Venue_purchase of store assets_assignment of lease_action affecting interest in real
property
Plaintiff purchaser's action seeking specific performance and damages arising from
defendant seller's breach of an agreement for the purchase of the assets of a convenience store
that included an assignment of a sublease of the real property on which the convenience store
was located affected an interest in real property and was required by N.C.G.S. § 1-76(1) to be
brought in the county in which the real property was located; therefore, the trial court erred by
denying defendant's motion to remove the action to such county.
Chief Judge Eagles dissenting.
Ward and Smith, P.A., by Kenneth R. Wooten, for plaintiff
appellee.
Wheatly, Wheatly, Nobles & Weeks, P.A., by C. R. Wheatly, III,
for defendant appellant.
McCULLOUGH, Judge.
Plaintiff Fox Holdings, Inc., filed its complaint 2 August
2000 in Craven County where it allegedly maintains its principal
place of business. In its complaint, plaintiff alleges that it had
entered into an Asset Purchase Agreement with defendant Wheatly Oil
Co., Inc., on 12 May 1999. This agreement dealt with the purchase
by plaintiff of defendant's five convenience stores and the land on
which they are located. Also included in the purchase agreement
was the machinery, furniture, fixtures and equipment, personalproperty leases, intangibles, agreements, motor vehicles and
inventory related or used in operating the stores.
On 9 September 1999, plaintiff alleges that a second amendment
to the contract was made that dealt specifically with an additional
convenience store. This additional convenience store was known as
“Store #3,” and was located in Carteret County. Plaintiff was to
acquire this store from defendant as per the following provisions:
2. The Agreement is hereby amended to add thereto the
following provisions related to Store #3:
(a) Purchase and Sale of Assets. Upon the
terms and subject to the conditions set
forth herein, Seller shall sell, convey,
transfer and deliver to Purchaser, and
Purchaser shall purchase and accept on
the Supplemental Closing Date (as defined
below), all of Seller's right[,] title
and interest in the following assets
related to Store #3 (collectively, the
'Store #3 Assets'): (i) the Sublease;
(ii) all Personal Property Leases; (iii)
all machinery, furniture, fixtures,
improvements and equipment, including any
maintenance or service contracts thereon;
(iv) any agreements, contracts, deposits
or commitments; (v) all store inventory,
opened or unopened, and all fuel
inventory; and (vi) all of assets of
Seller used or useful in the operation of
Store #3.
(b) Purchase Price. In consideration of and
in exchange for the assignment and
transfer by the Seller of the Store #3
Assets, the Purchaser agrees to pay to
Seller the supplemental purchase price
(the 'Supplemental Purchase Price') which
shall be Two Hundred and Fifty Thousand
and 00/100 Dollars ($250,000), plus an
amount equal to the Seller's cost for all
fuel inventory on the Supplemental
Closing Date and retail price for all
store inventory on such date, reduced by
the Seller's historical gross profitmargin of 33-percent (33%).
. . . .
(f) Exclusive Rights. Upon the consummation
of the transaction contemplated herein,
Purchaser shall have the sole and full
benefit of operating Store #3 exclusive
of any rights Seller might have,
including Purchaser's right to receive
all income and profits from Store #3 and
liability for all costs and expenses in
connection with the operation thereof.
. . . .
(h) Option to Operate Location. Prior to the
Supplemental Closing, Purchaser shall
have the right to elect to purchase
Seller's inventory at Store #3 (in
accordance with paragraph (b) above) and
operate Store #3 until such time as the
Sublease expires, is terminated, or the
Supplemental Closing takes place. In
such event, Purchaser shall (i) pay to
Seller an amount equal to Seller's
monthly cost of leasing and operating
Store #3, which amount shall be due and
payable on the date Purchaser elects to
operate Store #3 and each month
thereafter, and (ii) be entitled to
receive all income from the operation of
Store #3 and be responsible for all
liabilities in connection therewith,
subject to the applicable provisions of
the Agreement. In the event Purchaser
elects to operate Store #3 under this
paragraph (h) Purchaser shall continue to
have the right to acquire the Store #3
Assets in accordance with the terms of
this Second Amendment. In the event that
Purchaser does not elect to operate Store
#3 under this paragraph (h) on or before
December 31, 2000, this Second Amendment
shall automatically terminate and the
parties shall have no further rights or
obligations hereunder.
