Appeal by Plaintiff from order entered 27 April 2004 by Judge
W. David Lee in Superior Court, Cabarrus County. Heard in the
Court of Appeals 10 May 2005.
Hartsell & Williams, P.A., by Fletcher L. Hartsell, Jr. and
Christy E. Wilhelm, for plaintiff-appellant.
Poyner & Spruill, LLP, by E. Fitzgerald Parnell, III and
Cynthia L. Van Horne, for defendant-appellee.
Under North Carolina law, any county obligation evidenced by
an agreement to pay money shall include a preaudit certificate
signed by a finance officer. N.C. Gen. Stat. § 159-28(a) (2004).
In this appeal, Plaintiff Cabarrus County contends that a
settlement agreement between itself and Defendant Systel Business
Equipment Company, Inc., which did not include a signed preaudit
certificate, was invalid. Because the settlement agreement failed
to meet the statutory requirements, we hold that the agreement was
unenforceable. Accordingly, we reverse the trial court's ruling.
The record reflects that in December 1999, Cabarrus County
issued a request for proposed bids from companies for photocopierservices. The Board of County Commissioners voted on 18 January
2000 to award the contract to Systel. On 18 July 2000, a Cabarrus
County manager executed an Equipment Rental Agreement.
On 17 April 2001, Cabarrus County notified Systel that it was
not renewing the copier contract as outlined in the Equipment
Rental Agreement and requested that Systel remove its equipment
from Cabarrus County's offices. Systel failed to remove its
equipment, claiming that Cabarrus County remained obligated to use
Systel's services under the Equipment Rental Agreement. Cabarrus
County argued that the Equipment Rental Agreement could not be
enforced because, inter alia, it did not include a preaudit
certificate as required by statute.
On 26 July 2001, Cabarrus County filed an action in Superior
Court, Cabarrus County to, inter alia, determine the validity of,
and the rights of the parties under, the Equipment Rental
Agreement. Systel filed a counterclaim for breach of contract on
8 October 2001. Systel and Cabarrus County participated in formal
and informal mediation of their dispute. In February 2003, Systel
presented a proposed settlement agreement, the terms of which
required Cabarrus County to, inter alia, pay Systel the sum of
$43,390.00, which was reduced to $21,695.00, and sign a new
Equipment Lease Agreement allowing Systel to provide photocopier
equipment and services to Cabarrus County for a sixty-four month
period. Cabarrus County Attorney Fletcher L. Hartsell, Jr.
presented the proposed settlement agreement to the Board of County
Commissioners during its 20 October 2003 meeting. The Board ofCounty Commissioners voted to approve the proposed settlement
agreement and authorized the County Manager to execute the
settlement agreement documents on behalf of Cabarrus County and to
prepare a budget amendment. On 21 October 2003, Mr. Hartsell
reported to Systel that the Board of County Commissioners voted to
approve the proposed settlement agreement. At its meeting on 27
October 2003, the Board of County Commissioners discussed the
settlement agreement again, voted to rescind its approval of the
settlement agreement, and directed the County Manager to continue
settlement negotiations with Systel.
Systel filed a motion to enforce the settlement agreement,
which the trial court granted in an order entered 27 April 2004.
The trial court concluded that the settlement agreement was valid
and binding upon Cabarrus County, and Cabarrus County appealed.
On appeal, Cabarrus County argues that the trial court erred
in concluding that a settlement agreement between itself and Systel
was valid and binding despite the absence of a completed preaudit
certificate. We agree.
A settlement agreement is interpreted according to general
principles of contract law, and since contract interpretation is a
question of law, the standard of review on appeal is de novo
Chappell v. Roth
, 353 N.C. 690, 692, 548 S.E.2d 499, 500 (2001);
Harris v. Ray Johnson Constr. Co., Inc.
, 139 N.C. App. 827, 829,
534 S.E.2d 653, 654 (2000).
North Carolina General Statutes section 159-28(a), a part ofthe Local Government Budget and Fiscal Control Act, states:
If an obligation is evidenced by a contract or
agreement requiring the payment of money or by
a purchase order for supplies and materials,
the contract, agreement, or purchase order
shall include on its face a certificate
stating that the instrument has been
preaudited to assure compliance with this
subsection. The certificate, which shall be
signed by the finance officer or any deputy
finance officer approved for this purpose by
the governing board, shall take substantially
the following form:
This instrument has been preaudited in
the manner required by the Local Government
Budget and Fiscal Control Act.
