Wells Fargo Bank

NO. COA14-683

NORTH CAROLINA COURT OF APPEALS

Filed: 3 February 2015

WELLS FARGO BANK, N.A.,
successor by merger to Wachovia
Bank, N.A.,
Plaintiff,

v. Davidson County
No. 11-CVS-3357
EDNA S. COLEMAN a/k/a EDNA
COLEMAN, et al.,
Defendants.

Appeal by plaintiff from order entered 20 February 2014 by

Judge A. Robinson Hassell in Davidson County Superior Court.

Heard in the Court of Appeals 20 October 2014.

Womble Carlyle Sandridge & Rice, LLP, by Kenneth B.
Oettinger, Jr., Chad Ewing, and Lee Davis Williams, for
plaintiff-appellant.

Biesecker, Tripp, Sink & Fritts, L.L.P., by Joe E.
Biesecker and Christopher A. Raines, for defendant-
appellee.

DIETZ, Judge.

In 2007, Robert and Edna Coleman refinanced their home

mortgage through Wells Fargo Bank, N.A. (then Wachovia Bank).

The Colemans’ home is situated on two lots adjacent to another

two empty, undeveloped lots. The deed of trust prepared by

Wachovia listed the correct street address for the Coleman home,
 -2-
but mistakenly referenced the book and page number and tax

parcel ID of the adjacent, undeveloped lots.

In 2010, Wells Fargo attempted to foreclose on the property

and discovered, for the first time, the mistaken references in

the deed of trust. Wells Fargo sought reformation of the

instrument on the ground of mutual mistake. Defendants Edna

Coleman and the Estate of Ronald Coleman (who passed away) moved

for summary judgment, arguing that had Wells Fargo acted with

reasonable diligence, it would have immediately discovered the

error. Defendants also argued that the reformation claim is

barred by the statute of limitations, the equitable doctrine of

laches, and the non-claim statute. The trial court granted

Defendants’ motion for summary judgment.

We reverse and remand this case for further proceedings. A

claim for reformation does not require proof that the party

seeking reformation acted with reasonable diligence. Indeed,

even if the mistake was the result of negligence or neglect, a

trial court still has the authority to reform the instrument if

there is clear, cogent, and convincing evidence that the mutual

mistake prevents the instrument from embodying the parties’

actual, original agreement. Likewise, this action is one to

enforce a deed of trust, with the reformation claim a necessary
 -3-
part of that enforcement effort. Thus, the non-claim statute,

which bars certain untimely claims against a decedent’s estate,

does not apply.

Finally, with respect to the statute of limitations and

laches defenses, there are genuine issues of material fact that

preclude entry of summary judgment. Both defenses turn on when

Wells Fargo should have discovered the mistake in the exercise

of reasonable or due diligence. There is competing evidence on

this issue and it must be resolved by a jury. Accordingly, we

reverse the trial court’s entry of summary judgment and remand

for further proceedings.

Facts and Procedural History

Defendants Edna S. Coleman and the Estate of Ronald G.

Coleman own lots 42, 43, 44, and 45 in the Rockland Shores

Estates subdivision in Davidson County, North Carolina.

Although the lots are neighboring, they are of considerably

different value. Mr. Coleman acquired lots 42 and 43, which are

commonly known as 167 Lakeview Drive, Linwood, North Carolina,

on 3 March 1987. This property is improved with a single-family

home and had a tax value of $95,000 at the time the complaint

was filed in this action. Mr. Coleman and his wife acquired

lots 44 and 45 on 24 September 1996. This unimproved property
 -4-
is located adjacent to the developed property and had a tax

value of $11,900 at the time the complaint was filed.