The closing date of the original agreement was extended by this
amendment to 17 September 1999, with time being of the essence. As the amendment notes, Store #3 was located on property that
was subject to a sublease. Defendant operated Store #3 pursuant to
a sublease agreement with Southern Outdoor Advertising, Inc. This
sublease agreement began on 15 November 1984 and was to end 14
November 2014. The owner of the land on which the store is
located is Atlantic & North Carolina Railroad. Neither Southern
nor Atlantic are parties to this suit. Defendant was to assign
this sublease to plaintiff pursuant to this agreement. In the
alternative, plaintiff could elect to operate the store pursuant to
paragraph 2(h) above. Plaintiff could have purchased the inventory
and operated the store, without an assignment of the sublease, for
the remaining period of the sublease. According to plaintiff, when
the sublease was up, defendant would then convey the sublease.
Closing apparently occurred on 23 September 1999. According
to plaintiff's allegations, defendant “has failed and refused to
make Store Number 3 available for acquisition and/or operation.”
Plaintiff alleges that, while it has performed all of its
obligations as to the agreement, defendant is in breach of the
agreement.
Plaintiff makes five claims for relief in its complaint.
First, plaintiff alleges that defendant has not made Store #3
available as per the agreement, thereby breaching the contract.
Plaintiff alleges that it is “entitled to the issuance of a
Preliminary Injunction commanding [defendant] to make Store Number
Three available to [plaintiff] for operation as required by the
parties' contract, including but not limited to the execution of anassignment or other conveyance of [defendant's] lease thereof ....
In the alternative, Plaintiff is entitled to recover damages in
excess of the sum of Ten Thousand and No/100 Dollars ($10,000.00).”
Plaintiff's second and third claims deal with the monetary damage
suffered by plaintiff as a result of the failure of defendant to
convey its interests in compliance with the Asset Purchase
Agreement (essentially the money defendant is making while still in
possession of the store). The fourth claim is for unfair and
deceptive trade practices, and the fifth claim is for a breach of
warranty due to environmental problems with the store sites.
Plaintiff's complaint prayed for the following relief:
1. That the Court enter a preliminary
injunction commanding [defendant] to make
Store Number 3 available to [plaintiff] for
operation as required by the parties'
contract, including but not limited to the
execution of an assignment or other conveyance
of [defendant's] lease thereof, in a form to
be provided by [plaintiff] and consistent with
the parties' agreement, to issue a permanent
injunction consistent with the above, and
prohibiting such further actions by
[defendant] as would interfere with
[plaintiff's] contract or, in the alternative,
[plaintiff] is entitled to recover damages in
excess of the sum of Ten Thousand and No/100
Dollars ($10,000.00).
2. That the Court enter a decree
granting [plaintiff] specific performance of
its contract with [defendant], including but
not limited to an order commanding [defendant]
to assign or otherwise convey its lease to the
realty described above.
(Emphasis added.) Plaintiff also prayed for various money damages
stemming from the non-conveyance of Store #3.
Defendant filed its motion to remove this action from CravenCounty to Carteret County, the county in which Store #3 is located,
on 5 September 2000. The trial court denied this motion on 13
December 2000. It is from this order that defendant appeals.
Defendant's sole assignment of error is that the trial court
erred by denying its motion for change of venue pursuant to N.C.
Gen. Stat. § 1A-1, Rule 12(b)(3), in that proper venue would lie in
Carteret County pursuant to N.C. Gen. Stat. § 1-76.
