Reynolds-Douglass v. Terhark

IN THE SUPREME COURT OF NORTH CAROLINA
2022-NCSC-74
No. 43A21
Filed 17 June 2022
DAWN REYNOLDS-DOUGLASS
v.
KARI TERHARK
Appeal pursuant to N.C.G.S. § 7A-30(2) from the unpublished decision of a
divided panel of the Court of Appeals, No. COA-20-112, 2020 WL 7974326 (N.C. Ct.
App. Dec. 31, 2020), finding no error in an order entered on 20 September 2019 by
Judge Ned W. Mangum in District Court, Wake County. Heard in the Supreme Court
on 14 February 2022.
David G. Omer for plaintiff-appellee.
Williams Mullen by Michael C. Lord for defendant-appellant.
ERVIN, Justice.
¶1 This case involves the issue of whether the trial court erred by awarding
attorney’s fees in an action seeking the recovery of money owed under a contract to
purchase real estate which obligated the buyer to pay the seller a due diligence fee
and an earnest money deposit. After the buyer breached the real estate contract, the
seller brought an action in small claims court for the purpose of recovering the due
diligence fee that was owed to her pursuant to that agreement. The real estate
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
contract also provided that the prevailing party in an action seeking to recover the
earnest money deposit was entitled to collect “reasonable attorney’s fees” from the
opposing party. After the trial court awarded the requested attorney’s fees on appeal
from a decision of the magistrate in plaintiff’s favor, the buyer appealed, arguing that
the contract did not constitute an “evidence of indebtedness” pursuant to N.C.G.S. §
6-21.2 and that the requested attorney’s fee award lacked sufficient support in the
relevant statutory provision. A majority of the Court of Appeals found no error in the
challenged attorney’s fees award. After careful consideration of the record in light of
the applicable law, we affirm the decision of the Court of Appeals.
¶2 In mid-2017, plaintiff Dawn Reynolds-Douglass and her husband employed a
real estate agent named Dee Love to assist them in listing their home for sale. As
part of that process, Ms. Love advised plaintiff and her husband to complete a
“Residential Property and Owners’ Association Disclosure Statement” as required by
Chapter 47E of the General Statutes of North Carolina. Plaintiff and her husband
completed the required disclosure statement, except for leaving two items blank, the
first of which addressed whether the property was “subject to any utility or other
easements, shared driveways, party walls or encroachments” and the second of which
addressed whether “any fees [were] charged by the association or by the association’s
management company in connection with the conveyance or transfer of the lot or
property to a new owner.”
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
¶3 On 23 July 2017, Ms. Love hosted an open house at which plaintiff’s residence
could be viewed by potential buyers, including defendant Kari Terhark. On the
following day, defendant met with Ms. Love for the purpose of reviewing the
disclosure statement that plaintiff and her husband had completed. At the conclusion
of the review process, defendant signed each page of the disclosure statement and
executed an “Offer to Purchase and Contract” in which she agreed to purchase
plaintiff’s property for $250,000. The Offer to Purchase and Contract provided, in
pertinent part:
(d) “Purchase Price”:
$250,000.00 paid in U.S. Dollars upon the following
terms:
$2,000.00 BY DUE DILIGENCE FEE made payable
and delivered to Seller by the Effective Date.
....
$2,500.00 BY (ADDITIONAL) EARNEST MONEY
DEPOSIT made payable and delivered to Escrow
Agent named in Paragraph 1(f) by cash, official bank
check, wire transfer or electronic transfer no later
than August 14, 2017 . . . .
....
$245,500.00 BALANCE of the Purchase Price in
cash at Settlement (some or all of which may be paid
with the proceeds of a new loan).
In addition, the Offer to Purchase and Contract provided:
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
(e) “Earnest Money Deposit”: The Initial Earnest Money
Deposit, the Additional Earnest Money Deposit and any
other earnest monies paid or required to be paid in
connection with this transaction, collectively the “Earnest
Money Deposit,” shall be deposited and held in escrow by
Escrow Agent until Closing, at which time it will be
credited to Buyer, or until this Contract is otherwise
terminated. . . . In the event of breach of this Contract by
Buyer, the Earnest Money Deposit shall be paid to Seller
as liquidated damages and as Seller’s sole and exclusive
remedy for such breach, but without limiting Seller’s rights
under Paragraphs 4(d) and 4(e) for damage to the Property
or Seller’s right to retain the Due Diligence Fee. It is
acknowledged by the parties that payment of the Earnest
Money Deposit to Seller in the event of a breach of this
Contract by Buyer is compensatory and not punitive, such
amount being a reasonable estimation of the actual loss
that Seller would incur as a result of such breach. The
payment of the Earnest Money Deposit to Seller shall not
constitute a penalty or forfeiture but actual compensation
for Seller’s anticipated loss, both parties acknowledging
the difficulty [of] determining Seller’s actual damages for
such breach. If legal proceedings are brought by Buyer or
Seller against the other to recover the Earnest Money
Deposit, the prevailing party in the proceeding shall be
entitled to recover from the non-prevailing party
reasonable attorney fees and court costs incurred in
connection with the proceeding.
....
(i) “Due Diligence Fee”: A negotiated amount, if any, paid
by Buyer to Seller with this Contract for Buyer’s right to
terminate the Contract for any reason or no reason during
the Due Diligence Period. It shall be the property of Seller
upon the Effective Date and shall be a credit to Buyer at
Closing. The Due Diligence Fee shall be non-refundable
except in the event of a material breach of this Contract by
Seller . . . .
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
On the same date, plaintiff and her husband accepted defendant’s offer by initialing
each page of the Offer to Purchase and Contract and signing the final page. After
both parties had executed the Offer to Purchase and Contract, plaintiff and her
husband removed their residence from the real estate market in anticipation of
closing.
¶4 On 27 July 2017, defendant sent an e-mail to Ms. Love in which she stated that
she intended to cancel the contract unless plaintiff and her husband agreed to reduce
the purchase price by $5,500. In response, Ms. Love told defendant that she was in
breach of the contract that she had made with plaintiff and plaintiff’s husband.
Defendant did not pay the $2,000 due diligence fee or the $2,500 earnest money
deposit fee that were due to plaintiff and plaintiff’s husband under the contract, with
further negotiations that were intended to facilitate a closing ultimately proving
unsuccessful.