On 19 January 2007, Mr. Coleman borrowed money from Wells

Fargo’s predecessor in interest, Wachovia Bank, N.A., in the

principal amount of $138,567.00. A promissory note was

completed that same day, secured by a deed of trust executed by

both Mr. and Mrs. Coleman. The deed of trust, prepared by

Wachovia and recorded in the Davidson County Registry on 8

February 2007, identified the property as:

All that real property situated in the
County of Davidson, State of North Carolina:

Being the same property conveyed to the
Grantor by Deed recorded in Book 1007, Page
1013, Davidson County Registry, to which
deed reference is hereby made for a more
particular description of this property.

Property Address: 167 Lakeview Drive

Parcel ID: 06-027-A-000-0044

The property address in the deed of trust identifies the

developed property on lots 42 and 43, but the book and page

description and the parcel ID identify the unimproved property

on lots 44 and 45.

About a month before the deed of trust was executed,

Wachovia obtained an appraisal of the developed property in

connection with its loan to Mr. Coleman. That appraisal
 -5-
estimated the property’s value at $215,000 as of 15 December

2006. The report specifically identified lot 42 and recites

“Deed Book: 5700 Page: 664” as the legal description of the

property being appraised. Although the Davidson County Register

of Deeds does not have a book 5700, the deed at book 570, page

664 refers to lots 42 and 43, the developed property on which

the Colemans built their home. Wachovia did not obtain an

appraisal of the adjacent, undeveloped property.

Defendants applied approximately $131,699.27 of the loan to

pay off their existing mortgage on the developed property.

Sadly, Mr. Coleman died on 28 October 2008. Mrs. Coleman

notified Wachovia shortly after her husband’s death. In

addition, as administratrix of the Ronald G. Coleman Estate,

Mrs. Coleman provided notice to creditors through publication in

a local newspaper on four dates throughout January and February

2009.

Wells Fargo acquired the loan at issue in this case on or

about 20 March 2010, when it obtained substantially all of

Wachovia’s assets by way of merger. After the Coleman Estate

defaulted on its payment obligations under the terms of the

note, Wells Fargo initiated foreclosure proceedings in Davidson

County on 8 December 2010. Defendants contested the foreclosure
 -6-
proceedings on the ground that the deed of trust contained the

legal description of the unimproved property, rather than the

developed property upon which Wells Fargo sought to foreclose.

Wells Fargo voluntarily dismissed the foreclosure

proceedings and instituted this action seeking reformation of

the deed of trust and judicial foreclosure of the developed

property. In the alternative, Wells Fargo sought a declaratory

judgment or equitable lien and judicial foreclosure of the

undeveloped property described in the deed of trust.

Both parties moved for summary judgment. At the hearing,

the parties agreed that there were no contested issues of

material fact and that their respective arguments were based on

“basically the same information.” Defendants argued that Wells

Fargo was barred from relief by the statute of limitations,

laches, lack of reasonable diligence, and the non-claim statute.

Without specifying the grounds on which it based its

judgment, the superior court entered an order granting

Defendants’ motion for summary judgment and dismissing Wells

Fargo’s claims with prejudice. Wells Fargo timely appealed.

Analysis

Summary judgment is appropriate where “the pleadings,

depositions, answers to interrogatories, and admissions on file,
 -7-
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.” N.C. Gen. Stat. §

1A-1, Rule 56(c) (2013). In ruling on a motion for summary

judgment, the trial court has no authority to resolve factual

issues and must deny the motion if there is any genuine issue of

material fact. Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d

382, 385 (2007). “Moreover, all inferences of fact . . . must

be drawn against the movant and in favor of the party opposing

the motion.” Id. (internal quotation marks omitted). An issue

of fact is genuine where supported by substantial evidence, and

“is material if the facts alleged would constitute a legal

defense, or would affect the result of the action, or if its

resolution would prevent the party against whom it is resolved

from prevailing in the action.” Koontz v. City of Winston-

Salem, 280 N.C. 513, 518, 186 S.E.2d 897, 901 (1972). This

Court reviews appeals from summary judgment de novo. Stratton

v. Royal Bank of Canada, 211 N.C. App. 78, 81, 712 S.E.2d 221,

226 (2011).

