Copyright 1997 - N.C. Administrative Office of the Courts


MILEY A. PERRY and wife, NANCY A. PERRY, and PERRY AND MOORFIELD, a North Carolina General Partnership,

    Plaintiffs,

v.

CAROLINA BUILDERS CORPORATION, and WILLIAM JOSLIN, and CHARLES H. SEDBERRY as Trustees under deeds of trust of record in the Wake County Registry,

    Defendants.

No. COA97-19

(Filed 16 December 1997)

1.    Appeal and Error § 418 (NCI4th)-- assignments of error -- not referenced in brief

    Plaintiffs' arguments on appeal were considered in the discretion of the Court of Appeals even though their assignments of error were not referenced in their brief in violation of N.C.R. App. P. 28(b)(5).

2.    Mortgages and Deeds of Trust § 22 (NCI4th)-- -- construction loan as first deed of trust -- future advances -- second deed of trust to seller -- priority

    The trial court properly dismissed a declaratory judgment action to determine lien priorities for failure to state a claim where plaintiffs sold vacant lots to Everlast; the sales were financed with a first lien to CBC through a construction loan deed of trust which also secured future advances; the loan documents expressly stated that funds under the lien were for the construction of dwellings on the properties; plaintiffs were accorded a second deed of trust securing a purchase money promissory note from Everlast; a substantial portion of the funds was not used for the construction of dwellings on the lots; plaintiffs received no payments; and Everlast filed for bankruptcy. Under N.C.G.S. § 45-70, all advances made under a future advances deed of trust meeting the conditions provided in N.C.G.S. § 45-68 retain the priority of the original security instrument from the recordation date thereof. Subsequent liens, even though recorded or filed prior to certain advances, are junior to all advances under the future advances deed of trust. Plaintiffs' complaint contained no allegation that defendants' security instruments failed to conform to the requirements of N.C.G.S. § 45-68.

3.    Banks and Other Financial Institutions § 59 (NCI4th)-- application of loan proceeds -- claim by property seller and subordinate lien holder -- breach of fiduciary duty -- no express agreement

    The trial court properly granted defendants' motion to dismiss for failure to state a cause of action seeking monetary damages for breach of fiduciary duty by a construction lender with a higher priority lien where the proceeds were not used as intended, the borrower filed for bankruptcy, and plaintiffs, who had sold the secured property and who held the subordinate lien, received no payments. In the absence of an express contractual provision between the parties requiring defendant CBC to ensure application of the loan funds to an agreed purpose, plaintiffs were owed no such legal duty.

4.    Fraud, Deceit, and Misrepresentation § 28 (NCI4th)-- application of loan proceeds - - claim against lender -- fraudulent misrepresentation -- no allegation of reasonable reliance

    A claim for fraudulent misrepresentation against a construction lender by a subordinate lienholder who was also the seller of the property was properly dismissed under N.C.G.S. § 1A-1, Rule 12(b)(6) where there was no allegation of plaintiffs' reasonable reliance.

5.    Unfair Competition or Trade Practices § 28 (NCI4th)-- misapplication of loan proceeds -- claim against lender -- allegations insufficient

    A claim for unfair or deceptive trade practices by a real estate seller and subordinate lienholder against the superior lienholder and lender arising from the application of loan proceeds was properly dismissed under N.C.G.S. § 1A-1, Rule 12(b)(6) for insufficient factual allegations.

    Appeal by plaintiffs from judgment entered 22 November 1996 by Judge Henry V. Barnette, Jr. in Wake County Superior Court. Heard in the Court of Appeals 10 September 1997.

    Burns, Day & Presnell, P.A., by David W. Boone, for plaintiffs-appellants.

    Smith, Debnam, Hibbert and Pahl, L.L.P., by Connie E. Carrigan and Byron L. Saintsing, for defendants-appellees.

    JOHN, Judge.

    Plaintiffs contend the trial court erred by granting defendants' motion to dismiss under N.C.G.S. § 1A-1, Rule 12(b)(6)(1990) (Rule 12(b)(6)) for failure to state a claim upon which relief might be granted. We disagree.

    Pertinent allegations by plaintiffs and procedural history include the following: Between 21 November 1994 and 28 February 1995, plaintiffs sold three real estate lots in Wake County to Everlast Builders, Inc. (Everlast). The properties consisted of Lot 4 of the Alslee Oaks Subdivision (Lot 4), and Lots 16 and 24 of the Olde South Trace Subdivision (Lot 16 and Lot 24). At the time each respective transaction was closed, the lot involved was vacant.

    All sales were financed in an identical manner: defendant Carolina Builders Corporation (CBC) obtained a first lien on each parcel of property through a construction loan deed of trust, which also secured future advances, and plaintiffs were accorded a second deed of trust on the parcel securing a purchase money promissory note from Everlast. CBC's loan documents expressly stated that funds advanced under the lien were for the purpose of constructing dwellings on the properties in question.