¶5 On 29 September 2017, plaintiff, proceeding pro se, filed a complaint against
defendant in small claims court seeking to recover the $2,000 due diligence fee. On
30 October 2017, the magistrate entered a judgment in favor of plaintiff and against
defendant in the amount of $2,000. After defendant noted an appeal to the district
court from the magistrate’s judgment, the matter was referred to arbitration on 24
January 2018, with the arbitrator ultimately entering an award in the amount of
$2,000 in favor of plaintiff. On 26 January 2018, defendant filed a separate claim
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
against plaintiff in small claims court in which she sought $4,500 in damages and
alleged that plaintiff had breached the purchase contract and was in “violation of the
Property Disclosure Act” and in “violation of form 352-T,” with plaintiff having
retained an attorney in light of the filings of defendant’s separate claim.
¶6 On or about 27 April 2018, plaintiff, acting through counsel, filed an amended
complaint in which she sought to recover $2,000 for non-payment of the due diligence
fee; $2,500 in damages for non-payment of the earnest money deposit; attorney’s fees
and court costs; and $9,000 in compensatory damages, an amount which plaintiff
claimed to be the “reasonable difference between (i) the purchase price of the Property
pursuant to the Agreement and (ii) the market value of the Property after it had to
be re-listed.” On 29 June 2018, defendant, who was also acting through an attorney
at this point in the litigation, filed an answer to plaintiff’s amended complaint. On
20 December 2018, plaintiff filed a motion seeking the entry of summary judgment
in her favor, with defendant having filed a cross-motion seeking summary judgment
in her own favor on 4 February 2019.
¶7 On 26 February 2019, the trial court entered an order granting summary
judgment in favor of plaintiff. On 19 September 2019, plaintiff filed a motion seeking
to have the trial court determine the amount of damages that she was entitled to
recover and an application seeking an award of $15,564.74 in fees and costs, including
attorney’s fees, with plaintiff’s counsel having asserted in an attached affidavit that
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
plaintiff had incurred $13,067.70 in attorney’s fees and $577.04 in court costs in
prosecuting this action and $1,920 in attorney’s fees relating to a bankruptcy petition
that defendant had also filed. On 20 September 2019, the trial court entered an order
finding that plaintiff was entitled to recover $18,343.92 from defendant, including
$2,000 relating to the due diligence fee; $2,500 relating to the earnest money deposit;
$776.22 in pre-judgment interest relating to the due diligence fee and earnest money
deposit; and $13,067.70 in attorney fees. Defendant noted an appeal to the Court of
Appeals from the trial court’s order.
¶8 In seeking relief from the trial court’s order before the Court of Appeals,
defendant, proceeding pro se, argued that the trial court had erred by (1) granting
summary judgment in plaintiff’s favor in spite of the existence of genuine issues of
material fact concerning the extent to which plaintiff had complied with the
Residential Property Disclosure Act; (2) denying defendant’s summary judgment
motion; and (3) finding that plaintiff was entitled to recover attorney’s fees. In
rejecting defendant’s challenge to the trial court’s decision to enter summary
judgment in plaintiff’s favor with respect to the merits of plaintiff’s claim, the Court
of Appeals held that the trial court had correctly concluded that there were no
genuine issues of material fact concerning the extent to which plaintiff was entitled
to recover the due diligence fee and earnest money deposit from defendant. Reynolds-
Douglass v. Terhark, No. COA-20-112, 2020 WL 7974326, at *2 (N.C. Ct. App. Dec.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
31, 2020) (unpublished). In reaching this result, the Court of Appeals noted that
plaintiff had filled out a standard disclosure statement; that defendant had “attested
that she had received and examined [the s]tatement by signing each page, including
the pages upon which [the inadvertently missing items] appeared”; that defendant
had been “given the opportunity to read and review both documents”; that defendant
had “attested that she did so” without having sought clarification regarding the
statement before making an offer to purchase the property; and that defendant “did
not argue that the Disclosure Statement was invalid until well after litigation had
commenced in this matter.” Reynolds-Douglass, 2020 WL 7974326, at *3.
¶9 In rejecting defendant’s challenge to the trial court’s attorney’s fees award, the
Court of Appeals held that the trial court had correctly awarded $13,067.70 in
attorney’s fees to plaintiff. Id. After noting that a party attempting to overturn an
award of attorney’s fees must prove that the trial court had abused its discretion, the
Court of Appeals determined that defendant had not “challenge[d] the amount of the
attorney’s fees award, only the award itself.” Id. According to the Court of Appeals,
the trial court was authorized to award attorney’s fees in this case pursuant to
N.C.G.S. § 6-21.2, which provides that “parties to ‘any note, conditional sale contract
or other evidence of indebtedness’ [can] recover attorney’s fees resulting from a
breach of the same, ‘not in excess of fifteen percent (15%) of the outstanding balance
owing.’ ” Reynolds-Douglass, 2020 WL 7974326, at *4 (citing N.C.G.S. § 6-21.2). In
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
the Court of Appeals’ view, the Offer to Purchase and Contract, which obligated
defendant to pay the due diligence fee and earnest money deposit to plaintiff and
provided that, “[i]f legal proceedings [we]re brought by Buyer or Seller against the
other to recover the Earnest Money Deposit, the prevailing party in the proceeding
shall be entitled to recover from the non-prevailing party reasonable attorney’s fees
and costs incurred in connection with the proceeding,” constituted an “evidence of
indebtedness” for purposes of N.C.G.S. § 6-21.2, so that an award of attorney’s fees
was authorized in this instance. Reynolds-Douglass, 2020 WL 7974326, at *3–4. In
reaching this conclusion, the Court of Appeals relied upon Stillwell Enters., Inc. v.
Interstate Equip. Co., 300 N.C. 286 (1980), in which this Court determined that “[t]he
term ‘evidence of indebtedness’ as used in N.C.[G.S.] § 6-21.2 refers to any printed or
written instrument, signed or otherwise executed by the obligor(s), which evidences
on its face a legally enforceable obligation to pay money.” Reynolds-Douglass, 2020
WL 7974326, at *4 (quoting Stillwell, 300 N.C. at 294). In light of the fact that the
Offer to Purchase and Contract in this case “was a printed instrument signed by both
parties” which “on its face evidenced a legally enforceable obligation for Defendant to
pay the Due Diligence fee and Earnest Money Deposit to Plaintiff,” the Court of
Appeals reasoned that the contract constituted an “evidence of indebtedness” for
purposes of N.C.G.S. § 6-21.2, so that the trial court was authorized to make an award
of attorney’s fees in plaintiff’s favor. Id.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
¶ 10 Although Judge Murphy agreed with his colleagues in concluding that the trial
court had not erred by granting summary judgment in plaintiff’s favor, he disagreed
with his colleagues’ decision to uphold the trial court’s attorney’s fees award.
