Canady v. Crestar Mortg. Corp.
| Decision Date | 31 March 1997 |
| Docket Number | Nos. 95-2934,95-2977,s. 95-2934 |
| Parties | Johnnie A. CANADY; Nancy Canady, Plaintiffs-Appellees, v. CRESTAR MORTGAGE CORPORATION, Defendant-Appellant. Johnnie A. CANADY; Nancy Canady, Plaintiffs-Appellants, v. CRESTAR MORTGAGE CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Margaret Cain Lumsden, Hunton & Williams, Raleigh, North Carolina, for Appellant. Roy A. Archbell, Jr., Kitty Hawk, North Carolina, for Appellees. ON BRIEF: Michael L. Unti, Hunton & Williams, Raleigh, North Carolina, for Appellant.
Before MURNAGHAN, NIEMEYER, and MOTZ, Circuit Judges.
Affirmed in part and reversed and remanded in part by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge NIEMEYER and Judge MOTZ joined.
Plaintiffs-Appellees Johnnie and Nancy Canady (the "Canadys") held a third-priority deed of trust on a parcel of real estate. Because they feared that the property did not contain enough equity to secure their third-priority deed of trust, they entered into a contract to purchase the first-priority deed of trust from Crestar Mortgage Corporation ("Crestar"). Due to a clerical error, however, when the Canadys paid the purchase price for the first-priority deed of trust, Crestar mistakenly cancelled the first-priority deed of trust rather than assigning it to the Canadys as the contract provided. Crestar, as it turned out, could not correct its mistake because the owners of the property filed for bankruptcy the next day.
The Canadys filed suit and alleged a breach of contract claim and an unfair trade practices claim pursuant to the North Carolina Unfair and Deceptive Trade Practices Act ("UTPA"), N.C.Gen.Stat. § 75-1.1 (1995). The district court granted summary judgment to the Canadys and awarded compensatory damages plus interest, but the court denied the UTPA claim. Crestar has now appealed the amount of compensatory damages that the district court awarded, and the Canadys have cross-appealed the interest calculation and the disposition of the UTPA claim. For the reasons stated below, we affirm in part, reverse in part, and remand for further proceedings.
Glen and Sandra Magill (the "Magills") owned real estate in Nags Head, North Carolina subject to three deeds of trust. Crestar held the first-priority deed of trust (the "Crestar Deed of Trust"), David and Janet Storms held the second-priority deed of trust (the "Storms Deed of Trust"), and the Canadys held the third-priority deed of trust (the "Canady Deed of Trust"). In May 1993, the Canadys, concerned that the Magills did not have sufficient equity in the property to protect their third-priority deed of trust, contracted with Crestar to purchase the first-priority Crestar Deed of Trust for $53,511.30.
On May 27, 1993, the Canadys tendered $53,511.30 to Crestar. Due to a clerical error, however, Crestar mistakenly treated the Crestar Deed of Trust as paid off instead of assigning it to the Canadys as the contract provided. On July 19, 1993, Crestar cancelled the Crestar Deed of Trust. The next day, the Magills filed for bankruptcy, which froze the liens on the property and barred Crestar from correcting its mistake. The Canadys learned of Crestar's mistake on July 28, 1993, and they demanded that Crestar refund the $53,511.30 purchase price on August 10, 1993. In February 1994, Crestar offered to refund the $53,511.30, but the Canadys declined the offer because Crestar refused to pay interest on the money.
The bankruptcy trustee sold the property to an unrelated third party for $63,000. After deducting sales expenses, $55,000 remained for distribution to the estate's creditors. On April 1, 1994, the bankruptcy trustee, the Canadys, and Crestar entered into a consent decree issued by the bankruptcy court. The consent decree provided that Crestar's prebankruptcy cancellation of the first-priority Crestar Deed of Trust rendered that deed of trust inoperative. The decree further provided that the Storms Deed of Trust would take first priority and that the Canady Deed of Trust would take second priority. Accordingly, the trustee distributed $14,899.21 of the proceeds from the sale of the property to the Storms to pay off the Storms Deed of Trust and $33,750 to the Canadys to pay off the Canady Deed of Trust.
On May 13, 1994, the Canadys sued Crestar in the Superior Court of Dare County, North Carolina. They alleged breach of contract and violations of the UTPA, N.C.Gen.Stat. § 75-1.1 (1995). Crestar removed the action to the United States District Court for the Eastern District of North Carolina based on diversity of citizenship and the requisite amount in controversy. After discovery, both Crestar and the Canadys filed motions for summary judgment on all issues.