“Title to realty must be directly
affected by the judgment, in order to render
the action local, and an action is not
necessarily local because it incidentally
involves the title to land or a right or
interest therein, or because the judgment that
may be rendered may settle the rights of the
parties by way of estoppel. It is the
principal object involved in the action which
determines the question, and if title is
principally involved or if the judgment or
decree operates directly and primarily on the
estate or title, and not alone in personam
against the parties, the action will be held
local.”
Id. at 206, 154 S.E.2d at 323 (quoting 92 C.J.S., Venue § 23, pp.
723-24).
In the Rose's case, the parties' relationship was one of
lessor and lessee. The dispute involved the lessee suing to enjointhe lessor from building on adjacent property, which would
interfere with the lessee's rights guaranteed under the lease. The
Court had to resolve the dispute by interpreting the lease.
Because of this, the Rose's Court held that N.C. Gen. Stat. § 1-76
did not apply because an interest in the property was not directly
affected, but only incidentally involved. The Court said:
The judgment plaintiff seeks by its
complaint would not alter the terms of the
lease, nor would it require notice to third
parties. The only result, should plaintiff
prevail, would be the personal enforcement of
rights granted under a contract of lease.
This is a personal right and does not run with
the land. Whatever the outcome of this
action, the title to the land would not be
affected. The defendants would still be
owners, with their title unimpaired by this
suit. The complaint sounds of breach of
contract and not for "recovery of real
property, or of an estate or interest therein,
or for the determination of any form of such
right or interest, and for injuries to real
property." G.S. 1-76.
Rose's, 270 N.C. at 206, 154 S.E.2d at 323 (emphasis added).
We note that a sublease is “an estate or interest” in real
property. See Snow v. Yates, 99 N.C. App. 317, 392 S.E.2d 767
(1990); Sample v. Motor Co., 23 N.C. App. 742, 209 S.E.2d 524
(1974).
It appears to this Court that the “principal object” of
plaintiff's complaint is to have the Asset Purchase Agreement
specifically enforced. In its own words, plaintiff's prayed that
it was entitled to “an order commanding [defendant] to assign or
otherwise convey its lease to the realty described.” Such a
declaration by the courts would certainly affect the interest inthe real property at stake. Moreover, it seems to fail the Rose's
outcome test in that it cannot be said that “[w]hatever the outcome
of this action, the title to the land would not be affected. The
defendants would still be owners, with their title unimpaired by
this suit.” Rose's, 270 N.C. at 206, 154 S.E.2d at 323; see also
McCrary, 77 N.C. App. 796, 336 S.E.2d 103. If plaintiff prevails
and is granted specific performance of the Asset Purchase
Agreement, then it will be the rightful owner of the interest. If
plaintiff loses, then defendant remains the rightful owner.
Resolution of this case, then, will ultimately affect the interest
in the sublease. It seems clear to this Court, in light of these
facts, that local venue, Carteret County, is proper for this
action. However, prior case law by this Court appears, at first
blush, to be in disagreement.
There appear to be two cases at odds with each other on how
this Court should address the case sub judice: Snow, 99 N.C. App.
317, 392 S.E.2d 767; and Bishop v. Lattimore, 137 N.C. App. 339,
530 S.E.2d 554 (2000).
In Snow, the plaintiff contended, much as the current
plaintiff does, that N.C. Gen. Stat. § 1-76 was inapplicable
because the judgment to which he was entitled, specific
performance, operated in personam and therefore does not directly
affect title to the land. Plaintiff brought a declaratory action
to the trial court to determine the existence or non-existence of
a lease. This Court, in Snow, disagreed.