Reynolds-Douglass, 2020 WL 7974326, at *5 (Murphy, J., concurring, in part, and
dissenting, in part). As an initial matter, Judge Murphy concluded that the Offer to
Purchase and Contract did not authorize the recovery of attorney’s fees because the
appropriateness of such an award hinged upon whether “legal proceedings [we]re
brought . . . to recover the Earnest Money Deposit” and because this proceeding had
initially been brought for the purpose of recovering the due diligence fee rather than
the earnest money deposit. Reynolds-Douglass, 2020 WL 7974326, at *5–6.
¶ 11 In addition, Judge Murphy concluded that N.C.G.S. § 6-21.2 did not authorize
an award of attorney’s fees in this case given that the Offer to Purchase and Contract
did not constitute an “evidence of indebtedness” or a “note or conditional sale
contract” as required by the relevant statutory provision. Reynolds-Douglass, 2020
WL 7974326, at *6. According to Judge Murphy, the majority at the Court of Appeals
had erroneously extended Stillwell to encompass a real estate contract even though
the principle enunciated in Stillwell was “only relevant for commercial transactions”
in light of our statements that the definition of an “evidence of indebtedness” adopted
in that case did “no violence to any of the statute’s specific provisions and accords well
with its general purpose to validate a debt collection remedy expressly agreed upon
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
by contracting parties” and that N.C.G.S. § 6-21.2 was intended to “supplement those
principles of law generally applicable to commercial transactions.” Reynolds-
Douglass, 2020 WL 7974326, at *7 (quoting Stillwell, 300 N.C. at 293–94). As a
result, Judge Murphy would have held that the Offer to Purchase and Contract at
issue in this case was not an “evidence of indebtedness” for purposes of Stillwell and
that his colleagues’ determination to the contrary was “overbroad” and would
authorize an award of attorney’s fees pursuant to “every contract where one party is
to pay money [as an] evidence of indebtedness.” Id.
¶ 12 In the same vein, Judge Murphy would have held that the Offer to Purchase
and Contract was not an “evidence of indebtedness” for purposes of the relevant
statutory provision given that “[t]he general purpose of N.C.G.S. § 6-21.2 is to
‘validate a debt collection remedy expressly agreed upon by contracting parties’ ” and
that, at least in his view, a contract to purchase real estate did not fit within the
confines of this stated purpose. Reynolds-Douglass, 2020 WL 7974326, at *8. Finally,
Judge Murphy noted that, even if the Offer to Purchase and Contract in this case
constituted an “evidence of indebtedness” for purposes of N.C.G.S. § 6-21.2, the
amount of attorney’s fees awarded in this case should be capped at 15% of the $2,000
due diligence fee, making the trial court’s decision to award a total of $13,067.70 in
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
attorney’s fees unlawfully excessive. Id. Defendant noted an appeal to this Court
from the Court of Appeals’ decision based upon Judge Murphy’s dissent.1
¶ 13 In seeking relief from the Court of Appeals’ decision before this Court,
defendant, who is currently represented by counsel, begins by arguing that the Offer
to Purchase and Contract did not authorize an award of attorney’s fees in plaintiff’s
favor given that, while the contract authorized such an award in an action brought
“to recover the Earnest Money Deposit,” the present case had been initiated for the
purpose of recovering the due diligence fee. In view of the fact that she had never
paid the earnest money deposit to plaintiff, defendant contends that there had never
been an earnest money deposit that plaintiff was entitled to recoup and that the
$2,500 amount that plaintiff was authorized to collect pursuant to the Offer to
Purchase and Contract relating to the earnest money deposit constituted nothing
more than an award of liquidated damages.
¶ 14 Secondly, defendant argues that the Offer to Purchase and Contract did not
constitute an “evidence of indebtedness” for purposes of N.C.G.S. § 6-21.2 as defined
in Stillwell given that the relevant statutory provision “applies to ‘supplement those
principles of law generally applicable to commercial transactions’ and is only relevant
for financial debt instruments akin to promissory notes and conditional sale
1 Although defendant sought discretionary review of the Court of Appeals’ decision
with respect to certain additional issues, this Court denied defendant’s petition.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
contracts.” In defendant’s view, neither the due diligence fee nor the earnest money
deposit resemble the recurring rental payments provided for in the lease agreement
that was at issue in Stillwell, with the essential thrust of the Offer to Purchase and
Contract as a real estate agreement precluding it from being “an instrument of
indebtedness within the scope of Section 6-21.2[ ].” As further support for this
contention, defendant directs our attention to Forsyth Mun. Alcoholic Beverage
Control Bd. v. Folds, 117 N.C. App. 232, 238 (1994), which she describes as holding
that attorney’s fees could not be collected in an action arising from the breach of a
contract for the sale of real property, and Calhoun v. WHA Med. Clinic, PLLC, 178
N.C. App. 585, 604 (2006), in which the Court of Appeals analyzed whether an
employer-employee agreement came within the scope of N.C.G.S. § 6-21.2. As a
result, defendant contends that the Court of Appeals’ determination that the Offer to
Purchase and Contract constituted an “evidence of indebtedness” conflicts with the
purpose sought to be served by N.C.G.S. § 6-21.2, which is to “validate a debt
collection remedy expressly agreed upon by contracting parties.” Stillwell, 300 N.C.
at 294.
¶ 15 Thirdly, defendant argues that, in accordance with the literal language of the
Offer to Purchase and Contract, she cannot be held liable to plaintiff for the earnest
money deposit given that the deposit was to be “payable and delivered to Escrow
Agent.” Defendant asserts that her obligation to pay the earnest money deposit had
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
not “matured” at the time that the agreement was cancelled on 27 July 2017 since
the earnest money deposit was not due to be paid until 14 August 2017. Defendant
also notes that N.C.G.S. § 6-21.2(5) requires a party seeking to recover attorney’s fees
to provide notice to the debtor “that the provisions relative to payment of attorneys’
fees in addition to the ‘outstanding balance’ [of the debt] shall be enforced” and
contends that plaintiff had failed to provide proper notice that she intended to seek
an award of attorney’s fees in this action. Finally, defendant claims that Judge
Murphy correctly concluded that the trial court’s decision to award a total of
$13,067.70 in attorney’s fees violated the statutory cap on attorney’s fees awards set
out in N.C.G.S. § 6-21.2.
