Johnson v. SMITH, SCOTT & ASSOCIATES, INC.

335 S.E.2d 205 (1985)

Mr. and Mrs. Denny JOHNSON
v.
SMITH, SCOTT & ASSOCIATES, INC.

No. 8526DC86.

Court of Appeals of North Carolina.

October 15, 1985.

Jones, Hewson & Woolard by R.G. Spratt, III, H.C. Hewson, and Hunter M. Jones, Charlotte, for plaintiffs.

Berry, Hogewood, Edwards & Freeman, P.A. by Dean Gibson, Charlotte, for defendant.

WELLS, Judge.

Defendant contends the trial court erred in denying its motion for summary judgment and in granting summary judgment for plaintiffs. N.C.Gen.Stat. § 1A-1, Rule 56(c) of the Rules of Civil Procedure permits the granting of summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law."

The materials submitted by the parties for the court's consideration in ruling on the motions for summary judgment show the following: On the morning of 30 June 1983, defendant's president, John D. Scott, called plaintiff Denny D. Johnson and asked him if he planned to close on that date. Johnson told Scott that he could not close on that date because he and his wife had not sold their present home yet and that he had no intention of closing as long as his present home remained unsold. In a deposition taken prior to the hearing on the motions, Johnson admitted that if the house had been ready for occupancy on 30 June 1983 and he had been tendered the deed to the property, there would have been no possibility that he and his wife could have closed on that date because they had not sold their present home and had not even applied for a loan which they had to obtain in order to purchase the property. He further stated that his interest in the property ceased on 30 June 1983 and that he did not respond to defendant's offer to close on 5 July 1983 because his present home remained unsold. The exchange of letters between the parties in which each declared the other to be in default of the contract occurred after the conversation between Johnson and Scott on the morning of 30 June 1983.

The forecast of the evidence presented by the parties further shows that although the house in question was not complete nor ready for occupancy on 30 June 1983, it was apparently completed no later than 14 July 1983 on which date a certificate of compliance from the county director of building standards and code enforcement was issued for the property; and that plaintiffs were not damaged by the delay in completion.

Although plaintiffs argue otherwise in their brief, what they have attempted is to rescind the contract. A rescission or cancellation of a contract is an abrogation or undoing of the contract from its beginning and necessarily involves the refusal of a party to be further bound by it. See Black's Law Dictionary 1174 (5th ed. 1979); Brannock v. Fletcher, 271 N.C. 65, 155 S.E.2d 532 (1967). Rescission does not merely terminate the contract so as to release the parties from further obligations to each other; rather, it abrogates the contract from its beginning and restores the parties to the position they would have been in had the contract not been made. Id. The Supreme Court has indicated that upon the breach of a contract for the purchase and sale of real estate by the seller, the buyer has the following remedies available to him, among others: (1) the buyer may sue at law for damages for the breach; (2) he may sue in equity and seek specific performance; or (3) he may abandon and thereby rescind the contract and recover what he has paid. Id. Plaintiffs apparently considered defendant to be in breach of the contract because of its alleged inability to close and deliver possession of the property on 30 June 1983 as required by the contract and elected as their remedy for the breach to rescind the contract and recover what they had paid.

As enunciated by our Supreme Court in Childress v. Trading Post, 247 N.C. 150, 100 S.E.2d 391 (1957), however: "Not every breach of a contract justifies a cancellation and rescission. The breach must be so material as in effect to defeat the very terms of the contract." In Childress, the Supreme Court concluded that a delay of two months in completion of a dwelling did not justify cancellation and rescission of the contract for the purchase and sale of the real estate where time was not of the essence. The Court further stated:

As a general rule, time is not of the essence of a building or construction contract, in the absence of a provision in the contract making it such. Failure to complete the work within the specified time does not ipso facto terminate the contract, but only subjects the contractor to damages for the delay.

Id. See also Douglass v. Brooks, 242 N.C. 178, 87 S.E.2d 258 (1955) (In the absence of special circumstances, time is not of the essence of a contract for the purchase and sale of real estate.)

We find Childress controlling in the present case. The contract here does not expressly provide that time is of the essence, nor do we find anything in the contract or in the parties' actions which demonstrate their intent to make time of the essence. Since time was not of the essence and the delay in completion was at most two weeks, plaintiffs did not have grounds for rescinding the contract and recovering what they had paid under it. See Childress, supra. Plaintiffs were entitled to recover for any damages resulting from the delay, id.; however, it is undisputed that plaintiffs suffered no such damages.

Moreover, the forecast of the evidence clearly shows that plaintiffs were in breach of the contract as alleged by defendant, and that they forfeited their earnest money as a result. We reject plaintiffs' argument that the provision in the contract regarding the forfeiture of the earnest money amounts to an illegal penalty. It has long been the rule in this State that where a buyer refuses or becomes unable to comply with his contract to purchase, he is not entitled to recover the amount thus far paid by him pursuant to the contract. See Scott v. Foppe, 247 N.C. 67, 100 S.E.2d 238 (1957); Walker v. Weaver, 23 N.C.App. 654, 209 S.E.2d 537 (1974). Furthermore, the forfeiture provision is in the nature of a provision for liquidated damages. See 77 Am.Jur.2d, Vendor and Purchaser, § 500, p. 626. No evidence has been forecast which indicates that the amount forfeited pursuant to the provision is unjust, oppressive, or disproportionate to the damages that would result, or did in fact result, from the breach of the contract; therefore, the provision should be upheld. See Cooperative Assn. v. Jones, 185 N.C. 265, 117 S.E. 174 (1923).

We conclude that the forecast of the evidence shows that there is no genuine issue as to any material fact herein and that defendant is entitled as a matter of law to retain the $2500 earnest money. Accordingly, we hold that the trial court erred in granting summary judgment for plaintiffs and in denying defendant's motion for summary judgment. We therefore reverse the judgment entered and remand this cause to the trial court for the entry of summary judgment in favor of defendant.

Reversed and remanded.

WHICHARD and PHILLIPS, JJ., concur.