Snow stated that “[w]hen a party brings an action that 'seeks to terminate [a vested estate or interest in real property] and
will require the Court to determine the respective rights of the
parties with respect to the leasehold interest,' the action falls
within the purview of N.C.G.S. § 1-76.” Snow, 99 N.C. App. at 320-
21, 392 S.E.2d at 769 (quoting Sample, 23 N.C. App. at 743, 209
S.E.2d at 525). This Court found that “the 'principal object' of
plaintiff's cause of action is a determination of leasehold estate
or interest in real property. . . . Our focus is on the effect of
the potential judgment on the estate or interest and not on the
manner in which the parties achieve the effect.” Id. at 321, 392
S.E.2d at 769 (emphasis added). The Court continued, “[d]ispute
over the existence of a lease substantively differs from a case in
which the parties request the court to sort out their obligations
either pursuant to a continuing lease or after they terminate the
lease.” Id.
As to the argument by plaintiff that the judgment would
operate in personam and thus not directly affect the interest in
the real property, the Snow Court held that
it is irrelevant that judgment will operate in
personam if judgment also directly affects
title to the property. According to the
criteria in our Supreme Court's Rose's Stores
decision, an action will be transitory only if
judgment operates “alone” in personam against
the parties and not directly on an estate or
title. Therefore, we determine that the court
was correct in ordering removal to local
venue.
Id. at 321, 392 S.E.2d at 769-70.
The decision in Snow appears to be contradicted by this Courtin Bishop, 137 N.C. App. 339, 530 S.E.2d 554.
Bishop dealt with a suit to enforce a settlement agreement
between the parties involved. The enforcement of the agreement
would have required, among other things, the assignment of a lease
as collateral for payments mandated by the agreement. Id. at 344,
530 S.E.2d at 558. The property affected by this suit was located
in Mecklenburg County. Plaintiff initially filed this suit in
Mecklenburg County.
Defendant made a motion to change the venue from Mecklenburg
County to Wake County, where other prior litigation between the
parties was pending. The Wake County suit which resulted in the
settlement agreement at issue in Bishop alleged misconduct on the
part of two shareholders of the corporation which owned the
underlying real estate. This suit was settled pursuant to the
above-referenced agreement. The trial court granted the motion to
change venue and plaintiff appealed. Plaintiff argued that, if the
trial court ordered specific enforcement of the agreement, it would
require the transfer of an interest in real property arguing that
N.C. Gen. Stat. § 1-76(1) applied and the cause must be tried in
Mecklenburg County.
Bishop held that N.C. Gen. Stat. § 1-76 did not mandate that
the cause be heard in Mecklenburg County and affirmed the trial
court's granting of defendant's motion to change venue. In doing
so, the Court said that “plaintiff's argument is focused on a
breach of the settlement agreement. Any effect that his claim has
on real property is simply incidental rather than direct.” Bishop,137 N.C. App. at 345, 530 S.E.2d at 559.
The settlement agreement included the following terms:
1. Park House Realty, Inc. ("Park House") will
redeem all of the stock of George F.
Lattimore, Jr. ("Lattimore") in Park House,
upon the following terms:
(a) $50,000.00 payable to Lattimore
at closing; provided that
Lattimore shall have the option
to defer receipt of some part
or all of said amount until
January 1, 1998; and
(b) $5,000.00 per month principal
and interest for a period of 20
years, beginning November 1,
1997, evidenced by the
promissory note of Park House
in favor of Lattimore or
holder[.]
(c) The foregoing obligations of
Park House will be secured by a
collateral assignment of Park
House's interests as tenant
under ground lease for Hamilton
House apartments, and a
collateral assignment of the
rents from Hamilton House
apartments.
2. Closing hereunder, including execution of
all settlement documents, will take place on
or before September 30, 1997 (the "Closing
Date").
....
4. All claims, cross-claims and counterclaims
in the Suit will be dismissed with prejudice.
5. All parties to the Suit will execute a
mutual general release of all claims. Without
limiting the foregoing, it is expressly agreed
that Lattimore will release any and all
claims, whether or not presently encompassed
in the Suit, against the Estate of George S.