(Signature of finance officer).
Where a plaintiff fails to show that the requirements of N.C. Gen.
Stat. § 159-28(a) have been met, there is no valid contract, and
any claim by plaintiff based upon such contract must fail. Data
Gen. Corp. v. County of Durham
, 143 N.C. App. 97, 103, 545 S.E.2d
243, 247 (2001) (citing Cincinnati Thermal Spray, Inc. v. Pender
, 101 N.C. App. 405, 408, 399 S.E.2d 758, 759 (1991)); see
also L&S Leasing, Inc. v. City of Winston-Salem
, 122 N.C. App. 619,
622-23, 471 S.E.2d 118, 121 (1996) ([T]he alleged contract is
invalid and unenforceable by virtue of N.C. Gen. Stat. § 159-28(a)
because Plaintiff has failed to show that such a certificate
In the case sub judice
, the settlement agreement contained a
preaudit certificate that was never executed by Cabarrus County:
No finance officer signed the certificate. The requirements ofNorth Carolina General Statutes section 159-28(a) were therefore
not met and thus there is no valid contract, and any claim . . .
based upon such contract must fail. Data Gen. Corp.
, 143 N.C.
App. at 103, 545 S.E.2d at 247.
Nonetheless, Systel cites Lee v. Wake County
, 165 N.C. App.
154, 598 S.E.2d 427, disc. review denied
, 359 N.C. 190, 607 S.E.2d
275 (2004), to support its argument that the lack of a signed
preaudit certificate does not render the settlement agreement
invalid and unenforceable. In Lee
, this Court held that an
otherwise valid memorandum of agreement is not rendered void by the
fact it does not bear the requisite pre-audit certificate. Id
162, 598 S.E.2d at 433. The crucial difference, however, between
and this case is that in Lee
, the subject memorandum of
agreement [was] an agreement to prepare a formalized settlement
compromise agreement for the [Industrial] Commission's
consideration[,] and therefore the action on appeal was for
specific performance, not for the payment of money. Id
, the settlement agreement, which the trial court
ordered enforced, required Cabarrus County to pay Systel the sum of
$21,695.00. The payment of the $21,695.00 was neither conditional
nor contingent but mandatory under the settlement agreement. The
settlement agreement here therefore was for the payment of money
is therefore inapplicable.
Systel further argues that North Carolina General Statutes
section 159-28(a) does not apply because the monetary obligations
under the settlement agreement were to be incurred in fiscal yearssubsequent to the parties' contracting to the settlement agreement.
Systel did not, however, (cross-)assign error to the trial court's
conclusions indicating that the settlement agreement became binding
only as of the Board of County Commissioners' 20 October 2003 vote
to approve the settlement agreement and the communication of such
approval to Systel, and that payment of at least some of the
obligations under the agreement would come due in fiscal year 2003.
Moreover, as Systel concedes, the settlement agreement set no
timeline for payment of the $21,695.00 (while the settlement
agreement indicated that obligations under the lease agreement
would come due first in July 2004). Payment of the $21,695.00
would therefore appear to be due immediately under the settlement
agreement, and Systel's contention that it is at least arguable
that the payment obligation [regarding the $21,695.00] was not due
until the Lease obligations began on July 1, 2004
Systel cites Media Gen. Broad. of S.C. Holdings, Inc. v.
Pappas Telecasting of the Carolinas
152 F. Supp. 2d 865 (W.D.N.C.
states that [w]here a contract contains an express and
unambiguous severability provision, the Court may strike an
unenforceable provision from the otherwise enforceable agreement
and give effect to all remaining terms.
Systel fails, however, to
argue that the settlement agreement at issue here includes an
express severability provision _ and for good reason, as the
settlement agreement before this Court does not contain such a
provision. In sum, we find that the settlement agreement required
Cabarrus County to pay Systel money and was thus subject to North
Carolina General Statutes section 159-28(a). The agreement,
however, lacked a preaudit certificate signed by a Cabarrus County
finance officer. The settlement agreement therefore failed to meet
North Carolina General Statutes section 159-28(a)'s requirements,
and, as a consequence, the settlement agreement is unenforceable.
We therefore reverse the trial court's order enforcing the
Judges BRYANT and JACKSON concur.
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