Daniel Boone Complex, Inc. v. Furst

258 S.E.2d 379 (1979) 43 N.C. App. 95

DANIEL BOONE COMPLEX, INC., a North Carolina Corporation, Camilco, Inc., A Virginia Corporation, Clarence A. McGillen, Jr., and Linda S. Broyhill McGillen, Plaintiffs,
v.
Mitchell FURST, Individually, Mitchell Furst, Trustee, and Matthew Mezzanotte, Defendants.
Mitchell FURST, Trustee, Plaintiff,
v.
CAMILCO, INC. and Clarence A. McGillen, Jr., Defendants.
CAMILCO, INC., Plaintiff,
v.
Mitchell FURST, Trustee, Mitchell Furst, Individually, Daniel Boone Complex, Inc., Dalton H. Loftin, Trustee, James J. Freeland and wife, Maxine H. Freeland, Central Carolina Bank and Trust Company, Assignee, Matthew H. Mezzanotte and wife, Genevieve D. Mezzanotte, Defendants.

No. 7815SC847.

Court of Appeals of North Carolina.

October 2, 1979.

Everett, Everett, Creech & Craven by Robinson O. Everett, Durham, and Robert E. Cooper, Chapel Hill, for plaintiffs-appellants.

Newsom, Graham, Hedrick, Murray, Bryson & Kennon by Josiah S. Murray III, Durham, for defendants-appellees.

ERWIN, Judge.

The threshold issue essential to determination of the questions raised by appellants is what were the respective rights of the parties at the beginning of the loan transactions?

Daniel Boone Complex, Inc. executed a purchase money deed of trust to the Freelands in the amount of $1,085,000 to secure the purchase price of the complex. This deed of trust had priority over the amount of money secured by the Furst-Camilco loan. Camilco asserts that since it furnished the consideration, the $136,550.73 used for settlement costs, it was the owner of the equity of redemption ab initio. This is not altogether correct.

Daniel Boone's conveyance of title to the complex property to Furst was intended as a mortgage. A mortgage or deed of trust to secure a debt passes legal title to the mortgagee or trustee, as the case may be, but the mortgagor or trustor is looked on as the equitable owner of the land with the right to redeem at any time prior to foreclosure. This right, after the maturity of the debt, is designated as his equity of redemption. Riddick v. Davis, 220 N.C. 120, 16 S.E.2d 662 (1941).

In the absence of circumstances indicating a contrary intent, where one person pays the purchase price for land, but legal title is taken in the name of another for whom he is under no duty to provide, a trust in favor of the payor arises by operation of law and attaches to the subject of the purchase. Vinson v. Smith, 259 N.C. 95, 130 S.E.2d 45 (1963); Grant v. Toatley, 244 N.C. 463, 94 S.E.2d 305 (1956); Summers v. Moore, 113 N.C. 394, 18 S.E. 712 (1893); accord, Campbell v. Freeman, 99 Cal. 546, 34 P. 113 (1893). To the extent that Camilco furnished funds enabling Daniel Boone to purchase the property, a resulting trust arose in its favor. Cline v. Cline, 297 N.C. 336, 255 S.E.2d 399 (1979); McWhirter v. McWhirter, 155 N.C. 145, 71 S.E. 59 (1911); Cunningham v. Bell, 83 N.C. 328 (1880); Edwards and Van Hecke, Purchase Money Resulting Trusts in North Carolina, 9 N.C. L.Rev. 177, 185 (1930-31).

We are well aware that the presumption of a resulting trust which arises from the furnishing of consideration to another who purchases the property in his own name is a rebuttable one. Edwards and Van Hecke, supra. However, the record before us is void of any evidence that the money furnished by Camilco was intended as a loan, Cf. In re Gorham, 173 N.C. 272, 91 S.E. 950 (1917); Lassiter v. Stainback, 119 N.C. 103, 25 S.E. 726 (1896), nor have the respondents raised this contention below.

Even though the property was conveyed by Daniel Boone to secure Furst's loan to Camilco, Camilco was the owner of the equity of redemption, mortgagor, to the extent that it furnished Daniel Boone a portion of the purchase price. Cline v. Cline, supra.

In Osborne, Nelson & Whitman's, Real Estate Finance Law, § 3.20, pp. 70-71 (1979), the law of mortgages of tripartite transactions is stated as follows:

"``. . . The conveyance is nonetheless a mortgage because it was conveyed to him directly by a third party, to secure his loan to the purchaser for the amount of the purchase money, than if the conveyance had been made directly to the purchaser in the first instance, and the purchaser had then made a conveyance to him, as a security for the money that he had previously borrowed with which to make the purchase.'"

Even so, we hold that Camilco is estopped by the doctrine of ratification from asserting the existence of its equity of redemption.