Goodyear and its Executor, the George S.Goodyear Family Trust and its Trustee, the
George S. Goodyear Marital Trust and its
Trustee, the Estate of William J. Darnell and
its Executor; Mrs. Elizabeth Darnell in her
individual capacity; Mrs. Dorris Goodyear in
her individual capacity; William I. Darnell,
Park House and its officers and directors.
....
7. The parties acknowledge that all of their
agreements reached in mediation, and every
part of every agreement so reached, are set
out in this memorandum.
Bishop, 137 N.C. App. at 341-42, 530 S.E.2d at 557.
Bishop sought to enforce this agreement by filing suit in
Mecklenburg County. It is apparent that the principal objective of
the suit in Bishop was not resolving a dispute over an interest in
real property and any such effect would have been merely incidental
to the enforcement of the agreement set forth above. Thus, in the
present case, the plaintiff's reliance on Bishop is misplaced.
In addition, the Court relied on the fact that specific
performance is an equitable remedy that acts in personam. Id.
Rose's Stores says that:
“Specific performance of a contract for the
sale of land is an equitable remedy and is
often granted under the equity practice when
the parties are within the jurisdiction of the
court, although the land itself is not within
the jurisdiction, since equity acts in
personam and can compel a conveyance through
its control over the person. To carry out the
idea of a decree acting in personam, it may be
necessary to consider a suit for specific
performance as being transitory instead of
local ....”
Rose's, 270 N.C. at 204, 154 S.E.2d at 322 (quoting McIntosh, Vol.
1 § 779, p. 416). The Rose's Court and the Bishop Court did not finish the quote
from the McIntosh treatise, however. What followed seems to
address the issue before us:
To carry out the idea of a decree acting in
personam, it may be necessary to consider a
suit for specific performance as being
transitory instead of local, but it has been
held, when the land is in this state, that
this action should be considered local as
coming under the statute requiring actions
involving an interest in land to be brought in
the county where the land is situate.
McIntosh, Vol. 1 § 779, pp. 416-17 (citing Vaughan v. Fallin, 183
N.C. 318, 111 S.E. 513 (1922)); Councill v. Bailey, 154 N.C. 54, 69
S.E. 760 (1910). McIntosh was attempting to explain that only
where land is in another state does this question of personal
jurisdiction arise, and it becomes necessary for a court to compel
the execution of a conveyance by decree in personam. See also
Rose's Stores, Inc. v. Bradley Lumber Co., 105 N.C. App. 91, 411
S.E.2d 638 (1992); Mort. Corp. v. Development Corp., 2 N.C. App.
138, 162 S.E.2d 623 (1968); Lamb v. Staples, 234 N.C. 166, 66
S.E.2d 660 (1951); White v. Rankin, 206 N.C. 104, 173 S.E. 282
(1934); Warren v. Herrington, 171 N.C. 165, 88 S.E. 139 (1916).
The suit below has as its principal objective the
determination of an interest in real property, and therefore local
venue, Carteret County, is proper. This being so, the denial of
defendant's motion to change venue was error.
Reversed and remanded.
Judge CAMPBELL concurred prior to 31 December 2002.
Chief Judge EAGLES dissents. EAGLES, Chief Judge, dissenting.
I respectfully dissent. In light of this Court's decision in
Bishop v. Lattimore, 137 N.C. App. 339, 530 S.E.2d 554 (2000), I
vote to affirm the trial court.
To determine whether an action is removable as a matter of
right to the county where the land is situated
[t]he test is this: If the judgment to which
plaintiff would be entitled upon the
allegations of the complaint will affect the
title to land, the action is local and must be
tried in the county where the land lies unless
defendant waives the proper venue; otherwise,
the action is transitory and must be tried in
the county where one or more of the parties
reside at the commencement of the action.