    According to the complaint, plaintiffs entered into the loan transactions "in anticipation of the construction of improvements consisting of a residential home on each of the lots." Pursuant to the future advances provisions of the loan agreements, CBC advanced $206,730.00 to Everlast on Lot 4, $218,383.00 on Lot 24, and $126,000.00 on Lot 16. However, a substantial portion of these funds was not used for the construction of dwellings on the respective lots and, on 31 May 1995, Everlast filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of North Carolina.

    No payments were received by plaintiffs on any of the three purchase money promissory notes, and plaintiffs subsequently filed the instant action against defendants seeking: (1) a declaratory judgment as to the "extent and priority" of the respective lien positions of plaintiffs and defendants, and (2) monetary damages from CBC on account of (a) breach of fiduciary duty, (b) fraudulent misrepresentation, and (c) unfair and deceptive trade practices. Defendants' 7 August 1996 motion to dismiss plaintiffs' complaint pursuant to Rule 12(b)(6) was allowed by order of the trial court 22 November 1996. From that order, plaintiffs appeal.

    [1] As a preliminary matter, we note that although the record on appeal designates four assignments of error, none are referenced at any point in plaintiffs' brief. N.C.R. App. P. 28(b)(5) requires a specific and detailed reference to the relevant assignment of error immediately following each question to be argued, and further provides that assignments of error not set out in an appellant's brief are deemed abandoned. However, in our discretion pursuant to N.C.R. App. P. (2), we elect to consider plaintiffs' arguments.

    [2] A 12(b)(6) motion challenges whether a complaint states a legally sufficient cause of action. Leandro v. State of North Carolina, 122 N.C. App. 1, 6, 468 S.E.2d 543, 547 (1996), aff'd in part, rev'd in part on other grounds, 346 N.C. 336, 488 S.E.2d 249 (1997). Dismissal is appropriate if the complaint

        is clearly without merit; such lack of merit may consist of an absence of law to support a claim of the sort made, absence of fact sufficient to make a good claim, or the disclosure of some fact which will necessarily defeat the claim.

Forbis v. Honeycutt, 301 N.C. 699, 701, 273 S.E.2d 240, 241 (1981).

    Plaintiffs' first cause of action sought, inter alia, a

judgment

        declaring that the lien of the deeds of trust securing repayment of the promissory notes held by Plaintiffs [are] superior in priority to the lien of the deeds of trust of Defendants. . . .

As to the viability of this cause of action in the face of a Rule

12(b)(6) challenge, plaintiffs argue that

        [a] motion to dismiss a claim in an action for declaratory judgment is seldom appropriate since a claim for declaratory relief is sufficient if it alleges the existence of a real controversy arising out of the parties' opposing contentions.

    We do not quarrel with the general principle advanced by plaintiffs. See Morris v. Plyler Paper Stock Co., 89 N.C. App. 555, 557, 366 S.E.2d 556, 558 (1988)(declaratory judgment complaint which "alleges the existence of a real controversy arising out of the parties' opposing contentions and respective legal rights under a deed, will or contract in writing," is ordinarily sufficient to survive Rule 12(b)(6) motion). Further, it cannot be questioned that paragraph 20 of the instant complaint provides as follows:

        [a]n actual controversy exists between the parties as to the validity and extent of the respective lien positions of the Plaintiffs and the Defendant Carolina Builders. . . .

However, assuming arguendo said paragraph constituted sufficient pleading of an actual controversy between the parties, the trial court nonetheless properly dismissed plaintiffs' declaratory judgment claim due to "an absence of law to support a claim of the sort made," Forbis, 301 N.C. at 701, 273 S.E.2d at 241; see also Carter v. Stanley County, 125 N.C. App. 628, 631-32, 482 S.E.2d 9, 11, disc. review denied, 346 N.C. 276, 487 S.E.2d 540 (1997)("even though this matter presents a genuine controversy, plaintiffs have no basis for the relief they seek").

    Instruments securing future advances are governed by N.C.G.S. §§ 45-67 through 45-79 (1996). The priority of security instruments is covered by G.S. § 45-70, which states in pertinent part:

        (a) Any security instrument which conforms to the requirements of this Article [Article 7 ("Instruments to Secure Future Advances and Future Obligations")] shall, from the time and date of registration thereof, have the same priority to the extent of all future advances secured by it, as if all the advances had been made at the time of the execution of the instrument.

G.S. § 45-68 comprises the "requirements" section of Article 7 and provides, inter alia, as follows:    

        A security instrument, otherwise valid, shall secure future obligations which may from time to time be incurred thereunder so as to give priority thereto as provided in G.S. 45-70, if:

            (1) Such security instrument shows: