John Henry GERDES
v.
Richard A. SHEW and wife, Idalora W. Shew.
No. 68SC114.
Court of Appeals of North Carolina.
April 2, 1969.*522 Marshall & Williams, by Lonnie B. Williams, Wilmington, for plaintiff appellee.
Douglas P. Connor, Mount Olive, for defendant appellants.
PARKER, Judge.
By the covenant against incumbrances a grantor of land gives to his grantee security against any outstanding right to, or interest in, the land granted which may subsist in third persons to the diminution in value of the estate conveyed, although consistent with passing of the fee. An incumbrance, within the meaning of such a covenant, is any burden or charge on the land and includes any right existing in another whereby the use of the land by the owner is restricted. 21 C.J.S. Covenants § 42, p. 914. In the present case defendants have admitted execution and *523 delivery by them of a deed conveying real property to plaintiff with a full covenant against incumbrances and that there was no exception therefrom for any restriction limiting use of the property to residential purposes. Defendants have also admitted that after receiving their deed, plaintiff had been enjoined from erecting an office building on the land conveyed, or from making any use of the property other than residential, and that judgment in the injunction proceeding had been affirmed by the North Carolina Supreme Court. Reference to the opinion in that case, reported in Lamica v. Gerdes, 270 N.C. 85, 153 S.E. 2d 814, reveals that at the time defendants executed and delivered their warranty deed to the plaintiff, the property was subject to a legally enforceable restrictive covenant limiting its use to residential purposes. By reason of the existence of such restriction, defendants' covenant against incumbrances was violated at the moment they executed and delivered their deed, entitled the covenantee to recover damages, which are generally to be based upon the impairment of the market value of the land by reason of the existence of the restriction. Annotation, 61 A.L.R. 10, 75; 100 A.L.R. 1194, 1199. The question presented for our decision on this appeal is whether any of the matters alleged in defendants' several further answers constitute legal defenses to plaintiff's action for the breach of their covenant.
In the first two further answers, as filed with defendants' original answer, it is alleged that plaintiff had actual knowledge and had record notice of the existence of the restriction at the time he purchased. These allegations, even if proved, would not avail defendants as a defense.
"As a general rule, encumbrances which affect or relate to the title to land or the record thereof are included in the covenant against encumbrances, regardless of the knowledge of the grantee at the time he took the conveyance of the land. Such a covenant embraces encumbrances which are unknown to the purchaser or the vendor, as well as those which are known. Both parties may be in possession of all the facts, and either or both may believe that an encumbrance is not an encumbrance; nevertheless, if the apparent encumbrance turns out to be real in character, the seller is responsible, unless he specifically excepts the encumbrance from his covenant. The reason has been advanced, in support of the general rule, that the covenantee in many instances may insist upon the covenant for the express purpose of guarding against encumbrances which he knows exist. Another theory enunciated in support of the rule is that a contrary view would be open to the objection that it would substitute the uncertainties of oral testimony for the certainty which should normally inhere in written contracts." 20 Am.Jur.2d, Covenants, § 84, p. 648.
An early North Carolina case is in accord with this general rule. In Gragg v. Wagner, 71 N.C. 316, it is said:
"A conveys to B a tract of land with a covenant against encumbrances, both parties, at the time, having full knowledge of the existence of valid outstanding encumbrances upon the land conveyed: Can B recover upon the covenant? There is no allegation of fraud or mistake in procuring the covenants, and therefore, any oral evidence offered in the case, would fall under the general rule that it shall not be admitted to contradict, alter or vary, the written agreement of the parties. If there are known encumbrances, and it is the object of the vendor to except them from the operation of the covenant, it is always in his power to make it appear so on the face of the deed; and if he fails to do so, it is his own folly, and he will not be allowed to repair the error at the expense of the settled rules of construction which have become a part of the laws of property.
"The principle is caveat emptor, and therefore, if the vendee fails to investigate *524 the title or take covenants, he is bound by the defect of title and must bear the loss; but if he, with ordinary prudence, protects himself by proper covenants, the vendor is then bound to indemnity. Thus the vendor must take care of the covenants he enters into, and notice of the encumbrance can make no difference, as was decided in Lait v. Witherington, Luter. 317."
There was no error in striking the first two further answers from the original answer.
The third further answer alleged the provisions of the written sales contract under which plaintiff had purchased and which, in substance, provided that upon approval of title by purchaser's attorney, the owners would convey by warranty deed with covenants of seizin, right to convey, and freedom from encumbrances; but if the title should be found defective by such attorney, the owners would be notified in writing and given an opportunity to correct the defect, failing which the down payment should be returned to the purchaser. Defendants allege that at no time prior to receipt of the deed from them did plaintiff notify defendants of any defect in title, and assert that because of the terms of the contract and plaintiff's failure to give such notice, plaintiff is now estopped to assert the defect. Acceptance of this argument would render completely meaningless all of the covenants in defendants' deed. If defendants did not mean to be bound by their covenants, they should not have included them in their deed. Execution and delivery of the deed containing full covenants established the extent of their obligations thereunder. It is presumed that the prior sales contract and all prior negotiations leading up to closing of the sale, insofar as they related to any matters covered by the covenants in defendants' deed, became merged in the deed itself. "When the terms of a contract are established, the negotiations which produced the contract cannot enlarge or restrict its provisions and are therefore not competent as evidence in an action to enforce it." Bank of Varina v. Slaughter, 250 N.C. 355, 108 S.E. 2d 594. There was no error in striking the third further answer from the original answer.
