Johnson v. Brown

323 S.E.2d 389 (1984)

Lillie Lee JOHNSON, Deceased; Frank Johnson, Executor of the Estate of Deceased Plaintiff; Frank Johnson Individually; Calvin Johnson and wife, Frances R. Johnson; Maggie Johnson Garner; Mittie Johnson Kimball and husband, Edward Lee Kimball; Minnie Johnson Steele and husband, Alfred Steele; Lola Johnson McDowell and husband, Neal McDowell; Ted V. Johnson and wife, Frances Johnson; James D. Johnson and wife, Lela Johnson; J. Junior Ward and wife, Margie Ward; and Dorothy Johnson Baity
v.
Charles H. BROWN, Sr., Manus C. Duffy and Fernande Bennett, Trustees and Beneficial Mortgage Co. of North Carolina.

No. 8318SC1294.

Court of Appeals of North Carolina.

December 18, 1984.

Anne R. Littlejohn, Hunter, Hodgman, Greene, Goodman & Donaldson by Richard M. Greene, and Boone, Higgins, Chastain & Cone by Peter Chastain, Greensboro, for plaintiffs.

J.C. Barefoot, Jr., and Smith, Patterson, Follin, Curtis, James & Harkavy by Marion G. Follin, III, Greensboro, for defendants.

WELLS, Judge.

Defendant Brown assigns error to the trial court's grant of partial summary judgment. He argues that (1) the fee simple conveyance from Johnson to plaintiff Baity could not, as a matter of law, be subject to a parol trust, (2) plaintiff Baity, had released all rights in the property for valuable consideration, (3) the Statute of Frauds is inapplicable to the executed oral conveyance from plaintiff Baity to defendant Brown, (4) if the Statute of Frauds was applicable, defendant Brown's deed and checks to plaintiff Baity were a sufficient memorandum of sale, and (5) plaintiff Baity's transfer did not violate the Uniform Trust Act. Defendant trustees and defendant Beneficial also assign error to the trial court's grant of summary judgment. Their arguments generally parallel those made by defendant Brown. They additionally argue that they are innocent purchasers for value because the plaintiff's lis pendens was ineffective as to them as there is no evidence in the record that it was properly cross-indexed in the chain of title. We reverse the trial court's order and remand for trial on the issues detailed herein.

The threshold question in this case is whether an appeal from the partial summary judgment is properly before this court. Even though plaintiff has not raised this issue on appeal, appellate courts must dismiss an appeal ex mero motu if no right of appeal exists. Leasing Corp. v. Myers, 46 N.C.App. 162, 265 S.E.2d 240 (1980), appealed dismissed, 301 N.C. 92 (1981) (analytical framework for analysis of summary judgment appeal). When the trial court enters partial summary judgment on "fewer than all the claims ... [and on] rights and liabilities of fewer than all the parties" appellate review is permissible only "as expressly provided by these rules or other statutes." N.C.Gen.Stat. § 1A-1, Rule 54(b) of the Rules of Civil Procedure (1983). N.C.Gen.Stat. §§ 1-277 (1983) and 7A-27 (1981) provide for appellate review of an interlocutory or final judgment if a substantial right is effected.

We hold that the trial court's entry of partial summary judgment placing title of the property in dispute in plaintiff Baity for the estate of Lillie Lee Johnson, cancelling plaintiff Baity's deed to defendant Brown, and cancelling the deed of trust from defendant Brown to defendant trustees effected a substantial right within the meaning of the statutes. Having adjudged the issue of title, the only issues remaining to be adjudicated were plaintiff's claims for (1) punitive damages against defendant Brown, (2) an accounting by defendant Brown as to rents and profits accrued during his possession, (3) defendant Brown's counter claim for payments made to plaintiff Baity, improvements, taxes and insurance payments for the property, (4) defendant Brown's cross claim against defendant trustees for cancellation of the deed of trust and defendant Beneficial for the amount of the note, and (5) defendant Beneficial's cross-claim against defendant Brown for the balance of the note. Each of these remaining claims depends on the determination of title to the property.

We now proceed to the question of the propriety of summary judgment in this case.

The entry of summary judgment is appropriate only "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." G.S. 1A-1, Rule 56(c). The burden of establishing the absence of any genuine issue as to a material fact rests on the moving party. Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392. If the other party opposes the motion with evidentiary materials which indicate the existence of a genuine issue of material fact, or if the movant's own supporting materials suggest the existence of such an issue, then the motion must be denied. Kidd v. Early, supra.

Whitten v. AMC/Jeep, Inc., 292 N.C. 84, 231 S.E.2d 891 (1977).

The forecast of evidence in this case may be summarized as follows. Johnson, who was residing in a nursing home, had attempted to sell her residence. Immediate efforts to sell the residence were unsuccessful and on 9 November 1977 Johnson deeded the property to Baity, with the knowledge of some plaintiff family members and on the advice of the listing real estate agent, because it would facilitate sale if Johnson became incompetent or died. Baity's deed was recorded on 5 September 1978.