¶ 16 In seeking to persuade us to affirm the Court of Appeals’ decision, plaintiff
begins by arguing that defendant’s contentions that the earnest money deposit was
owed to the escrow agent rather than plaintiff, that plaintiff’s claim for the earnest
money deposit had not “matured,” and that plaintiff had failed to provide proper
notice of its attorney’s fees claim were not properly before this Court given that these
issues had not been mentioned by either the majority or dissenting opinions at the
Court of Appeals, citing N.C. R. App. P. 16(b) (providing that, “[w]hen the sole ground
of the appeal of right is the existence of a dissent in the Court of Appeals,” this Court’s
review “is limited to a consideration of those issues that are . . . specifically set out in
the dissenting opinion as the basis for that dissent”). In addition, plaintiff contends
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
that she was allowed to collect attorney’s fees under the contract pursuant to N.C.G.S.
§ 6-21.2 given that the Offer to Purchase and Contract expressly allowed for the
recovery of attorney’s fees by “the prevailing party” in a proceeding brought to recover
the earnest money deposit.
¶ 17 According to plaintiff, defendant’s contention that the Offer to Purchase and
Contract does not constitute an “evidence of indebtedness” as defined in Stillwell is
“inconsistent with both established case law and the plain language of” N.C.G.S. § 6-
21.2. More specifically, plaintiff contends that the Offer to Purchase and Contract is
“(i) a printed or written instrument, (ii) signed or otherwise executed by the obligor(s),
(iii) which evidences on its face a legally enforceable obligation to pay money,” with
this being all that is required of an “evidence of indebtedness” in accordance with
Stillwell, 300 N.C. at 294. In plaintiff’s view, defendant’s assertion that N.C.G.S. §
6-21.2 only applies to “commercial” agreements lacks merit given that nothing in the
relevant statutory language limits the applicability of N.C.G.S. § 6-21.2 to
commercial agreements, with plaintiff having pointed to the decisions of the Court of
Appeals in Crist v. Crist, 145 N.C. App. 418 (2001) (holding that a promissory note
provided in the context of a domestic relations dispute was subject to N.C.G.S. § 6-
21.2), and Four Seasons Homeowners Ass’n, Inc. v. Sellers, 72 N.C. App. 189, 192
(1984) (holding that a “Declaration of Covenants, Conditions and Restrictions”
applicable to a subdivision constituted an “evidence of indebtedness” for purposes of
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
N.C.G.S. § 6-21.2), as further support for this contention. According to plaintiff,
treating the Offer to Purchase and Contract as an “evidence of indebtedness” is
“directly” consistent with the purpose sought to be served by N.C.G.S. § 6-21.2, which
is intended to “validate a debt collection remedy expressly agreed upon by contracting
parties.” Stillwell, 300 N.C. at 294.
¶ 18 Finally, plaintiff asserts that she is entitled to retain the full amount of the
trial court’s attorney’s fees award, with the $13,067.70 amount set out in the trial
court’s order not being excessive given that she had incurred these fees in the course
of defending the judgment that she had previously obtained before the magistrate
and that was affirmed multiple times throughout defendant’s subsequent appeals.
More specifically, plaintiff asserts that, although she represented herself in the initial
small claims proceeding before the magistrate and in the subsequent arbitration
proceeding, she had decided that she needed to hire an attorney after defendant
sought relief from the magistrate’s decision and the arbitrator’s award and asserted
separate claims against plaintiff. In the absence of an award of attorney’s fees “for
time expended in defense of” her judgment, plaintiff contends that it would not have
been “economically feasible . . . to try and preserve that judgment,” citing City Fin.
Co. of Goldsboro v. Boykin, 86 N.C. App. 446, 449 (1987) (holding that, “[u]pon a
finding that defendants were entitled to attorney’s fees in obtaining their judgment,
any effort by defendants to protect that judgment” during subsequent appeals “should
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
likewise entitle them to attorney’s fees”), and Eley v. Mid/East Acceptance Corp. of
N.C., 171 N.C. App. 368, 377 (2005) (holding that, “because plaintiff was entitled to
attorneys’ fees for hours expended at the trial level, we hold plaintiff is entitled to
attorneys’ fees on appeal, especially in light of the limited amount of money at issue
in the litigation”). As a result, plaintiff urges us to affirm the Court of Appeals’
decision in its entirety.
¶ 19 According to well-established North Carolina law, “to overturn the trial judge’s
determination on the issue of attorneys’ fees, the defendant must show an abuse of
discretion,” unless the “appeal presents a question of statutory interpretation,” in
which case “full review is appropriate,” with the trial court’s conclusions of law being
subject to de novo review. Finch v. Campus Habitat, L.L.C., 220 N.C. App. 146, 147
(2012) (quoting Bruning & Federle Mfg. Co. v. Mills, 185 N.C. App. 153, 155–56
(2007)). As a result, we will decide any issues of statutory construction de novo while
evaluating the nature and extent of any statutorily authorized attorney’s fees awards
for an abuse of discretion.
¶ 20 “[T]he general rule [in North Carolina] has long obtained that a successful
litigant may not recover attorneys’ fees, whether as costs or as an item of damages,
unless such a recovery is expressly authorized by statute.” Stillwell, 300 N.C. at 289
(citing Hicks v. Albertson, 284 N.C. 236 (1973)). According to N.C.G.S. § 6-21.2, which
authorizes an award of attorney’s fees in certain actions,
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
[o]bligations to pay attorney[’s] fees upon any note,
conditional sale contract or other evidence of indebtedness,
in addition to the legal rate of interest or finance charges
specified therein, shall be valid and enforceable, and
collectible as part of such debt, if such note, contract or
other evidence of indebtedness be collected by or through
an attorney at law after maturity, subject to the following
provisions:
(1) If such note, conditional sale contract or other
evidence of indebtedness provides for attorney[’s] fees in
some specific percentage of the “outstanding balance” as
herein defined, such provision and obligation shall be valid
and enforceable up to but not in excess of fifteen percent
(15%) of said “outstanding balance” owing on said note,
contract or other evidence of indebtedness.
(2) If such note, conditional sale contract or other
evidence of indebtedness provides for the payment of
reasonable attorneys’ fees by the debtor, without specifying
any specific percentage, such provision shall be construed
to mean fifteen percent (15%) of the “outstanding balance”
owing on said note, contract or other evidence of
indebtedness.
N.C.G.S. § 6-21.2 (2021). As a result, N.C.G.S. § 6-21.2 creates an exception to the
general rule providing that each party to civil litigation is responsible for bearing his
or her own attorney’s fees applicable to “any note, conditional sale contract, or other
evidence of indebtedness.” For that reason, the next issue that we must address is
whether the Offer to Purchase and Contract comes within the ambit of N.C.G.S. § 6-
21.2.