Camilco voluntarily executed the July 30th agreement, which stated:

"WHEREAS, pursuant to the terms of a Security and Trust Agreement dated March 14, 1974, title in fee simple absolute to that real and personal property known as Daniel Boone Complex, located at Hillsborough, North Carolina, as further described in that deed dated March 14, 1974, was conveyed by Daniel Boone Complex, Inc., to Mitchell Furst, Trustee."

In the agreement, Camilco arranged to repurchase the land upon certain conditions. In doing so, it recognized the existence of the title in Furst. See Council v. Land Bank, 213 N.C. 329, 196 S.E. 483 (1938). Where, in the course of making a contract, the title of one party or the other to the property involved in the transaction is recognized, and the dealing proceeds on that basis, both parties are ordinarily estopped to deny that title or to assert anything in derogation of it. 31 C.J.S. Estoppel § 125, p. 656. We hold that by executing the July 30th agreement, Camilco acknowledged the existence of Furst's ownership of the property in fee simple absolute. Cf. Denson v. Davis, 256 N.C. 658, 124 S.E.2d 827 (1962).

Appellants contend that the trial court erred in finding that it had not been damaged by civil conspiracy or fraud on the part of Furst and the Mezzanottes. We affirm the trial court's findings as to civil conspiracy, but we must reverse its ruling on the question of fraud.

An action for civil conspiracy will lie when there is an agreement between two or more individuals to do an unlawful act or to do a lawful act in an unlawful way, resulting in injury inflicted by one or more of the conspirators pursuant to a common scheme. Shope v. Boyer, 268 N.C. 401, 150 S.E.2d 771 (1966); Burton v. Dixon, 259 N.C. 473, 131 S.E.2d 27 (1963); 3 Strong's N.C. Index 3d, Conspiracy, § 1, p. 144. Appellants contend that Furst and the Mezzanottes conspired to defraud them of their interests in the property by intentionally misrepresenting the identity of the lender of their money. The trial court had competent evidence before it indicating that the Mezzanottes had not instructed Furst to lie as to their identity. Since there is competent evidence to support it, the trial court's finding must be upheld as to the absence of a conspiracy to defraud appellants.

Where an owner of land is induced by fraud or misrepresentation to execute a mortgage which he would not have given if fully and truly informed of the circumstances, the fraud thus practiced on him will be fatal to the validity of the instrument. 59 C.J.S. Mortgages § 141, p. 186. Only recently, we set out the elements of fraud in our State as follows:

"While our courts have been hesitant to formulate an all-embracing definition of fraud, the Supreme Court has stated the following elements of actionable fraud in Ragsdale v. Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500 (1974): ``(1) False representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party.'"

Russo v. Mountain High, Inc., 38 N.C.App. 159, 162, 247 S.E.2d 654, 656-57 (1978).

The trial court found in its findings of fact that Furst had intentionally misrepresented the identity of his undisclosed principals, the Mezzanottes. In doing so, the trial court focused on the Mezzanottes' reasons for not having their identity revealed; however, the court's crucial inquiry, as trier of fact, should have focused on what significance Furst's misrepresentation of the identity had on Camilco's execution of the Furst-Camilco loan.

A contract can be avoided against one who through misrepresentation on his part or the part of his agent has become a party to it knowing that someone else was intended or knowing merely that he was not intended to be a party. Pearce v. Desper, 11 Ill.2d 569, 144 N.E.2d 617 (1957); Restatement (Second) of Agency § 304 (1957); see also Walker v. Galt, 171 F.2d 613 (5th Cir. 1948), cert. denied, 336 U.S. 925, 69 S.Ct. 656, 93 L.Ed. 1086 (1949). The rule does not differ when the identity of a moneylender is the fact being misrepresented. Gordon v. Street, 2 Q.B. 641 (1899). Persons borrowing money may very well consider the identity of their lender. In the instant case, Camilco has presented evidence indicating that it would not have dealt with the Mezzanottes for various reasons. We hold that the trial court erred in not making any determination of fact on the existence of this requisite element of fraud.

Respondents contend that, even if evidence of the first four elements of fraud exists, the trial court did not err in its determination of no fraud, because appellants suffered no damage. It is true that the appellants do not presently have any liability on the original $273,101.46 promissory note. Should the court determine that the identity of the undisclosed lenders, the Mezzanottes, was essential to Camilco's execution of the loan and mortgage agreements, Camilco would be able to meet the requisite damage element of fraud. The execution of the loan and mortgage agreement with a party with whom it did not wish to deal would be sufficient injury.