On 12 September 1978, Baity deeded the property to Charles H. Brown, Sr. Baity conveyed the property to Brown because ownership of the property might reduce the amount of Social Security disability benefits she was receiving. By a separate writing, entitled "Acknowledgment," Brown agreed to hold the property in trust, promising to reconvey the property to Baity or her assigns upon request. Brown's deed was recorded on 12 September 1978, but the "Acknowledgment" was never recorded.

After deeding the property to him, Baity directed Brown to rent the residence, the proceeds to be used for the benefit of Johnson. Net rental income was deposited in a local savings and loan account in the name of Brown and his daughter. Brown deducted expenditures for repairs and upkeep, including taxes and insurance, and a small service fee. Baity's Social Security benefits were later reduced, even though she had conveyed the property to Brown. Baity thereafter retained rents from the property for herself. Deposits to the savings and loan account were terminated and the remaining balance paid to Baity.

Johnson died on 30 March 1979. On 6 February 1980 the parties orally agreed to terminate the trust agreement and to release Brown from his obligation to reconvey. The consideration for the release was $15,000, with no interest, to be paid in monthly installments. Brown made monthly payments to Baity by check, listing the unpaid balance in the memorandum section on some of the approximately fifteen checks made after the alleged date of sale. The last payment was dated 8 April 1981, but Baity refused this and further payments tendered. Brown's version of this transaction was that Baity wanted him to have the property and agreed for that reason to release him from his promise to reconvey. Baity's version was that she may have entered into such an agreement, but if so, it was her request to Brown to reconvey the property to her which was refused by Brown and she felt she had no other choice in the matter.

Defendant Brown executed a deed of trust on 11 June 1981 to Manus Duffy and Fernande Bennett, trustees, in favor of Beneficial to secure defendant Brown's note to Beneficial in the amount of $17,529.52. The deed of trust was recorded on 17 June 1981.

In analyzing the foregoing forecast of evidence in the light of applicable law, our beginning point is the deed of record from Johnson to Baity. In the original civil action by then plaintiff Johnson, she sought return of title, alleging fraud, deceit, and undue influence. The amended complaint of 3 November 1982, however, did not allege fraud, deceit, and undue influence. Defendant Brown correctly asserts that because plaintiffs failed to assert these grounds in the amended complaint, plaintiffs cannot assert or rely on the parol trust entered into between Johnson and Baity to defeat Baity's title. Our supreme court has held that:

[E]xcept in cases of fraud, mistake or undue influence, a parol trust, to arise by reason of the contract or agreement of the parties thereto, will not be set up or engrafted in favor of the grantor upon a written deed conveying to the grantee the absolute title, and giving clear indication on the face of the instrument that such a title was intended to pass.

E.g, Gaylord v. Gaylord, 150 N.C. 222, 63 S.E. 1028 (1909); Best v. Perry, 41 N.C. App. 107, 254 S.E.2d 281 (1979).

Under this forecast, for plaintiffs to prevail against Brown and Beneficial, their burden was to prove that Brown did not have title and thus could not convey good title to Beneficial. First, we hold that Baity conveyed her good title to Brown, subject only to his agreement to hold the property in trust and to reconvey to Baity. Next, we hold that Brown and Baity could enter into binding oral agreement to release Brown from his trust and promise to reconvey. While N.C.Gen.Stat. § 22-2 (1965), commonly known as the Statute of Frauds, requires all contracts to convey any interest in land to be in writing and signed by the party to be charged therewith, our supreme court has held that the Statute of Frauds does not apply to contracts to abrogate or abandon a contract to convey. "The statute of frauds applies to the making of enforceable contracts to sell or convey land, not to their abrogation. As a consequence, an executory written contract to sell or convey real property may be abandoned or canceled by mutual agreement orally expressed." Scott v. Jordan, 235 N.C. 244, 69 S.E.2d 557 (1952) (applying principal to equitable conversion interest); see also Investment Properties v. Allen, 283 N.C. 277, 196 S.E.2d 262 (1973) (in context of lease); Bell v. Brown, 227 N.C. 319, 42 S.E.2d 92 (1947) (in context of options).

The forecast of evidence clearly showing that when Brown took title to the Willard Street property, he took it as trustee for Baity; and that until the purported release from the trust, Brown acted as Baity's trustee, appellees' contend that Brown was absolutely prohibited from "purchasing" the property from Baity, citing the provisions of N.C.Gen.Stat. § 36A-66 (Cum.Supp.1983)^[1] and Trust Co. v. Johnston, 269 N.C. 701, 153 S.E.2d 449 (1967). G.S. § 36A-66 prohibits sales or transactions between trustees and the trust, not between trustees and beneficiaries of trust. Johnston, involved a purchase by a trustee from the trust of trust property. In the case before us, the beneficiary was releasing the right to reconvey to the trustee. We hold, therefore, that in this case, we are guided by those cases dealing with transactions between trustees and beneficiaries of the trust. Such transactions are presumed fraudulent, Willetts v. Willetts, 254 N.C. 136, 118 S.E.2d 548 (1961); McNeill v. McNeill, 223 N.C. 178, 25 S.E.2d 615 (1943); Cole v. Stokes, 113 N.C. 270, 18 S.E. 321 (1893), and are voidable by the beneficiary unless the trustee can show by the greater weight of the evidence that the transaction was "open, fair, and honest," McNeill v. McNeill, supra. The criteria established in Stokes, which we adopt, are that the trustee must show that the beneficiary had a full and complete understanding of the transaction, that the consideration paid was fair and adequate, and that the transaction was in the best interest of the beneficiary.

Whether Baity and Brown entered into a binding agreement or contract to release Brown from his promise to reconvey is a question which must be answered by the trier of fact, and we therefore reverse the trial court's summary judgment in favor of plaintiffs as to Brown.

Under these circumstances, Brown's title being the keystone to the legal relationship between these parties, summary judgment was improvidently entered in plaintiffs' favor against Beneficial. Should Brown not prevail at trial, then a determination must be made as to whether Beneficial was an innocent purchaser for value. Beneficial's record title would not be defeated by Brown's unrecorded promise to reconvey to Baity. N.C.Gen.Stat. § 47-18(a)(1976) provides:

(a) No (i) conveyance of land, or (ii) contract to convey, or (iii) option to convey, or (iv) lease of land for more than three years shall be valid to pass any property interest as against lien creditors or purchasers for a valuable consideration from the donor, bargainor or lessor but from the time of registration thereof in the county where the land lies, or if the land is located in more than one county, then in each county where any portion of the land lies to be effective as to the land in that county.

As a result of the lis pendens filed in this action, however, Beneficial will be bound by the outcome of the determination of Brown's title. N.C.Gen.Stat. § 1-118 (1983) provides that

From the cross-indexing of the notice of lis pendens only is the pendency of the action constructive notice to a purchaser or incumbrancer of the property affected thereby; and every person whose conveyance or incumbrance is subsequently executed or subsequently registered is a subsequent purchaser or incumbrancer, and is bound by all proceedings taken after the cross-indexing of the notice to the same extent as if he were made a party to the action. For the purposes of this section an action is pending from the time of cross-indexing the notice.

The lis pendens must be cross-indexed to the "Record of Lis Pendens" maintained by the clerk of superior court. N.C.Gen.Stat. § 1-117 (1983).

The original record on appeal discloses that the lis pendens was indexed on 21 September 1978.^[2] Brown did not convey to Beneficial until 11 June 1981. While normally a party claiming to be an innocent purchaser for value has the burden of proof as to this status, in summary judgment the moving party carries the burden "[i]rrespective of who has the burden of proof at trial ... to establish that there is no genuine issue of fact remaining ... and that he is entitled to judgment as a matter of law." Savings & Loan Assoc. v. Trust Co., 282 N.C. 44, 191 S.E.2d 683 (1972). Status as an innocent purchaser for value is governed by the registration statute which:

[D]oes not protect all purchasers, but only innocent purchasers for value. ... While actual notice of another unrecorded conveyance does not preclude the status of innocent purchaser for value, actual notice of pending litigation affecting title to the property does preclude such status.... [To be an innocent purchaser for value the party must have] had no actual notice, or constructive notice by reason of lis pendens, of pending litigation affecting title to the property.

Hill v. Memorial Park, 304 N.C. 159, 282 S.E.2d 779 (1981) (citations omitted) (emphasis in original). Any actual or constructive notice of the pending litigation in this case would bind the purchaser having actual or constructive notice of the pending litigation.

The judgment of the trial court must be reversed and this case remanded for further proceedings consistent with this opinion.

Reversed and remanded.

ARNOLD and HILL, JJ., concur.

NOTES

[1] § 36A-66. Trustee buying from or selling to self.

No trustee shall directly or indirectly buy or sell any property for the trust from or to itself or an affiliate; or from or to a director, officer, or employee of such trustee or of an affiliate, or from or to a relative, employer, partner, or other business associate.

[2] The Register of Deeds notation of indexing is found on page 4 of the original record on appeal, lower right section. In printing the working copies used by the parties, the Court of Appeals' printer deleted the notation of indexing, apparently considering it a caption that the parties stipulated to be excluded from printing. Defendants, relying in good faith on working copies of the record on appeal, argued that the record did not disclose indexing of the lis pendens. The original record submitted by counsel is controlling.