¶ 21 After carefully considering the record and the applicable law, we hold that the
majority at the Court of Appeals correctly concluded that the Offer to Purchase and
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
Contract at issue in this case constituted an “evidence of indebtedness” for purposes
of N.C.G.S. § 6-21.2. In Stillwell, 300 N.C. at 287, this Court examined an agreement
pursuant to which the defendant had leased a road scraper to the plaintiff. According
to the lease agreement, the plaintiff was required to make “monthly rental payments”
to the defendant, with the plaintiff “further agree[ing] to pay to lessor a reasonable
attorney’s fee if the obligation evidenced hereby be collected by an attorney at law
after maturity.” Id. at 289. After granting summary judgment in the defendant’s
favor following the plaintiff’s refusal to make payments required under the lease, the
trial court awarded over $24,000 to the defendant, with this amount having included
more than $2,000 in attorney’s fees. Id. at 288. Although the Court of Appeals
vacated the trial court’s attorney’s fee award “on the grounds that the lease was not
the type of agreement which would entitle defendant to recover for attorneys’ fees
under the general provisions of [N.C.]G.S. [§] 6-21.2,” this Court reinstated the trial
court’s decision on the grounds that the lease agreement did, in fact, constitute an
“evidence of indebtedness” for purposes of N.C.G.S. § 6-21.2. Id. at 289, 294.
¶ 22 In construing the reference to an “evidence of indebtedness” contained in
N.C.G.S. § 6-21.2, we began by acknowledging that we were required to “give that
interpretation to the term at issue which best harmonizes with the language, spirit,
and intent of the act in which it appears.” Id. at 292 (citing Stevenson v. City of
Durham, 281 N.C. 300 (1972)). After noting that N.C.G.S. § 6-21.2 had “become
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
effective on the same date as the Uniform Commercial Code,” we concluded that the
relevant statutory provision “was intended to supplement those principles of law
generally applicable to commercial transactions,”2 id. at 293 (cleaned up), before
holding that
the term “evidence of indebtedness” in N.C.G.S. § 6-21.2 is
intended to encompass more than security agreements or
traditional debt financing arrangements. It is of course
clear that a “note” or “conditional sale contract” is the most
common type of “evidence of indebtedness” contemplated
by the statute; indeed, it is in connection with these types
of agreements that attorneys’ fee provisions are most
commonly employed. However, the express terms of
Section 5 of the statute, along with the terms employed in
other provisions, demonstrate that G.S. 6-21.2 applies not
only to notes and conditional sale contracts, but also to
such “other evidence of indebtedness” as “other writings
evidencing an unsecured debt” or “any other such security
agreement which evidences both a monetary obligation and
a lease of specific goods.” N.C.G.S. § 6-21.2(5). We agree,
therefore, that “these provisions indicate, either explicitly
or implicitly, that an evidence of indebtedness is a writing
which acknowledges a debt or obligation and which is
executed by the party obligated thereby.” More
specifically, we hold that the term “evidence of
indebtedness” as used in N.C.G.S. § 6-21.2 has reference to
any printed or written instrument, signed or otherwise
executed by the obligor(s), which evidences on its face a
legally enforceable obligation to pay money. Such a
definition, we believe, does no violence to any of the
statute’s specific provisions and accords well with its
2 The fact that a particular statutory provision was enacted in part to “supplement”
the law relating to “commercial transactions” does not, as matter of logic, mean that the
application of the relevant statutory provision should be limited to such transactions in the
event that the literal language of the statute suggests that it should be given a broader scope.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
general purpose to validate a debt collection remedy
expressly agreed upon by contracting parties.
Viewed in light of this definition, defendant’s lease
agreement with plaintiff is obviously an “evidence of
indebtedness.” The contract acknowledges a legally
enforceable obligation by plaintiff-lessee to remit rental
payments to defendant-lessor as they become due, in
exchange for the use of the property which is the subject of
the lease. The contract, including the provision in
Paragraph 21 for attorneys’ fees, is in writing and is
executed by the parties obligated under its terms. Plaintiff
has made no assertion that the contract represents
anything less than an arm’s length transaction
consummated by mutual agreement between the
parties. Under these circumstances, we see no reason why
the obligation by plaintiff to pay attorneys’ fees incurred by
defendant upon collection of the debts arising from the
contract itself should not be enforced to the extent allowed
by N.C.G.S. § 6-21.2.
Id. at 293–95 (cleaned up). Thus, the appropriate definition of an “evidence of
indebtedness” for purposes of N.C.G.S. § 6-21.2 is the one that this Court enunciated
in Stillwell.
¶ 23 As the Court of Appeals recognized, the Offer to Purchase and Contract at issue
in this case was signed by both parties and, on its face, evidences a legally enforceable
obligation that defendant pay the plaintiff both the due diligence fee and the earnest
money deposit. As was the case in Stillwell, there has been “no assertion that the
contract represents anything less than an arm’s length transaction consummated by
mutual agreement between the parties.” See Stillwell, 300 N.C. at 294. In light of
this set of circumstances, there is no reason for treating the attorney’s fees provision
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
contained in the Offer to Purchase and Contract as anything other than an “evidence
of indebtedness” that is enforceable pursuant to N.C.G.S § 6-21.2.
¶ 24 A careful examination of the language in which N.C.G.S. § 6-21.2 is couched,
the circumstances surrounding its enactment, and the subsequent decisions
construing the relevant statutory language provides no support for defendant’s
contention that N.C.G.S. § 6-21.2 does not apply outside the context of a commercial
agreement. As we noted in Stillwell, “[t]he statute, being remedial, ‘should be
construed liberally to accomplish the purpose of the Legislature and to bring within
it all cases fairly falling within its intended scope.’ ” 300 N.C. at 293 (quoting Hicks
v. Albertson, 284 N.C. 236, 239 (1973)). For that reason, this Court has previously
rejected any contention that N.C.G.S. § 6-21.2 should be construed narrowly.
Moreover, while our opinion in Stillwell did indicate that the “legislative history [of
N.C.G.S. § 6-21.2] demonstrate[d] that it was intended to supplement those principles
of law generally applicable to commercial transactions,” we did not hold that the
relevant statutory language only applied in the context of a commercial transaction,
note that Stillwell expressly rejected such a limited reading of the relevant statutory
language, and reiterate that this Court described N.C.G.S. § 6-21.2 as having been
“enacted to amend certain provisions of the State’s Uniform Commercial Code ‘and
other related statutes.’ ” Id. at 293 (quoting Chapter 562 of the 1967 Session Laws).