On October 12, 1995, the district court entered summary judgment in favor of the Canadys on the breach of contract claim and awarded $53,511.30 in compensatory damages plus interest at the legal rate of eight percent from August 10, 1993 through February 1, 1994. The court granted summary judgment in favor of Crestar on the UTPA claim. Crestar and the Canadys both appealed. We review the district court's grant of summary judgment de novo. See Lone Star Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43 F.3d 922, 928 (4th Cir.1995).
As noted above, the district court awarded the full $53,511.30 purchase price of the Crestar Deed of Trust to the Canadys as compensatory damages for Crestar's breach of the contract. The court refused to reduce that award by the $33,750 that the Canadys received under the former third-priority Canady Deed of Trust. The court held that Crestar's mistaken cancellation of the Crestar Deed of Trust was "not causally related" to the amount that the Canadys received under the Canady Deed of Trust from the bankruptcy distribution.
North Carolina law provides that the proper measure of damages for breach of contract is the amount necessary to put the injured party in the same monetary position that it would have been in if the breach had not occurred. See Roberson v. Dale, 464 F.Supp. 680, 683 (M.D.N.C.1979); Weyerhaeuser Co. v. Godwin Bldg. Supply Co., 292 N.C. 557, 234 S.E.2d 605, 607 (1977). Therefore, the plaintiff must prove what she would have received had the contract not been breached and what she did in fact receive. In order to prevent a double recovery, courts offset any amount that mitigates damages from the damage award. See Tillis v. Calvine Cotton Mills, Inc., 251 N.C. 359, 111 S.E.2d 606, 613-14 (1959).
The issue in the instant case is what the Canadys would have received if Crestar had not breached the contract by cancelling the Crestar Deed of Trust. It seems clear to us that if Crestar had not cancelled the Crestar Deed of Trust, the Canadys would have recovered under the Crestar Deed of Trust, but they would not have recovered under the Canady Deed of Trust. At the time of the bankruptcy, the payoff amount required to satisfy the Crestar Deed of Trust was $57,250.96. The bankruptcy trustee sold the property to a disinterested third party for $63,000, and $55,000 remained for distribution to the estate's creditors after the trustee deducted sales expenses. Therefore, if Crestar had not mistakenly cancelled the Crestar Deed of Trust and had instead assigned the deed to the Canadys as the contract provided, the Canadys would have received the $55,000 sales proceeds under the Crestar Deed of Trust. That amount, however, would have exhausted the sales proceeds. The Storms would not have received any money under the second-priority Storms Deed of Trust, and the Canadys would not have received any money under the third-priority Canady Deed of Trust. Thus, the district court erred when it held that Crestar's cancellation of the Crestar Deed of Trust was "not causally related" to the money that the Canadys received under the Canady Deed of Trust. The Canadys would not have received any money under the Canady Deed of Trust if Crestar had not cancelled the Crestar Deed of Trust. The Canadys therefore received a double recovery when the district court awarded the full $53,511.30 purchase price in addition to the $33,750 that the Canadys had already received under the Canady Deed of Trust. Since the Canadys only would have received $55,000 if Crestar had not breached the contract, that is all that the Canadys may recover. Thus, since the Canadys had already received $33,750, the most that the district court should have awarded was $21,250.
The Canadys' arguments to the contrary do not persuade us. The Canadys contend that they would have received more than $55,000 if Crestar had not cancelled the Crestar Deed of Trust. They claim that if Crestar had assigned the Crestar Deed of Trust to them as the contract provided, then they would have bid for the property at the bankruptcy sale. They claim that they would have bid the sales price up to an amount sufficient to pay off all three liens on the property, an amount in excess of $105,000. They therefore contend that the district court correctly found that Crestar's cancellation of the Crestar Deed of Trust was "not causally related" to the money that they received under the Canady Deed of Trust; they contend that they would have recovered that money even if Crestar had not breached the contract.
However, as stated above, the correct measure of damages under North Carolina law is an amount sufficient to put the injured party in the monetary position that it would have been in had the breach not occurred. See Roberson, 464 F.Supp. at 683. The Canadys therefore bear the burden of proving what they would have received if Crestar had not breached the contract. They proffered no evidence of the market value of the property or of another buyer that would have paid a higher price.
The North Carolina Supreme Court has held that the price that a purchaser...
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