Ordinarily, a party who has been fraudulently induced to enter into a contract or sale has a choice of remedies. He may repudiate the contract, and tendering back what he has received under it, may recover what he had parted with or its value; or he may affirm the contract, keeping whatever property or advantage he as derived under it, and may recover in an action for deceit the damages caused by the fraud. Parker v. White, 235 N.C. 680, 71 S.E.2d 122 (1952). In the instant case, appellants have chosen to affirm the original loan transaction. Their complaints pray the court to declare the loan usurious and to award punitive damages for the fraud. They have elected to maintain their actions, concerning the validity of the Furst-Camilco loan, as one based on fraud. Thus, appellants are not entitled to rescission even if they establish fraud. See Parker v. White, supra; Hutchins v. Davis, 230 N.C. 67, 52 S.E.2d 210 (1949); Fields v. Brown, 160 N.C. 295, 76 S.E. 8 (1912); Van Gilder v. Bullen, 159 N.C. 291, 74 S.E. 1059 (1912).

Should the trial court determine that Furst's fraudulent misrepresentation of the identity of his undisclosed principals induced Camilco to execute the loan and mortgage agreements, then Camilco would be entitled to recover any damages shown to result therefrom. Clark v. Lumber Co., 158 N.C. 139, 73 S.E. 793 (1912); 37 Am. Jur.2d, Fraud and Deceit, § 293, pp. 390-91. Thus, we need not decide the constructive trust issue presented by appellants.

Appellants contend that Furst's sale of the Daniel Boone stock, purportedly authorized by the power of sale in the deed of trust, was invalid, because no default existed under the mortgage terms. We hold that the appellants are estopped from raising this contention.

In the order entered by Judge Bryan of the United States District Court for the Eastern District of Virginia, it was adjudged and decreed that Furst's sale of the Daniel Boone stock under the deed of trust's power of sale was valid. A declaratory judgment has the force and effect of a final judgment or decree. 22 Am.Jur.2d, Declaratory Judgments, § 102, p. 970. Such a judgment is, therefore, res judicata of the matters at issue as between the parties and their privies, even where it is a consent judgment that is involved. 22 Am.Jur.2d, Declaratory Judgments, § 102, p. 971.

In North Carolina, the law of consent judgments is stated as follows:

"``A judgment by consent is the agreement of the parties, their decree, entered upon the record with the sanction of the court. (Citations) It is not a judicial determination of the rights of the parties and does not purport to represent the judgment of the court, but merely records the pre-existing agreement of the parties. (Citations) It acquires the status of a judgment, with all its incidents, through the approval of the judge and its recordation in the records of the court.' McRary v. McRary, 228 N.C. 714, 719, 47 S.E.2d 27, 31. Accord: Owens v. Voncannon, 251 N.C. 351, 354, 111 S.E.2d 700, 703; 3 Strong, N.C. Index, Judgments § 8."

Cranford v. Steed, 268 N.C. 595, 598, 151 S.E.2d 206, 208 (1966). A valid consent judgment is entitled to res judicata effect, so as to preclude relitigation of the same claim or cause of action as was covered by the judgment. See Gaither Corp. v. Skinner, 241 N.C. 532, 85 S.E.2d 909 (1955); Yancey v. Yancey, 230 N.C. 719, 55 S.E.2d 468 (1949); Annot., 91 A.L.R.3d 1176-77 (1979); see also Randle v. Grady, 228 N.C. 159, 45 S.E.2d 35 (1947).

The consent judgment in question expressly provides that the sale of the foreclosure stock was valid. Essential to such determination was the existence of default. We hold that appellants are estopped by the consent order from denying the existence of a default under the terms of the mortgage. Consequently, appellants' argument that Furst and the Mezzanottes wrongfully obtained possession of the complex is overruled.

A consent judgment is often referred to as an agreement of the parties. See Owens v. Voncannon, 251 N.C. 351, 111 S.E.2d 700 (1959); McRary v. McRary, 228 N.C. 714, 47 S.E.2d 27 (1948); 8 Strong's N.C. Index 3d, Judgments, § 8, p. 24. Since it is a "creature" of contract, a consent judgment may be modified by the parties. However, because the order or judgment is entered by the court upon the consent of the parties, it cannot subsequently be opened, changed, or set aside, even with the consent of the parties, unless an appropriate legal proceeding is brought. See King v. King, 225 N.C. 639, 35 S.E.2d 893 (1945); Keen v. Parker, 217 N.C. 378, 8 S.E.2d 209 (1940). The rationality of the rule is exemplified in the instant case. The parties entered into an agreement providing for, among other things, the entry of a consent judgment as to the validity of the sale of the Daniel Boone stock. Subsequently, the Federal District Court entered the consent judgment. Later, the parties attempted to modify their prior agreement and accordingly, declare the court's consent judgment void. This they could not do. Although the parties to a consent judgment are free to modify the terms of their contract, the consent judgment has all the incidents of a regular judgment, see McRary v. McRary, 228 N.C. 714, 47 S.E.2d 27 (1948), and is not a nullity. The judgment could be altered only with the court's sanction in an appropriate proceeding.