The fourth further answer as filed with the original answer contained allegations concerning the provisions in the deed given plaintiff which provided that no building should be erected on the premises until the plans and specifications thereof shall have been first presented to and approved by the grantors. Defendants alleged that while plaintiff had submitted plans and specifications, the same had not been approved by the defendants and that plaintiff had attempted to go forward with construction of his office building nevertheless. Defendants assert that for this reason plaintiff is estopped to maintain his action. As noted above, however, defendants' covenant against encumbrances was breached by them at the moment they executed and delivered their deed. The fact that the plaintiff may have thereafter violated a completely different provision of the deed would not estop plaintiff from maintaining his action for breach of the defendants' covenant, and the motion to strike the fourth further answer from the original answer was properly allowed. Defendants have alleged essentially the same facts as to the requirement for prior submission and approval of plans and specifications in their second answer filed with their amended answer, with the additional allegation that at the time the parties had conferred with regard to sale of the lot to plaintiff "for the construction of a small dental office, the plaintiff agreed to construct a building of residential type * *" and that plaintiff had breached this agreement when he attempted instead to erect a large office type building. What was said above concerning merger of any prior negotiations and agreements into the written provisions of the deed itself, is equally applicable here. Even had there been such an agreement as defendants allege, it would not free them from liability for breach of *525 their own covenant, and the facts alleged in defendants' second further answer filed with its amended answer would not constitute a defense to plaintiff's action. The motion to strike such second answer was therefore properly allowed.
The defendants allege in their first further answer filed with their amended answer that the deed had been made by them and accepted by plaintiff under a mutual mistake in that prior to the conveyance the parties had sought and obtained legal advice to the effect that the lot could be conveyed free from the residential restriction. Even so, this was nothing more than an erroneous conclusion by the parties and their attorneys as to the legal effect of known facts. "(T)his is a mistake of law and not of fact, and the rule is that ordinarily a mistake of law, as distinguished from a mistake of fact, does not affect the validity of a contract." Greene v. Spivey, 236 N.C. 435, 73 S.E.2d 488. In Roberson v. Penland, 260 N.C. 502, 133 S.E.2d 206, the North Carolina Supreme Court followed this long established principle. In that case the grantors of a warranty deed sought to set it aside on the grounds that at the time it had been given all parties acted under the belief, later found to be mistaken, that the legislative act granting a widower the right to dissent from his wife's will was valid. In an opinion written by Higgins, J., the Court said:
"`It is settled that mere ignorance of law, unless there is some fraud or circumvention, is not a ground for relief in equity whereby to set aside conveyances or avoid the legal effect of acts which have been done.' Foulkes v. Foulkes, 55 N.C. 260. * * * In this case the rights of the parties are fixed by solemn warranty deed and consent judgment. These may not be set aside merely because eminent lawyers are unable to anticipate that this Court would strike down the Act of the General Assembly which permitted the dissent."
The case of MacKay v. McIntosh, 270 N.C. 69, 153 S.E.2d 800, is distinguishable. In that case the defendant resisted specific performance of a contract by which she had agreed to purchase real property from plaintiff on the grounds that it had been the intention of plaintiff's sales agent to sell and intention of defendant to purchase only land zoned for business; that the contract was entered into by defendant as result of an innocent misrepresentation of plaintiff's agent to the effect that the property was zoned for business, whereas in fact it was not so zoned. The Court, in an opinion by Bobbitt, J., said: "In our opinion, and we so hold, whether the subject property was within the boundaries of an area zoned for business is a factual matter; and, under the evidence, the mutual mistake as to this fact related to the essence of the agreement." The Court cited 17 Am.Jur.2d Contracts, § 143, p. 490, to the effect that a contract may be avoided on the ground of mutual mistake of fact where the mistake is common to both parties and by reason of it each has done what neither intended. In the case presently before us the parties did exactly what they intended to do. That they acted under a mistaken understanding as to the legal effects of the residential restrictions contained in prior deeds in their chain of title, does not entitle either party to avoid the contract. There was no error in striking the first further answer from the amended answer.
The fifth further answer to the original answer and the third further answer to the amended answer are both based on the theory that defendants had the right to rescind. They assert that since plaintiff refused to accept their offer to rescind, he is estopped to collect any damages thereafter accruing. However, defendants had no right to rescind their deed and their further answers predicated upon the existence of such a right were properly stricken.
In this appeal we are not called upon to decide, and do not express an opinion, as *526 to the correct measure of any damages plaintiff may be entitled to recover. For collection of cases on that question, see Annotation in 61 A.L.R. 10, supplemented in 100 A.L.R. 1194.
The orders of the superior court striking defendants' five further answers from their original answer and striking all of their second further answer and substantially all of their first and third further answers from their amended answer, are
Affirmed.
MALLARD, C. J., and BROCK, J., concur.