I. Timeliness of Wells Fargo’s Claims

A. Statute of Limitations
 -8-
Defendants argue that Wells Fargo’s reformation claim is

barred by the statute of limitations. To address this argument,

we must first determine which statute of limitations to apply in

this appeal. In the trial court, both parties relied entirely

on the three-year statute of limitations “[f]or relief on the

ground of fraud or mistake” under N.C. Gen. Stat. § 1-52(9)

(2013). On appeal, Wells Fargo argues for the first time that

the ten-year statute of limitations applicable to sealed

instruments, N.C. Gen. Stat. § 1-47(2), is the proper

limitations statute for this action.

Wells Fargo concedes that this argument was not raised

below, but asks this Court in its discretion to suspend the

Appellate Rules and permit the company to raise the argument for

the first time on appeal. We decline to do so and find this

argument waived on appeal.1 See N.C. R. App. P. 10 (2013);

Westminster Homes, Inc. v. Town of Cary Zoning Bd. of Adjust.,

354 N.C. 298, 309, 554 S.E.2d 634, 641 (2001) (“[I]ssues and

theories of a case not raised below will not be considered on

appeal.”). We therefore apply the three-year statute of

limitations in N.C. Gen. Stat. § 1-52(9).

1
Our finding of waiver on appeal does not bar the trial court
from addressing this issue on remand.
 -9-
An order granting summary judgment “based on the statute of

limitations is proper when, and only when, all the facts

necessary to establish the limitation are alleged or admitted,

construing the non-movant’s pleadings liberally in his favor and

giving him the benefit of all relevant inferences of fact to be

drawn therefrom.” Huss v. Huss, 31 N.C. App. 463, 468, 230

S.E.2d 159, 163 (1976). For a claim based on fraud or mistake

subject to section 1-52(9), “the cause of action shall not be

deemed to have accrued until the discovery by the aggrieved

party of the facts constituting the fraud or mistake.” N.C.

Gen. Stat. § 1-52(9). A plaintiff “discovers” the mistake—and

therefore triggers the running of the three-year limitations

period—when he actually learns of its existence or should have

discovered the mistake in the exercise of due diligence. See

Hyde v. Taylor, 70 N.C. App. 523, 528, 320 S.E.2d 904, 908

(1984).

Our case law is clear that the question of whether a

plaintiff has exercised due diligence is ordinarily one for the

jury. See, e.g., Huss, 31 N.C. App. at 468, 230 S.E.2d at 163.

“This is particularly true when the evidence is inconclusive or

conflicting.” Forbis, 361 N.C. at 524, 649 S.E.2d at 386.

Thus, where there is a dispute of material fact concerning when
 -10-
the plaintiff should have discovered the mistake in the exercise

of due diligence, summary judgment is inappropriate, and the

case must be submitted to a jury. See Spears v. Moore, 145 N.C.

App. 706, 708, 551 S.E.2d 483, 485 (2001).

Defendants argue that Wells Fargo should have discovered

the mistake in the deed of trust at the time it was executed and

recorded, more than three years prior to the filing of this

action. They argue that Wells Fargo, in the exercise of due

diligence, should have cross-referenced the legal description in

the loan documents with the description contained in the

Davidson County Registry. Although the deed of trust listed the

correct street address of the developed property, the book and

page number and parcel ID number referenced the undeveloped

property. Defendants also contend that Wells Fargo should have

discovered discrepancies between the information in the deed of

trust and the same information in the appraisal report (which

contained the correct book and page number for the developed

property, albeit with an apparent typo). Defendants maintain

that, had Wells Fargo done any of this follow-up diligence, it

would have discovered the mistake. Thus, Defendants assert that

they have shown as a matter of law that Wells Fargo failed to

exercise due diligence. We disagree.
 -11-
Our Supreme Court, applying N.C. Gen. Stat. § 1-52(9), has

held that “the mere registration of a deed, containing an

accurate description of the locus in quo and indicating on the

face of the record facts disclosing the alleged fraud, will not,

standing alone, be imputed for constructive notice of the facts

constituting the alleged fraud, so as to set in motion the

statute of limitations.” Vail v. Vail, 233 N.C. 109, 117, 63

S.E.2d 202, 208 (1951). Instead, “there must be facts and

circumstances sufficient to put the defrauded person on inquiry

which, if pursued, would lead to the discovery of the facts

constituting the fraud.”2 Id.