As a result, Stillwell reflects a much more expansive interpretation of the relevant
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
statutory language, pursuant to which “the term ‘evidence of indebtedness’ as used
in [N.C.]G.S. [§] 6-21.2 has reference to any printed or written instrument, signed or
otherwise executed by the obligor(s), which evidences on its face a legally enforceable
obligation to pay money,” id. at 294, than that advocated for by defendant.
¶ 25 As we have already noted, defendant has directed our attention to Forsyth
Mun. Alcoholic Beverage Control Bd. v. Folds, 117 N.C. App. 232, 238 (1994), which
she describes as holding that attorney’s fees awards are not available in actions
arising from the breach of a contract for the sale of real property. In that case, the
Court of Appeals stated that:
As a general rule contractual provisions for
attorney’s fees are invalid in the absence of statutory
authority. This is a principle that has long been settled in
North Carolina and fully reviewed by our Supreme Court
in Stillwell . . . .
This Court has recently enunciated an exception to
that principle in the case of separation agreements in
particular, Edwards v. Edwards, 102 N.C. App. 706, 403
S.E.2d 530, cert. denied 329 N.C. 787, 408 S.E.2d 518(1991); Bromhal v. Stott, 116 N.C. App. 250, 447 S.E.2d 481(1994) (Greene, J. dissenting in part), and indeed in the
case of settlement agreements in general. Carter v. Foster,
103 N.C. App. 110, 404 S.E.2d 484 (1991).
Nevertheless, we know of no basis in North Carolina
law for the allowance of attorney’s fees in a dispute arising
out of a contract for the sale of real property, as is involved
in this case. Therefore, on the basis of those well-settled
principles, we reverse the judgment of the trial court
insofar as it allowed attorney’s fees to the plaintiffs . . . .
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
Id. at 238. In addition, defendant relies upon Calhoun v. WHA Med. Clinic, PLLC,
178 N.C. App. 585, 604 (2006), in which the Court of Appeals attempted to determine
whether N.C.G.S. § 6-21.2 allowed for the collection of attorney’s fees in an action
relating to the breach of an employer-employee agreement. As a result of the fact
that the trial court had “made no findings of fact [as to] whether the contract at issue
[wa]s a ‘printed or written instrument, signed or otherwise executed by the obligor(s),
which evidences on its face a legally enforceable obligation to pay money’ or whether
this contract relates to commercial transactions” as required by Stillwell, the Court
of Appeals remanded that case to the trial court for further findings of fact. Id. at
604–05. In view of the fact that neither of these decisions purports to alter the
definition of an “evidence of indebtedness” set out in Stillwell or addresses claims for
the recovery of specific fees of the sort that are at issue in this case, neither of them
supports defendant’s argument that N.C.G.S. § 6-21.2 has no application outside the
context of a commercial agreement.3
3 As an aside, we note that nothing in either the relevant statutory language or in
Stillwell suggests that any sort of transaction or category of transactions is categorically
excluded from the definition of an “evidence of indebtedness” for which an award of attorney’s
fees is authorized pursuant to N.C.G.S. § 6-21.2. Instead, the test for determining whether
a particular instrument is or is not an “evidence of indebtedness” is the more generic one set
out in Stillwell. Similarly, we note that Stillwell involved a contract for a lease of equipment,
which does not fall within the category of “notes, securities, mortgages, [or] deeds of trust.”
See also Four Seasons Homeowners Ass’n, Inc. v. Sellers, 72 N.C. App. 189, 192 (1984)
(holding that a “Declaration of Covenants, Conditions and Restrictions” signed by
homeowners in a subdivision was an “evidence of indebtedness” pursuant to N.C.G.S. § 6-
21.2); Crist v. Crist, 145 N.C. App. 418 (2001) (holding that a note provided in the context of
a domestic relations dispute was subject to N.C.G.S. § 6-21.2).
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
¶ 26 Defendant’s other arguments concerning the applicability of N.C.G.S. § 6-21.2
to the circumstances at issue in this case are equally unavailing. Although plaintiff
attempted to recover the due diligence fee in her initial small claims action, she
restated her pleadings on appeal to assert a claim for the earnest money deposit as
well. As a result, this action clearly involves a “legal proceeding[ ] . . . brought by
Buyer or Seller against the other to recover the Earnest Money Deposit” in which
plaintiff is authorized to seek and obtain an award of attorney’s fees.
¶ 27 Moreover, as plaintiff notes, defendant’s contentions relating to the identity of
the party to whom the earnest money deposit was due, the “maturity” of plaintiff’s
claim for the earnest money deposit, and the absence of notice were not mentioned in
either of the opinions filed at the Court of Appeals and are not properly before the
Court for that reason. In addition, none of those arguments have any substantive
merit. Although the Offer to Purchase and Contract did provide that the earnest
money deposit should be made “payable and delivered to Escrow Agent,” defendant’s
failure to make the required payment to the escrow agent constituted a breach of
contract sufficient to trigger plaintiff’s right to recover the earnest fee deposit from
defendant as liquidated damages. The same provision of the contract defeats
defendant’s contention that plaintiff’s right to recover the amount of the earnest
money deposit had not yet “matured.” Finally, defendant is not entitled to any relief
from the trial court’s attorney’s fees award based upon an alleged lack of notice given
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
that defendant continued to participate in the litigation of this case before the trial
court without objecting on the basis of an alleged lack of notice after having been
informed in the amended complaint that plaintiff sought to obtain an award of
attorney’s fees from defendant.
¶ 28 Finally, we hold that the trial court did not err in awarding $13,067.70 in
attorney’s fees to plaintiff given that the relevant fees were incurred in the course of
defending the judgment that plaintiff had initially received from the magistrate. In
City Fin. Co. of Goldsboro, 86 N.C. App. at 449, the Court of Appeals held that the
trial court had erred by refusing to award additional attorney’s fees that the
defendants had incurred while defending a judgment that they had obtained in an
action brought pursuant to N.C.G.S. § 75-1.1 from a motion for relief from judgment
pursuant to N.C.G.S. § 1A-1, Rule 60, on the theory that, “[u]pon a finding that
defendants were entitled to attorney’s fees in obtaining their judgment, any effort by
defendants to protect that judgment should likewise entitle them to attorney’s fees.”
