Appeal by defendant from summary judgments entered 23 November
2005 by Judge W. Erwin Spainhour, and 24 January 2006 by Judge
Clarence E. Horton, Jr., in Cabarrus County Superior Court. Heard
in the Court of Appeals 20 September 2006.
Hartsell & Williams, P.A., by Fletcher L. Hartsell, Jr., and
Christy E. Wilhelm, for plaintiff-appellee.
Poyner & Spruill LLP, by E. Fitzgerald Parnell, III, and
Cynthia L. Van Horne, for defendant-appellant.
In Court of Appeals Case COA 06-250 defendant, Systel Business
Equipment Company, Inc. (Systel), appeals from summary judgment
entered in favor of plaintiff, Cabarrus County. In Court of
Appeals Case COA06-425 defendant appeals from summary judgment
entered in favor of third party defendant Frank M. Clifton, Jr.
Because these cases arise from the same lawsuit and share common
facts, we have consolidated these appeals for purposes of this
opinion, and affirm both orders. The relevant facts may be briefly summarized, and are taken in
part from Cabarrus Cty. v. Systel Bus. Equip. Co., 171 N.C. App.
423, 614 S.E.2d 596, disc. review denied, 360 N.C. 61, 621 S.E.2d
177 (2005). [I]n December 1999, Cabarrus County issued a request
for proposed bids from companies for photocopier services. The
Board of County Commissioners voted on 18 January 2000 to award the
contract to Systel. Cabarrus Cty., 171 N.C. App. at 424, 614
S.E.2d at 597. On 18 July 2000 plaintiff, Cabarrus County, and
Systel executed a contract for Systel to provide copier services
for Cabarrus County. The contract included a non appropriation
rider allowing Cabarrus County to terminate the contract if the
county did not appropriate funds for copier services after the
first year. The contract and the rider were signed by the county
manager for Cabarrus County, Frank M. Clifton, Jr. (Clifton).
On 17 April 2001, Cabarrus County notified Systel that it was not
renewing the copier contract as outlined in the Equipment Rental
Agreement[.] . . . [Systel] claim[ed] that Cabarrus County remained
obligated to use Systel's services under the [contract]. Cabarrus
County argued that the [contract] could not be enforced because,
inter alia, it did not include a preaudit certificate as required
by statute. Cabarrus Cty., id.
On 26 July 2001 Cabarrus County filed a complaint for breach
of contract and declaratory judgment. Cabarrus County sought a
declaration that the contract of 18 July 2000 was invalid and
unenforceable because it did not include the preaudit certificate
required by N.C. Gen. Stat. § 159-28 (2005). Defendant denied thematerial allegations of the complaint, raised various defenses, and
asserted a counterclaim against Cabarrus County for breach of
contract; in its reply, Cabarrus County denied the allegations of
Systel's counterclaim. On 12 December 2001 Systel filed an
amendment to its Answer and Counterclaim, stating a third party
complaint against Clifton and seeking recovery under N.C. Gen.
Stat. § 159-28(e). By additional reply dated 13 February 2002,
Cabarrus County moved for dismissal of the counterclaim against
Clifton under N.C. Gen. Stat. § 1A-1, Rule 12(b)(6).
Thereafter the parties reached a settlement agreement, which
was first approved but ultimately rejected by the Cabarrus County
Board of County Commissioners. Systel's motion to compel
enforcement of the settlement agreement was granted by the trial
court. Cabarrus County appealed and argued that the settlement
agreement was invalid and unenforceable, as it lacked a completed
preaudit certificate. Cabarrus County, 171 N.C. App. at 424-25,
614 S.E.2d at 597. This Court agreed and held that:
'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.' . . . [T]he settlement
agreement contained a preaudit certificate
that was never executed by Cabarrus County. .
. . The requirements of [N.C. Gen. Stat. §]
159-28(a) were therefore not met and thus
'there is no valid contract, and any claim . .
. based upon such contract must fail.'
Id. at 425-26, 614 S.E.2d at 598 (quoting Data Gen. Corp. v. Cty.
of Durham, 143 N.C. App. 97, 103, 545 S.E.2d 243, 247 (2001))
(internal citations omitted). On remand Cabarrus County's motion for summary judgment was
granted 23 November 2004; Clifton's summary judgment motion was
entered 24 January 2006. Both orders state that summary judgment
is appropriate because the contract lacked a preaudit certificate.
Defendant timely appealed both orders.
Summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on file,
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))
In the instant case, [e]ach party based its claim upon
the same sequence of events[.] . . . Neither party has challenged
the accuracy or authenticity of the documents establishing the
occurrence of these events. Although the parties disagree on the
legal significance of the established facts, the facts themselves
are not in dispute. Consequently, we conclude that there is no
genuine issue as to any material fact surrounding the trial
court's summary judgment order. We next consider whether the trial
court correctly determined that [Cabarrus County and Clifton were]
entitled to a judgment as a matter of law. Adams v.