In other words, the mere fact that there were indications

of fraud or mistake on the face of the document does not trigger

the statute of limitations as a matter of law. Instead, the

running of the limitations period turns on the factual

determination of when, in the exercise of due diligence, the

party reasonably should have been expected to follow up and

ultimately discover the mistake. This is a factual

determination that ordinarily must be resolved by a jury. See

id. at 118, 63 S.E.2d at 209.

2
Section 1-52(9) applies equally to both fraud and mutual
mistake.
 -12-
This Court confirmed the Vail holding in Huss, where we

reversed the trial court’s grant of summary judgment in a

reformation case based on the statute of limitations. 31 N.C.

App. at 467-68, 230 S.E.2d at 163. In Huss, a litigant

petitioned for a partition sale of real property allegedly owned

by her and her ex-husband as tenants in common. Id. at 465, 230

S.E.2d at 161. The ex-husband sought reformation, arguing that

the inclusion of his wife’s name on the deed was the result of a

mutual mistake, and that he had specifically requested

assurances from the grantors of the property that it would be

recorded solely in his name. Id. The husband conceded that he

did not even read the deed. Nevertheless, this Court held that

“[w]hether failure to read a deed will bar relief depends on the

facts and circumstances in each case” and that it was for the

jury to determine what constituted the exercise of due diligence

on those particular facts. Id. at 468, 230 S.E.2d at 163.

Under Vail and Huss, summary judgment is inappropriate in

this case. The deed of trust listed the correct street address

of the developed property. Although the legal description was

not accurate, that mistake would have been discovered only if

Wells Fargo had double-checked the accuracy of the book and page

description and the parcel ID, which would have disclosed the
 -13-
mistaken references to the adjacent, undeveloped property.

Wells Fargo maintains that, given the accurate property address,

its failure to immediately double-check the legal description

and discover the mistake was not unreasonable. Under Vail and

Huss, whether this type of double-checking would be necessary

“in the exercise of due diligence,” and at what point it should

have taken place, are factual determinations that cannot be

resolved at summary judgment. Accordingly, we hold that summary

judgment was not appropriate based on Defendants’ statute of

limitations defense.

B. Laches

Defendants next argue that summary judgment was appropriate

because Wells Fargo’s claims are barred by the equitable

doctrine of laches. As with Defendants’ statute of limitations

defense, we hold that their laches defense raises issues of fact

that cannot be resolved at summary judgment.

“The doctrine of laches is designed to promote justice by

preventing surprises through the revival of claims that have

been allowed to slumber until evidence has been lost, memories

have faded, and witnesses have disappeared.” Stratton, 211 N.C.

App. at 88-89, 712 S.E.2d at 230 (internal quotation marks

omitted). “Delay which will constitute laches depends upon the
 -14-
facts and circumstances of each case. When the action is not

barred by the statute, equity will not bar relief except upon

special facts demanding extraordinary relief.” Huss, 31 N.C.

App. at 469, 230 S.E.2d at 163.

Laches is an affirmative defense which must be pleaded, and

the burden of proof is on the party asserting the defense.

Taylor v. City of Raleigh, 290 N.C. 608, 622, 227 S.E.2d 576,

584 (1976). To succeed on the defense of laches, the defendant

must show that the delay “resulted in some change in the

condition of the property or the relation of the parties.” MMR

Holdings, LLC v. City of Charlotte, 148 N.C. App. 208, 209, 558

S.E.2d 197, 198 (2001). “[T]he mere passage or lapse of time is

insufficient to support a finding of laches; for the doctrine of

laches to be sustained, the delay must be shown to be

unreasonable and must have worked to the disadvantage, injury or

prejudice of the person seeking to invoke it.” Taylor, 290 N.C.

at 622-23, 227 S.E.2d at 584-85.

