1st and
ending at the point that the tax bill became delinquent on the following February
15th. Id. at 95-96, 423 N.W.2d at 579. Accordingly, the taxes were “due,” in the sense
of being payable, at any time between December 1st and February 15th, not just on
December 1st.
Although clearly not controlling, we find the reasoning in Roseborough
compelling, and we apply it to the circumstances of this case. The effect of the
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interpretation that RME urges us to adopt is as follows: the lease required defendant
to pay the taxes at the moment they first became “due.” Under this interpretation,
defendants could only meet their obligation by paying the property taxes on, and only
on, September 1st. In other words, any payment before September 1st would be
“early,” any payment on September 1st would be “when due,” and any payment after
September 1st would be late, or past the point “when” the payments were “due.” This
is a nonsensical, hyper-technical construction of the lease and North Carolina
property tax law.
Indeed, after noting that the first sentence of section 105-360 provides that
property taxes are “due and payable on September 1,” and that the second sentence
provides that property taxes are “payable” without interest “if paid before January 6
following the due date,” RME argues that “[d]efendants’ statement that taxes are ‘due
and payable through January 5’ inserts the phrase ‘and payable’ into the second
sentence of the statute.” But there is no meaningful distinction between the terms
due and payable. As recognized by one of America’s leading legal lexicographers,
“[b]ecause a debt cannot be due without also being payable, the doublet due and
payable is unnecessary in place of due.” Bryan A. Gardner, A Dictionary of Modern
Legal Usage 299 (2d ed. 1995). Just because taxes first become due on September 1st
does not mean that they become past due on the following day. Instead, property
taxes in North Carolina are “due” (i.e., payable) over a period of time (September 1st
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through the following January 5th) and not on any single date. The use of the phrase
“when due,” without qualifying language, must be given its plain meaning, and its
plain meaning is, when applied to section 105-360, the period of time between the
first and last dates for timely payment of those taxes (September 1st and January
5th, respectively). As noted in Roseborough, “Plaintiffs’ argument would have more
force if the . . . agreement contained qualifying language such as ‘when first become
due’ or ‘at the moment taxes become due.’ ” 168 Mich. App. at 95-96, 423 N.W.2d at
579. Such qualifying language is absent from the lease in the instant case.
Accordingly, we reject RME’s interpretation of the phrase “when due” as it relates to
HOM’s obligation to pay property taxes under the lease.
Application of section 105-360 to the lease’s terms reveals that taxes on the
property first become due on September 1st, but they do not become past due or
delinquent until the following January 6th. Because the plain meaning of “when due”
refers to the period running from September 1st to January 5th, we conclude that
Paragraph 19 of the lease is not ambiguous. When RME sent notice of termination
in October 2015 and paid the property taxes in November 2015, RME deprived HOM
of the opportunity to meet its obligation to pay (or direct CHME to pay) the taxes on
or before 5 January 2016. The trial court, therefore, properly concluded that no
genuine issue of material fact remained, that RME’s motion for summary judgment
should be denied, and that summary judgment should be entered in favor of
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defendants. As our decision results solely from our interpretation of Paragraph 19’s
plain language, we need not address whether the trial court properly considered
evidence of the parties’ prior course of dealing. See Shore, 324 N.C. at 428, 378 S.E.2d
at 779 (“If the granting of summary judgment can be sustained on any grounds, it
should be affirmed on appeal. If the correct result has been reached, the judgment
will not be disturbed even though the trial court may not have assigned the correct
reason for the judgment entered.”).
III. Conclusion
For the reasons stated above, we affirm the trial court’s order denying RME’s
motion for summary judgment and granting summary judgment in favor of
defendants.
AFFIRMED.
Judges STROUD and McCULLOUGH concur.
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