Gokal v Patel, (05-616) 01/03/2006

    On 1 July 1998, Hospitality Investments International, Inc. (“Hospitality”) owned record title to a 2.5 acre tract of land and improvements (“land”) where a Howard Johnson Motel is located on Market Street in Wilmington. Hospitality had four shareholders, Ashok Patel, Surendra Patel, and plaintiffs Surandra Odhav andRamesh B. Gokal. Each shareholder owned twenty-five percent of the issued and outstanding capital stock of Hospitality. On 1 July 1998, Hospitality conveyed to each of its shareholders an undivided twenty-five percent interest in the land.
    Also, on 1 July 1998, plaintiffs Ramesh B. Gokal and Surandra Odhav entered into a contract with defendant whereby defendant agreed to buy both Ramesh B. Gokal's and Surandra Odhav's undivided twenty-five percent interests in the land. The grantors executed a North Carolina general warranty deed and conveyed one-half interest in the land to defendant. The deed was recorded on 15 July 1998. In addition to the conveyance of the land, part of the consideration for the sale was defendant's agreement to pay $925,000.00 in the form of five promissory notes for $185,000.00 each, with interest at eight-percent annum, payable at $2,000.00 per month in exchange for noncompetition agreements with Surandra Odhav, Ramesh B. and Manisha Gokal, and K. Odhav.
    Attorney Hugo A. Pearce, III (“Pearce”) represented all parties to this transaction. At his deposition, Pearce testified that he communicated primarily with plaintiff Ramesh B. Gokal and never met defendant during the course of the transaction. Pearce also testified that he represented the “deal” and both parties to the transaction.
    Defendant testified at his deposition that he understood Pearce represented both parties and he expected Pearce to protect his interests. Ramesh B. Gokal testified at his deposition that it was his understanding that Pearce represented him only. Plaintiffs' counsel stated on the record at the deposition, “I think Pearce did work for both of them.” At the closing, defendant failed to pay a sum equal to the adjustments of the purchase price as required in paragraph eleven of the contract. Ramesh B. Gokal and Surandra Odhav agreed to accept a promissory note from defendant to their order in the sum of $122,273.13 for the adjustments.
    Prior to the commencement of this action, defendant made ten payments totaling $315,000.00 to plaintiff Ramesh B. Gokal as agent for all payees of all notes. Ramesh B. Gokal allocated defendant's payments first to interest due on all six notes with the remainder to the principal of the $122,273.13 note. On 9 March 2003, the notes accrued an outstanding balance of $1,116,235.36. Defendant admitted in his deposition that he signed all five notes for $185,000.00 each and understood that payment of the $925,000.00 was part of consideration of the agreement. Defendant also admitted he stopped paying on the notes because he was without sufficient funds to make the payments.
    Plaintiffs filed suit against defendant alleging breach of agreements and default of payment on the notes. Summary judgment was granted in favor of plaintiffs. Defendant appeals.

In a motion for summary judgment, the movant has the burden of establishing that there are no genuine issues of material fact. The movant can meet the burden by either: “1) Proving that an essential element of the opposing party's claim is nonexistent; or 2) Showing through discovery that the opposing party cannot produce evidence sufficient to support an essential element of his claim nor [evidence] sufficient to surmount an affirmative defense to his claim.”

When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.
Hines v. Yates, ___ N.C. ___, ___, 614 S.E.2d 385, 389 (2005) (citations omitted).

    Defendant asserts the trial court erred when it granted plaintiffs' motion for summary judgment and denied defendant's motion for summary judgment. Defendant argues a failure of consideration with respect to the noncompetition agreements, which serve as consideration for his execution of the promissory notes toplaintiffs Anhil Odhav, Satish Odhav, Hasna Odhav, and Nilesh Neil Gokal.
    This Court has stated:
        It is well established that consideration sufficient to support a contract or a modification of its terms consists of any benefit, right, or interest bestowed upon the promisor, or any forbearance, detriment, or loss undertaken by the promisee. Consideration is the “glue” that binds parties together, and a mere promise, without more, is unenforceable.

Lee v. Paragon Group Contractors, 78 N.C. App. 334, 338, 337 S.E.2d 132, 134 (1985) (citation omitted), disc. rev. denied, 316 N.C. 195, 345 S.E.2d 383 (1986).
    Defendant argues the parties did not bargain for an exchange of promises because the owner affiliates “bore no relationship of prominence to the business of the Howard Johnson” and “had no intention or ability to compete with [defendant] in the hotel business in the restricted territory or elsewhere.”
    Plaintiffs and defendant signed five noncompetition agreements, and defendant signed the five promissory notes on 1 July 1998. Paragraph three of each noncompetition agreements provides: “[f]or and in consideration of the agreement of Owner Affiliate as set forth herein, Patel will pay to Owner Affiliate this day the sum of $185,000.00 pursuant to the terms of a Promissory Note of even date herewith.” The noncompetition agreements further provided, “[t]his agreement shall be binding upon and inure to the benefit of the respective parties and theirsuccessors and assigns, heirs and personal representatives, except as otherwise expressly provided herein.”
    Defendant acknowledged in the signed noncompetition agreements that Anil Odhav, Satish Odhav, Hasna Odhav, and Nilesh Neil Gokal were owners of the Howard Johnson Motel located on Market Street in Wilmington. The noncompetition agreements provided that the owners have “acquired valuable information regarding the customers, methods of operations, methods of advertising, and other valuable information, regarding the ownership and management of the hotel.”
    Defendant cites to Sineath v. Katzis to support his argument that plaintiffs had no interest in the Howard Johnson Motel and failed to provide adequate consideration. 218 N.C. 740, 12 S.E.2d 671 (1941). In Katzis, our Supreme Court stated:
        a covenant by which the restraint is imposed must be incidental to or in support of another lawful contract by which the covenantee acquires some interest needing protection, that is, the covenant must be ancillary to the main transaction, necessary to the reasonable protection of the business sold and reasonable in its scope under all the circumstances of the case.

218 N.C. at 754, 12 S.E.2d at 680. The plaintiff-buyers in Katzis brought an action against defendant-seller for breach of the noncompetition agreement. Id. The Court held the seller “bore such relation of prominence to the business” to make his covenant not to compete ancillary to the sale of the business. Id. The Court found no error in the verdict and held that the seller did violate the covenant not to compete. Id. at 757, 12 S.E.2d at 682.    Here, defendant entered into a contract with plaintiffs to purchase a one-half interest in the land and improvements. Plaintiffs and defendant subsequently executed noncompetition agreements. Plaintiffs were owners of the property and formally entered into a covenant not to compete. Defendant agreed to pay plaintiffs $925,000.00 plus interest in exchange for closing the purchases. Part of the consideration for the purchases was plaintiffs' agreements to not compete with defendant. Defendant fails to provide evidence that a bargained for exchange did not occur. This assignment of error is overruled.

    Defendant argues a genuine issue of material fact exists regarding a mutual mistake of the parties concerning the representation of Pearce with respect to all plaintiffs in this case.
    Defendant cites N.C. Monroe Constr. Co. v. State which provides, “[i]t is well established that the existence of a mutual mistake as to a material fact comprising the essence of the agreement will provide grounds to rescind a contract.” 155 N.C. App. 320, 330, 574 S.E.2d 482, 489 (2002) (citation omitted), disc. rev. denied, 357 N.C. 165, 580 S.E.2d 370 (2003).
    Defendant contends plaintiffs misled him to believe Pearce represented him in the transaction and failed to advise him of the “potential conflict of interest with respect to the representation of parties to both sides of a real estate and/or commercial transaction by Pearce.” Defendant admitted in his deposition hebelieved Pearce represented both parties to the transaction when he answered the question, “who was Hap Pearce representing?” In response defendant stated, “both of us I believe.” Defendant fails to argue or show any grounds to establish a mutual mistake as a genuine issue of a material fact. Id. This assignment of error is overruled.