Appellants contend that the parties' modification agreement executed after the entry of the consent judgment was without legal effect. We agree.

Where a person by words or conduct represents or permits it to be represented that another person is his agent, he will be estopped to deny the agency as against third persons who have dealt, on the faith of such representation, with the person so held out as agent, even if no agency existed in fact. Ferguson v. Amusement Co., 171 N.C. 663, 89 S.E. 45 (1916); Trollinger v. Fleer, 157 N.C. 81, 72 S.E. 795 (1911). The rule is equally applicable when a corporation holds out or permits a person to hold himself out as its agent. Moore v. WOOW, Inc., 253 N.C. 1, 116 S.E.2d 186 (1960); 19 Am.Jur.2d, Corporations, § 1164, p. 590.

Camilco contends that it is not bound by Clarence McGillen's execution of the modification agreement, because no resolution of the board of directors authorized it. No formal resolution is needed. The power to act in a particular matter may be inferred from the circumstances. Yaggy v. B.V.D. Co., 7 N.C.App. 590, 173 S.E.2d 496 (1970); Robinson, North Carolina Corp. Law, § 13-6, p. 267 (2d ed., 1974); 19 Am. Jur.2d, Corporations, § 1176, p. 601. In the present case, Clarence McGillen had acted for Camilco throughout their dealings with Furst and the Mezzanottes. He had taken care of most of the business affairs of the corporation and had executed the original agreement embodying the consent judgment. The execution of the original agreement was purportedly as vice-president. Camilco was aware of the former representation of his status and had subsequently ratified his execution of the agreement. The record reveals that after McGillen realized the adverse effect of his signing the second agreement, he sought to invalidate it by having the corporation repudiate his actions. Mrs. McGillen testified:

"[W]ith respect to the purported agreement of August 17, 1974, my husband and I jointly prepared corporate minutes, being Exhibit ``0-4,' reflecting disapproval of this particular transaction. Since the date is August 19, it would have been a meeting sometime after the 19th. The purpose of preparing these minutes was to reject the August 17 agreement."

The question of whether an agent of a corporation does have express, implied, or apparent authority is a question of fact. Yaggy v. B.V.D. Co., supra. We have no doubt that, at the very least, McGillen had apparent authority to execute the modification agreement.

Parties to a contract may, by mutual consent, agree to change its terms, but to be effective as a modification, the new agreement must possess all the elements necessary to form a contract. Peaseley v. Coke Co., 12 N.C.App. 226, 182 S.E.2d 810, cert. denied, 279 N.C. 512, 183 S.E.2d 688 (1971); Electro Lift v. Equipment Co., 4 N.C.App. 203, 166 S.E.2d 454 (1969); 3 Strong's N.C. Index 3d, Contracts, § 18, p. 408. The parties' modification of their prior agreement is unenforceable.

A valid contract to convey land must contain, expressly or by necessary implication, all the essential features of an agreement to sell, one of which is a description of the land, certain in itself or capable of being rendered certain by reference to an extrinsic source designated therein. Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392 (1976); Lane v. Coe, 262 N.C. 8, 136 S.E.2d 269 (1964); Kelly v. Kelly, 246 N.C. 174, 97 S.E.2d 872 (1957). Since both mortgages and deeds of trust are conveyances of land, they must meet all the requirements for transferring land. Webster, Real Estate Law in North Carolina, § 230, p. 274 (1971).

Here, the modification agreement between the parties specifically referred to Exhibit A for description of the property. However, Exhibit A was not contemporaneously delivered and is not available to provide an adequate description of the land. Cf. Mezzanotte v. Freeland, 20 N.C.App. 11, 200 S.E.2d 410 (1973), cert. denied, 284 N.C. 616, 201 S.E.2d 689 (1974). The modification agreement is unenforceable because of failure to satisfy the requirement of the Statute of Frauds, see Herring v. Merchandise, Inc., 249 N.C. 221, 106 S.E.2d 197 (1958), and the parties' original agreement (July 30th) was still in effect. Restatement of Contracts § 223 (1932).

We have carefully reviewed appellants' assignments of error dealing with the trial court's findings of fact. Except to the extent inconsistent with the foregoing text of this opinion, we find them to be supported by competent evidence. However, the court's findings of fact as to damages and credits should be reconsidered in accordance with our opinion.

The judgment entered below is

Reversed and remanded.

ROBERT M. MARTIN and ARNOLD, JJ., concur.