Thompson v. Horrell, 272 N.C. 503, 504-05, 158 S.E.2d 633, 634-35
(1968). Title to real property must be directly affected by a
judgment
“to render the action local, and an action is
not necessarily local because it incidentally
involves the title to land or a right or
interest therein, . . . It is the principal
object involved in the action which determines
the question, and if title is principally
involved or if the judgment or decree operates
directly and primarily on the estate or title,
and not alone in personam against the parties,
the action will be held local.” 92 C.J.S.,
Venue, § 26, pp. 723, 724.
Rose's Stores v. Tarrytown Center, 270 N.C. 201, 206, 154 S.E.2d
320, 323 (1967) (emphasis added).
In its complaint, plaintiff sought specific performance of the
Asset Purchase Agreement, monetary damages for defendant's alleged
breach of the Asset Purchase Agreement, monetary damages for
defendant's alleged interference with plaintiff's contracts,monetary damages for defendant's alleged unfair and deceptive trade
practices, and monetary damages for defendant's alleged breach of
warranty. First, we note that if the trial court were to grant
plaintiff's request for monetary damages only, the judgment would
not affect title or interest in any land. This Court has held that
actions in which the principal object of recovery is monetary
damages are not local actions within the meaning of G.S. § 1-76(1).
See Wise v. Isenhour, 9 N.C. App. 237, 240, 175 S.E.2d 772, 774
(1970).
Additionally, we note that if the trial court were to grant
plaintiff's request for specific performance of the Asset Purchase
Agreement, the trial court would have to require defendant to
convey, transfer, and deliver to plaintiff (i) its sublease to
Store #3, “(ii) all Personal Property Leases; (iii) all machinery,
furniture, fixtures, improvements and equipment, including any
maintenance or service contracts thereon; (iv) any agreements,
contracts, deposits or commitments; (v) all store inventory, opened
or unopened, and all fuel inventory; and (vi) all of assets of
[defendant] used or useful in the operation of Store #3.” Here, I
believe that “[a]ny effect that [plaintiff's] claim has on real
property is simply incidental rather than direct.” Bishop, 137
N.C. App. 339, 345, 530 S.E.2d 554, 559.
In Bishop, this Court, quoting our Supreme Court in Rose's,
270 N.C. 201, 204, 154 S.E.2d 320, 322, stated that “'[t]o carry
out the idea of a decree acting in personam, it may be necessary to
consider a suit for specific performance as being transitoryinstead of local[.]'” 137 N.C. App. at 345, 530 S.E.2d at 559. In
denying the plaintiff's claim that his action must be tried in the
county where the affected property is located, this Court held that
the plaintiff's claim for specific performance of a settlement
agreement, which incidentally involved a transfer of rental
property, did not directly affect an interest in land requiring the
action be removed as a matter of right under G.S. § 1-76. Id.
Bishop is analogous to the present case. “Where a panel of the
Court of Appeals has decided the same issue, albeit in a different
case, a subsequent panel of the same court is bound by that
precedent, unless it has been overturned by a higher court.” In
the Matter of Appeal from Civil Penalty, 324 N.C. 373, 384, 379
S.E.2d 30, 37 (1989).
I believe that the majority's reliance on Snow v. Yates, 99
N.C. App. 317, 392 S.E.2d 767 (1990), is misplaced. Unlike the
instant case, the plaintiff and the defendants in Snow were lessee
and lessors respectively. Id. In initiating his claim, the
plaintiff brought a declaratory action to determine the existence
or non-existence of a lease. Id. Unlike our present case, the
principal object involved in Snow was title or interest in real
property, and the trial court's determination would directly and
primarily affect the parties' title or interest in that property.
Id.
Accordingly, I conclude that plaintiff's principal objective
in this action was not resolving a dispute over an interest in real
property, but rather, plaintiff's principal objective was theresolution of the Asset Purchase Agreement -- which incidentally
affected title or interest in Store #3. For the foregoing reasons,
I would hold that plaintiff's claims are transitory and not
removable as a matter of right to the county in which the land
incidentally affected is situated.
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