Here, Defendants failed to show that they are entitled to

summary judgment on the issue of laches. On the question of

whether the delay was reasonable, Wells Fargo forecast evidence

explaining its delay in seeking reformation, including the fact

that the street address on the deed of trust correctly
 -15-
referenced the developed property. It was only the book and

page numbers and the parcel ID that allegedly were mistaken, and

those mistakes were not apparent on the face of the document.

Reasonableness is a quintessential fact issue, see Radford v.

Norris, 63 N.C. App. 501, 503, 305 S.E.2d 64, 65 (1983), and the

evidence Wells Fargo presented in this case is sufficient to

create a genuine issue of material fact concerning whether its

delay in discovering the mistake was reasonable. Accordingly,

Defendants’ laches defense cannot be resolved at summary

judgment.

C. Non-Claim Statute

Defendants next argue that because Wells Fargo failed to

present its reformation claim within the statutory window to

present claims against a decedent’s estate, this cause of action

is barred by the non-claim statute, N.C. Gen. Stat. § 28A-19-

3(a) (2013). We reject this argument because the non-claim

statute does not preclude actions that seek to effectuate and

enforce a deed of trust.

Like a statute of limitations, the non-claim statute works

to limit the time in which a claimant may bring the suit against

a decedent’s estate. Azalea Garden Bd. & Care, Inc. v. Vanhoy,

196 N.C. App. 376, 386-87, 675 S.E.2d 122, 129 (2009). The
 -16-
purpose of the non-claim statute is “to provide faster and less

costly procedures for administering estates” by allowing the

personal representative to efficiently identify all claims

against the estate and requiring that creditors present their

claims within a specified time frame. Id. at 387, 675 S.E.2d at

129. However, the statute balances these interests in

efficiency against the rights of real property creditors,

explicitly providing that “[n]othing in this section affects or

prevents any action or proceeding to enforce any mortgage, deed

of trust, pledge, lien (including judgment lien), or other

security interest upon any property of the decedent’s estate,

but no deficiency judgment will be allowed if the provisions of

this section are not complied with.” N.C. Gen. Stat. § 28A-19-

3(g).

This is an action to “enforce . . . [a] deed of trust.”

Wells Fargo expressly seeks enforcement of the deed of trust at

issue in this case, and its claim for reformation of the deed of

trust—seeking to correct an alleged mutual mistake preventing

enforcement—is a necessary part of the overall enforcement

action. Accordingly, we hold that the non-claim statute does

not apply and thus cannot support the trial court’s entry of

summary judgment.
 -17-
II. Wells Fargo’s Claim for Reformation

Finally, we address the merits of Wells Fargo’s reformation

claim. “Reformation is a well-established equitable remedy used

to reframe written instruments where, through mutual mistake or

the unilateral mistake of one party induced by fraud of the

other, the written instrument fails to embody the parties’

actual, original agreement.” Metropolitan Prop. & Cas. Ins. Co.

v. Dillard, 126 N.C. App. 795, 798, 487 S.E.2d 157, 159 (1997).

Where a legal instrument does not express the true intentions of

the parties due to mutual mistake or the mistake of the

draftsman, reformation is available. McBride v. Johnson Oil &

Tractor Co., 52 N.C. App. 513, 515, 279 S.E.2d 117, 119 (1981).

On appeal, Defendants argue that summary judgment was

appropriate on the merits based entirely on a single legal

argument: that reformation is impermissible because Wells Fargo

did not use “reasonable diligence” in drafting the deed of

trust. As explained above, there is a fact dispute concerning

whether Wells Fargo used reasonable diligence, and thus summary

judgment would be inappropriate on this ground. But there is a

more fundamental flaw in Defendants’ argument: there is no

“reasonable diligence” requirement in an action for reformation

based on mutual mistake.
 -18-
A mutual mistake is one that is shared by both parties to

the contract, “wherein each labors under the same misconception

respecting a material fact, the terms of the agreement, or the

provisions of the written instrument designed to embody such

agreement.” Dillard, 126 N.C. App. at 798, 487 S.E.2d at 159.

A party seeking reformation on the ground of mutual mistake must

prove that the parties agreed upon a material stipulation to be

included in the written instrument, that the stipulation was

omitted by the parties’ mistake, and that because of the

mistake, the written instrument does not express the parties’

intention. See Branch Banking & Trust Co. v. Chicago Title Ins.

Co., 214 N.C. App. 459, 464, 714 S.E.2d 514, 518 (2011). The

party seeking reformation must prove the existence of the mutual

mistake by “clear, cogent and convincing evidence.” Hice v. Hi-

Mil, Inc., 301 N.C. 647, 651, 273 S.E.2d 268, 270 (1981); see

also Durham v. Creech, 32 N.C. App. 55, 59, 231 S.E.2d 163, 166

(1977).

Notably, “[n]egligence on the part of one party which

induces the mistake does not preclude a finding of mutual

mistake.” Dillard, 126 N.C. App. at 798, 487 S.E.2d at 159

(brackets omitted). In Dillard, for example, the defendant

provided the wrong street number on his application for a
 -19-
property insurance policy. Id. at 797-98, 487 S.E.2d at 158-59.

This Court affirmed reformation of the policy to cover the

correct property address despite the fact that the

policyholder’s own neglect caused the mistake. Id. at 799, 487

S.E.2d at 159. And in Huss, as explained above, a husband

claimed that his ex-wife’s name was mistakenly included on a

deed to his property. Huss, 31 N.C. App. at 465, 230 S.E.2d at

161. The husband conceded that the existence of his ex-wife’s

name was apparent on the face of the deed, and admitted that he

did not even read the deed. Id. We nevertheless concluded that

he had stated a claim for reformation, explaining that “[i]t is

not required that the pleader allege facts as to how and why the

mutual mistake came about.” Id. at 467, 230 S.E.2d at 162.

Simply put, a party seeking reformation of a written

instrument need not allege or prove that the mutual mistake was

a reasonable or neglect-free mistake. Even if the mistake

resulted from that party’s failure to exercise reasonable

diligence, reformation is available if there is clear, cogent,

and convincing evidence that the mistake was a mutual one and

that it prevents the instrument from embodying the parties’

actual, original agreement. Dillard, 126 N.C. App. at 798-99,
 -20-
487 S.E.2d at 159; see also 25A Strong’s N.C. Index 4th

Reformation of Instruments § 1, at 82 (2006).

Here, Wells Fargo presented uncontested evidence that the

deed of trust includes the correct property address of the

developed property. The appraisal conducted during the loan

origination process was performed on the developed property.

Defendants applied the vast majority of the loan to pay off

their existing mortgage on that developed property. Finally,

and most importantly, Defendants did not forecast any evidence

at trial tending to show that the deed of trust was intended to

reference the undeveloped, empty lots.

Because Defendants have not forecast any evidence to rebut

Wells Fargo’s showing of mutual mistake, Wells Fargo is entitled

to reformation unless Defendants prevail on one of their

defenses. As discussed above, Defendants’ statute of

limitations and laches defenses raise issues of fact that cannot

be resolved at summary judgment. Accordingly, we reverse the

trial court’s entry of summary judgment and remand this case for

further proceedings below.

Conclusion

For the reasons set forth above, there are material issues

of fact precluding resolution of this case as a matter of law.
 -21-
Accordingly, we reverse the trial court’s entry of summary

judgment and remand for further proceedings consistent with this

opinion.

REVERSED AND REMANDED.

Chief Judge McGEE and Judge STEPHENS concur.