In reaching this conclusion, the Court of Appeals noted that this Court had previously
upheld an award of attorney’s fees pursuant to N.C.G.S. § 6-21.1(a) on the theory that
[t]he obvious purpose of this statute is to provide relief for
a person who has sustained injury or property damage in
an amount so small that, if he must pay his attorney out of
his recovery, he may well conclude that [it] is not
economically feasible to bring suit on his claim. In such a
situation the Legislature apparently concluded that the
defendant, though at fault, would have an unjustly
superior bargaining power in settlement negotiations. . . .
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
This statute, being remedial, should be construed liberally
to accomplish the purpose of the Legislature and to bring
within it all cases fairly falling within its intended scope.
City Fin. Co. of Goldsboro, 86 N.C. App. at 449–50 (second and third alterations in
original) (quoting Hicks v. Albertson, 284 N.C. 236, 239 (1973)); see also Gray v. N.C.
Ins. Underwriting Ass’n, 352 N.C. 61, 76 (2000) (allowing the consideration of a
request for an award of attorney’s fees on remand in reliance upon City Fin. Co. of
Goldsboro); Eley v. Mid/East Acceptance Corp. of N.C., Inc., 171 N.C. App. 368 (2005);
Garlock v. Henson, 112 N.C. App. 243, 247 (1993). Similarly, in this case, it “would
not have been economically feasible,” id. at 450, for plaintiff to continue to defend the
judgment that she had obtained before the magistrate if the trial court lacked the
authority to award attorney’s fees in connection with the proceedings before the
district court, with a contrary determination necessarily placing plaintiff in the
position of either incurring legal fees in excess of the judgment amount in order to
defend it or abandoning her attempts to seek relief based upon defendant’s breaches
of contract. As a result, in light of the general principle enunciated by the Court of
Appeals in City Fin. Co. of Goldsboro and upheld by this Court in Gray, the trial court
did not err by awarding plaintiff $13,067.70 in attorney’s fees in this case.
¶ 29 A careful review of the record demonstrates that defendant owed plaintiff the
due diligence fee, the amount of the earnest money deposit, and attorney’s fees
incurred during the legal proceedings undertaken to recover those fees. In view of
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Opinion of the Court
the fact that these terms are clear and unambiguous and the fact that the parties
agreed to them, we are unable to discern any reason for concluding that the Offer to
Purchase and Contract does not constitute a written “obligation to pay money” or an
“evidence of indebtedness” pursuant to N.C.G.S. § 6-21.2. In addition, we are unable
to see why the limitation upon the amount of attorney’s fees set out in N.C.G.S. § 6-
21.2 should hinder plaintiff’s ability to recoup attorney’s fees incurred in defense of
the judgment that she obtained before the magistrate. As a result, for all of these
reasons, the decision of the Court of Appeals is affirmed.
AFFIRMED.
Justice BERGER dissenting.
¶ 30 The Court’s approach today marks a significant change in the jurisprudence of
our State. Because the majority has turned away from the principle that “the non-
allowance of counsel fees has prevailed as the policy of this state at least since 1879,”
Stillwell Enters., Inc. v. Interstate Equip. Co., 300 N.C. 286, 289, 266 S.E.2d 812, 814
(1980), I respectfully dissent.
¶ 31 This Court previously stated that “[a]lthough [N.C.]G.S. [§] 6-21.2 was not
itself codified as a constituent section of Chapter 25 of the General Statutes (the
Uniform Commercial Code [or UCC]), we believe its legislative history clearly
demonstrates that it was intended to supplement those principles of law generally
applicable to commercial transactions.” Id. at 293, 266 S.E.2d at 817. Relying on
Stillwell, the Court of Appeals has held that there is “no basis in North Carolina law
for the allowance of attorney’s fees in a dispute arising out of a contract for the sale
of real property.” Forsyth Mun. Alcoholic Beverage Control Bd. v. Folds, 117 N.C.
App. 232, 238, 450 S.E.2d 498, 502 (1994). Thus, N.C.G.S. § 6-21.2 is not applicable
to this case and recovery of attorney’s fees is not permitted by the statute.
¶ 32 Even assuming that recovery of attorney’s fees was allowable here, subsection
6-21.2(2) sets forth a specific formula to be used in calculating allowable attorney’s
fees absent such a formula or designation in the contract, as is the case here. Because
no such formula is stated in the contract, the statutory formula must be used in
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Berger, J., dissenting
calculating attorney’s fees. The majority today expands the application of section 6-
21.2 beyond what this Court has previously determined to be the intent of the
legislature by failing to utilize the calculation method expressly called for in the
statute.
¶ 33 “[T]he jurisprudence of North Carolina traditionally has frowned upon
contractual obligations for attorney’s fees as part of the costs of an action.” Stillwell,
300 N.C. at 289, 266 S.E.2d at 814 (quoting Supply, Inc. v. Allen, 30 N.C. App. 272,
276, 227 S.E.2d 120, 123 (1976)). The rule has “long obtained” that attorney’s fees
are not awarded “unless such a recovery is expressly authorized by statute[,] . . .
[e]ven in the face of a carefully drafted contractual provision indemnifying a party for
such attorneys’ fees.” Id. at 289, 266 S.E.2d at 814–15 (citation omitted); see also
Baxter v. Jones, 283 N.C. 327, 330, 196 S.E.2d 193, 196 (1973) (“Except as so provided
by statute, attorneys’ fees are not allowable.”). In other words, a statute must
expressly allow for recovery of attorney’s fees before a court can order payment of the
same.
¶ 34 Section 6-21.2 allows for recovery of reasonable attorney’s fees for collection
“upon any note, conditional sale contract or other evidence of indebtedness.” N.C.G.S.
§ 6-21.2 (2021). When applying N.C.G.S. § 6-21.2, we have instructed that the statute
“ ‘should be construed liberally to accomplish the purpose of the Legislature and to
bring within it all cases fairly falling within its intended scope.’ ” Stillwell, 300 N.C.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Berger, J., dissenting
at 293, 266 S.E.2d at 817 (quoting Hicks v. Albertson, 284 N.C. 236, 239, 200 S.E.2d
40, 42 (1972)).
¶ 35 The majority contends that “Stillwell reflects a much more expansive
interpretation of the relevant statutory language” to include any written “evidence of
indebtedness.” This interpretation would allow collection of attorney’s fees for any
case in which there is written evidence of a legally enforceable debt. This
determination runs counter to this Court’s stated goal in Stillwell to interpret the
statute based on the legislature’s purpose in enacting the law and its subsequent
determination that the statute’s purpose was to supplement laws intended to govern
commercial transactions.