Jefferson-Pilot Life Ins. Co.
, 148 N.C. App. 356, 359, 558 S.E.2d
504, 507 (2002) (citation omitted).
The summary judgment orders herein stated that the contract
was invalid and unenforceable because it lacked a preauditcertificate. Preaudit certificates are addressed in N.C. Gen.
Stat. § 159-28, which provides in pertinent part that:
(a) . . . No [county] obligation may be incurred .
. . unless the budget ordinance includes an
appropriation authorizing the obligation[.] .
. . If an obligation is evidenced by a
contract or agreement requiring the payment of
money . . . the contract[ or] agreement . . .
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 . . . 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). . . . An obligation incurred in
violation of this subsection is invalid and
may not be enforced. . . .
In the instant case, it is undisputed that neither the
contract nor the non-appropriation rider included a preaudit
certificate. Nonetheless, defendant makes several arguments that
the contract is enforceable. We will consider these in turn.
Defendant argues first that the language of the non-
appropriation rider should be treated as the equivalent of a
preaudit certificate. The rider states in relevant part that
Cabarrus County has budgeted and has available for the current
fiscal year sufficient funds to comply with its obligations under
the Lease[.] Defendant correctly asserts that the purpose of the
pre-audit certificate is to ensure that a town has enough funds in
its budget to pay its financial obligations. Myers v. Town of
, 135 N.C. App. 707, 713, 522 S.E.2d 122, 126 (1999).
Defendant asserts that, as the rider declares Cabarrus County'sability to meet its contractual obligations, it should be
considered a de facto
preaudit certificate. We disagree.
N.C. Gen. Stat. § 159-28 expressly requires that the preaudit
certificate shall be signed by the finance officer or by an
authorized deputy finance officer. In the instant case, both the
contract and the non-appropriation rider were signed by Clifton,
Cabarrus County's county manager. Nothing in the record indicates
that Clifton was the county finance officer, or even worked in the
county finance department. Indeed, in his deposition Clifton
stated several times that the customary practice in Cabarrus County
was that after
he signed a contract, it would then be submitted to
the finance department for review and execution of the required
Defendant also fails to cite any cases supporting the position
that language in a contractual clause or rider may be substituted
for a preaudit certificate, and N.C. appellate cases have
interpreted N.C. Gen. Stat. § 159-28 as strictly requiring a
preaudit certificate. See, e.g., Data Gen. Corp. v. Cty. of
, 143 N.C. App. 97, 103, 545 S.E.2d 243, 247 (2001) (if
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.). This
assignment of error is overruled.
Defendant argues next that the non-appropriation rider
converted the contract into a series of contracts and urges us to
enforce the contract as to its second and third years, even if thecontract is void and unenforceable as to the first year. This
would be an absurd result; moreover, the rider merely provides that
Cabarrus County could terminate the contract if the county stopped
funding it. We conclude the rider does not transform the contract
into three separate contracts. This assignment of error is
Defendant also urges us to apply the doctrines of estoppel or
ratification to the facts of this case. In Data General
, [v. Cty.
, 143 N.C. App. 97, 545 S.E.2d 243 (2001)], this Court
rejected an identical argument:
[T]he lease agreement . . . was not a valid
contract . . . as it failed to comply with the
statutory requirements in N.C. Gen. Stat. §
159-28(a). [Appellant] may not recover under
an equitable theory such as estoppel . . .
where [Cabarrus] County has not expressly
entered a valid contract. . . . [T]he
preaudit certificate requirement is a matter
of public record, N.C. Gen. Stat. § 159-28(a),
and parties contracting with a county within
this state are presumed to be aware of, and
may not rely upon estoppel to circumvent, such
Finger v. Gaston County
, __ N.C. App. __, __, 631 S.E.2d 171, 174
(2006) (quoting Data General
, 143 N.C. App. at 104, 545 S.E.2d at
248) (internal citations omitted)). This assignment of error is
Defendant also appeals the order of summary judgment in favor
of Clifton. Defendant contends that Clifton is liable for
defendant's losses, pursuant to N.C. Gen. Stat. § 159-28(e), which
provides in relevant part:
(e) . . . If an officer or employee of a local
government or public authority incurs anobligation . . . in violation of this section,
he . . . [is] liable for any sums so committed
or disbursed. . . .
In the instant case, because the contract lacks a required preaudit
certificate, it is void and unenforceable. Accordingly, no
obligation is incurred by the execution of such a contract. This
assignment of error is overruled.
We conclude that the trial court did not err in entering
summary judgment in favor of both Clifton and Cabarrus County, and
that the orders for summary judgment should be
Judges BRYANT and JACKSON concur.
Report per Rule 30(e).
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