Sutton Investments, Inc., Matter of

• Decision Date: 09 November 1976
• Citation: 46 N.C.App. 654,266 S.E.2d 686
• Court: North Carolina Court of Appeals
• Parties: , 29 UCC Rep.Serv. 395 In the Matter of Foreclosure of a Deed of Trust Executed by SUTTON INVESTMENTS, INC. Dated

Page 686

266 S.E.2d 686

46 N.C.App. 654, 29 UCC Rep.Serv. 395

In the Matter of Foreclosure of a Deed of Trust Executed by SUTTON INVESTMENTS, INC. Dated November 9, 1976, and Recorded in Deed of Trust Book 1188, Page 213, in the Office of the Register of Deeds of Forsyth County, North Carolina by Barden W. Cooke, Substitute Trustee.

No. 7921SC535.

Court of Appeals of North Carolina.

May 20, 1980.

Adams, Kleemeier, Hagan, Hannah & Fouts by M. Jay DeVaney and Bruce H. Connors, Greensboro, for Richardson, petitioner-appellee.

Smith, Moore, Smith, Schell & Hunter by J. Donald Cowan, Jr., and William L. Young, Greensboro, for Sutton, respondent-appellant.

PARKER, Judge.

On this appeal respondent does not dispute either that the Note and the Deed of Trust are genuine or that the $17,947.27 balance due on the second annual installment on the note was not tendered until more than thirty days after 10 November 1978, the date on which the annual installment was due. Rather, relying upon the language of the Note and Deed of Trust, respondent contends that the judge erred in determining that petitioners were entitled to foreclose under the terms and conditions contained in the Deed of Trust.

The Deed of Trust and the Note both bear date 9 November 1976, and each instrument refers specifically to the other. There is no question that the Deed of Trust was executed to secure payment of the $1,000,000.00 balance of purchase price owed to Richardson and evidenced by the Note. The pertinent provisions of the Note with respect to default and the holder's option to accelerate read:

In the event of: (1) failure to pay any interest or any installment of principal, or any portion of either, or any other sums required to be paid by this Note and the Deed of Trust of even date herewith, within thirty (30) days after the same become due and payable; or (2) failure to perform and comply with any and all of the other covenants, terms and provisions of this Note and/or the Deed of Trust of even date herewith and the continuance of such default (i. e. any default other than the payment of principal and interest, or any portion of either) for a period of thirty (30) days after receipt of written notice thereof, then in any of said events said principal sum and all advancements made pursuant to the provisions of said Deed of Trust, together with all unpaid interest, shall be at once due and payable at the option of the holder hereof, its successors or assigns, and be collectible without further notice. (emphasis added.)

The Deed of Trust provides that the debt may be accelerated and the power of sale exercised by the trustee as follows:

(I)f the party of the first part (Sutton) fails to make any payment required in the Note hereby secured or of the interest on same, or of any part of either, or of any taxes, charges and assessments within thirty (30) days after the same shall become due and payable, or if default be made with reference to procuring, paying for, assigning and keeping in force policies of insurance as herein provided, or if default be made in the due fulfillment of the covenants and agreements or any of them herein contained, and such default shall continue for thirty (30) days after receipt of written notice from the party of the third part (Richardson) to the party of the first part (Sutton) . . . .

The parties are in agreement that the Deed of Trust and the Note are consistent in specifying the omissions which constitute default. They are further in agreement that such default is the first precondition to acceleration of the debt and exercise of the power of sale. The dispute arises as to the second precondition, that is, the time period for which the omission or default must continue before the mortgagee's power to accelerate the debt and the trustee's power to sell the encumbered property arise.

Respondent contends that before the holder of the Note may accelerate the debt and the Trustee may exercise his power of sale pursuant to the terms of the Deed of Trust, the mortgagor's omission to perform any duty must continue for a period of thirty days after receipt of written notice thereof. Thus, because the mortgagee, Richardson, at no time gave written notice to Sutton of its default in payment of principal and interest due on the 1978 annual installment, respondent contends that Richardson had no power to accelerate the debt or to order the substitute trustee to exercise the power of sale under the Deed of Trust, and that the judge erred in finding that petitioner-mortgagee was entitled to proceed with foreclosure. We do not agree.

It is well settled that a power of sale contained in a deed of trust must be exercised in strict conformity with the terms of the instrument. Brown v. Jennings 188 N.C. 155, 124 S.E. 150 (1924); Ferebee v. Sawyer, 167 N.C. 199, 83 S.E. 17 (1914). Such powers of sale are contractual, Eubanks v. Becton, 158 N.C. 230, 73 S.E. 1009 (1912), and ordinary rules of contract govern their interpretation. The general rule of contract is that "(a)ll contemporaneously executed written instruments between the parties, relating to the subject matter of the contract, are to be construed together in determining what was undertaken." Yates v. Brown, 275 N.C. 634, 640, 170 S.E.2d 477, 482 (1969). Thus, where a note and a deed of trust are executed simultaneously and each contains references to the other, the documents are to be considered as one instrument and are to be read and construed as such to determine the intent of the parties. Bank v. Belk, 41 N.C.App. 356, 255 S.E.2d 421, cert. denied 298 N.C. 293, 259 S.E.2d 911 (1979); see, Frye v. Crooks, 258 N.C. 199, 128 S.E.2d 257 (1962). Of course, if the language in the separate instruments defining the conditions upon which a power of sale may be exercised is contradictory, language in a deed of trust expressly limiting the exercise will govern. Worley v. Worley, 214 N.C. 311, 199 S.E. 82 (1938).

Applying these principles to the present case, we conclude initially that proper interpretation of the provisions in the Note and the Deed of Trust prescribing the conditions of default requires that the instruments be read together as one contract rather than as two independent agreements. Thus, the "problem is not what the separate parts mean, but what the contract means when considered as a whole." Simmons v. Groom, 167 N.C. 271, 275, 83 S.E. 471, 473 (1914).

The provisions at issue in the present case are those in the Deed of Trust and those in the Note concerning default and acceleration. Although similar, they are not identical. The parties have stipulated on this appeal that original drafts of the Note and Deed of Trust were prepared by counsel for Sutton, the mortgagor, and that these drafts contained consistent clauses regarding the rights of Richardson in the event of failure of Sutton to pay principal and interest or failure to comply with all terms and conditions of the Note and Deed of Trust. On 9 November 1976 counsel for both parties met to discuss revisions of several of the exhibits to the purchase agreement, including the Promissory Note and the Deed of Trust. Subsequent to that meeting, the form of the Note was revised although the Deed of Trust remained unchanged.

Respondent mortgagor contends that the express language of the Deed of Trust requires that written notice be given in the event of any default and that the right to foreclose does not arise until thirty days after such notice, despite the "apparently inconsistent terms" in the Note. In support of this contention respondent relies upon the decision of our Supreme Court in Worley v. Worley, supra.

In Worley, the mortgagors executed four notes, the first of which specified that interest was "due and payable annually." The deed of trust securing payment of the notes, however, included a provision for power of sale "if default be made in the payment of said bonds or the interest on same, or any part of either at maturity . . . ." 214 N.C. at 312, 199 S.E. at 82. Upon the mortgagors' failure to pay interest on the first note at the end of one year, the mortgagee attempted to foreclose under the power of sale, which foreclosure was enjoined. In permitting recovery in an action brought by the mortgagors to recover damages...