¶ 36 The term “evidence of indebtedness” is used throughout the General Statutes
of North Carolina to refer to notes, securities, mortgages, deeds of trust, and similar
written documents.1 See, e.g., N.C.G.S. § 25-9-109(d)(14) (2021); N.C.G.S. § 45-36.3(a)
1 The majority appears to quote this language in footnote 3 to support its expansive
reading. However, the majority omits “or similar documents” from the quoted language. This
omission is meaningful because a lease of equipment is a “similar document.” For example,
in a mortgage, title remains with the seller while the buyer makes installment payments
until the debt is paid off. While not exactly the same, a lease contemplates an ongoing debt
relationship in which an owner of property retains title while the terms of the lease are
satisfied. In addition, a lease is also similar to the definition of a conditional sales contract,
which is defined as “[a] contract for the sale of goods under which the buyer makes periodic
payments and the seller retains title to or a security interest in the goods.” Retail Installment
Contract, Black’s Law Dictionary (11th ed. 2019); (the definition of conditional sales contract
in Black’s says see Retail Installment Contract); see also North Carolina Estate Settlement
Practice Guide § 18:5 (2013).
At any rate, while the lease in Stillwell is similar to a mortgage or a conditional sales
contract, it is clearly distinguishable from a residential real estate contract like the one at
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Berger, J., dissenting
(2021); N.C.G.S. § 47-20(d) (2021); N.C.G.S. § 53-232.10(a) (2021); N.C.G.S. § 54B-
244(b)(3)(h) (2021); N.C.G.S. § 58-7-173(1), (6)–(7) (2021); N.C.G.S. § 78A-2(11)
(2021); N.C.G.S. § 115C-413 (2021); N.C.G.S. § 122D-3(4) (2021). The residential
sales contract here is far different from the written evidence of indebtedness
contemplated by the statute.
¶ 37 Furthermore, the majority’s reading of Stillwell as an “expansive
interpretation” of section 6-21.2 goes against North Carolina’s history of barring the
recovery of attorney’s fees unless expressly authorized by the legislature. Because
this Court previously determined that the legislature intended section 6-21.2 to apply
solely to commercial transactions under the UCC, it should not be applied to a private
sale of real property. Our inquiry should end there.
¶ 38 However, even if we assume that section 6-21.2 applies, the majority
disregards the statutory formula set forth therein concerning the calculation of
attorney’s fees. Subsection (2) of this statute, expressly provides that
[i]f such note, conditional sale contract or other evidence of
indebtedness provides for the payment of reasonable
attorneys’ fees by the debtor, without specifying any
specific percentage, such provision shall be construed to
mean fifteen percent (15%) of the “outstanding balance”
owing on said note, contract or other evidence of
indebtedness.
issue in this case because a residential real estate contract does not on its face contemplate
an ongoing debt relationship between the buyer and seller and does not provide for
installment payments or one party retaining title to the property.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Berger, J., dissenting
N.C.G.S. § 6-21.2(2).
¶ 39 The contract at issue states that if legal proceedings are brought “to recover
the Earnest Money Deposit, the prevailing party in the proceeding shall be entitled
to recover . . . reasonable attorney fees.” If section 6-21.2 applies here, as the majority
holds, the 15% limitation on recovery is applicable because the contract gives no
specific formula for calculating attorney’s fees. The statute does not provide any
alternative calculation method.
¶ 40 Instead, the trial court based the amount granted for attorney’s fees in this
case, $13,067.70, on an attorney’s affidavit of fees incurred. The majority justifies
this amount based on a single Court of Appeals decision to award attorney’s fees
based on the attorney’s time spent on an appeal in order to make it “economically
feasible” to defend a judgment. See City Fin. Co. of Goldsboro v. Boykin, 86 N.C. App.
446, 450, 358 S.E.2d 83, 85 (1987).
¶ 41 The legislature has never authorized payment of attorney’s fees based on an
attorney’s time spent on a case. Furthermore, the statute at issue in City Fin. Co. of
Goldsboro, N.C.G.S. § 75-16.1, is similar to N.C.G.S. § 6-21.1, which differs
significantly from the statute at issue here. Section 6-21.1 provides no formula for
attorney’s fees to be awarded and only applies to recovery of attorney’s fees in suits
for personal injury, suits for property damage, or suits against insurance companies;
none of which are at issue today.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Berger, J., dissenting
¶ 42 The statute at issue today is clear: to determine the proper amount for
attorney’s fees we simply ascertain the outstanding balance of the contract and award
fifteen percent of that amount. N.C.G.S. § 6-21.2(2). Here, the contract designates
that “[i]n the event of breach of this Contract by Buyer, the Earnest Money Deposit
shall be paid to Seller as liquidated damages and as Seller’s sole and exclusive remedy
for such breach.” It further states that this amount “is compensatory and not
punitive, [with] such amount being a reasonable estimation of the actual loss that
Seller would incur as a result of such breach.” This provision clarifies that it does not
preclude the seller from the right to retain the due diligence fee, which a separate
section designates as $2,000, but it also expressly states that the award of attorney’s
fees is “to recover the Earnest Money Deposit.” Thus, the contract ties the recovery
of attorney’s fees directly and exclusively to the earnest money deposit.
¶ 43 Having determined that section 6-21.2 applies, subsection (2) calls for recovery
of attorney’s fees based on a percentage of the outstanding balance. The contractual
provision at issue expressly ties attorney’s fees to the earnest money deposit.
Therefore, the proper calculation of attorney’s fees would be: $2,500 (earnest money
deposit) x 15% (statutory rate) = $375 (in attorney’s fees). There is no basis for an
award of $13,067.70 under any statute, and such a large award would appear to
incentivize costly litigation.
REYNOLDS-DOUGLASS V. TERHARK
2022-NCSC-74
Berger, J., dissenting
¶ 44 Ultimately, the majority’s decision to allow the collection of attorney’s fees in
any case involving written evidence of a debt, and to allow the collection of any
amount of attorney’s fees spent defending such a judgment, including on appeal, are
policy decisions that have no statutory basis. “The General Assembly is the ‘policy-
making agency [of this State]’ because it is a far more appropriate forum than the
courts for implementing policy-based changes to our laws.” Rhyne v. K-Mart Corp.,
358 N.C. 160, 169, 594 S.E.2d 1, 8 (2004). Regardless of whether these changes may
be perceived as beneficial for litigants, the justice system, or this State, they have no
basis in our General Statutes, and any such a policy shift should be undertaken by
the legislature, not this Court.
Justice BARRINGER joins in this dissenting opinion.