Thomas M. McInnis & Associates, Inc. v. Hall

• Decision Date: 04 November 1986
• Docket Number: No. 601A85,601A85
• Citation: 318 N.C. 421,349 S.E.2d 552
• Court: North Carolina Supreme Court
• Parties: THOMAS M. McINNIS & ASSOCIATES, INC. v. Janet H. HALL.

Page 552

349 S.E.2d 552

318 N.C. 421

THOMAS M. McINNIS & ASSOCIATES, INC. v. Janet H. HALL.

No. 601A85.

Supreme Court of North Carolina.

Nov. 4, 1986.

Sharpe & Buckner by Richard G. Buckner, Rockingham, for plaintiff-appellee.

Manning, Fulton & Skinner by Charles B. Morris, Jr., and Barry D. Mann, Raleigh, for defendant-appellant.

FRYE, Justice.

The parties to this action bring two questions before this Court: 1) whether the trial court erred in finding that defendant's failure to respond to the complaint in this action was the result of excusable neglect; and 2) whether the doctrine of collateral estoppel may constitute a meritorious defense in this case. We answer the first question in the negative and affirm the Court of Appeals on that issue. We answer the second question yes and reverse the courts below on this issue.

This action stems from the breach of a contract between the sellers (defendant Hall and her husband) and plaintiff auctioneer, Thomas M. McInnis & Associates, Inc. (McInnis). On 21 July 1980, Janet Hall and her husband, Bobby Hall, entered into an auction contract with Thomas M. McInnis & Associates, Inc., which provided that McInnis would sell the Hall's 70-acre poultry farm in exchange for commissions based on a percentage of the sale price. After the highest bidder had been determined at the 22 July 1980 auction, a dispute arose between the highest bidder and the Halls. As a result of the dispute, the sale was never completed.

In December 1980, Bobby Hall filed suit against McInnis seeking $9,750, the amount of earnest money paid in escrow by the highest bidder at the auction sale. In January 1981, without joining Mrs. Hall as a party to the action, McInnis filed a counterclaim asking the court to award it damages for breach of the auction contract, consisting of $7,800 in commissions, together with interest at the legal rate from the date of sale. Judgment was entered in favor of McInnis on 11 March 1983 for $7,800 with interest to run thereon from the date of judgment, not the date of sale.

McInnis did not request that the issue of interest be submitted to the jury, and the jury was not instructed on this issue. Rather, McInnis contended that interest was payable from the date of breach of the contract as a matter of law. The judge expressed the opinion that the question of interest on the breach of contract was a jury question and had been waived in the absence of a timely request that the issue of interest be submitted to the jury. He therefore declined, as a matter of law, to award interest payable from the date of breach and instead awarded interest only from the date of the judgment. McInnis did not appeal this decision.

McInnis thereafter commenced execution proceedings on the judgment against Bobby Hall. On 27 May 1983, it filed a complaint against Janet H. Hall (defendant herein), seeking damages for breach of the auction contract, again seeking $7,800 in commissions together with interest at the legal rate from the date of sale. On 3 June 1983, Bobby Hall paid the judgment against him, including interest figured from the date of judgment. Three days later, Janet Hall was served with summons and a copy of the complaint that had been filed on 27 May 1983. Under the assurance from her husband that this matter had been resolved and that there was no necessity to respond to plaintiff's complaint, Janet Hall did not file an answer or otherwise respond to the complaint. As a result of this failure, default judgment was eventually entered on 25 July 1983 against her in the amount of $1,678.56, the difference between the interest calculated from the date of sale and the interest awarded from the date of judgment in the earlier action against Bobby Hall.

On 28 February 1984, the trial court denied Janet Hall's Rule 60(b)(1) motion to set aside the default judgment against her, finding that her failure to respond to the complaint constituted excusable neglect but that she had failed to demonstrate a meritorious defense to the plaintiff's claim. The Court of Appeals in a divided opinion affirmed the lower court's decision.

To set aside a judgment on the grounds of excusable neglect under Rule 60(b), the moving party must show that the judgment rendered against him was due to his excusable neglect and that he has a meritorious defense. Cayton v. Clark, 212 N.C. 374, 193 S.E. 404 (1937); Wynnewood Corp. v. Soderquist, 27 N.C.App. 611, 219 S.E.2d 787 (1975); Bank v. Finance Company, 25 N.C.App. 211, 212 S.E.2d 552 (1975). Defendant asserts on appeal before this Court that the doctrine of collateral estoppel is applicable to the plaintiff's claim and constitutes a meritorious defense to this breach of contract action. Plaintiff, in whose favor we granted a writ of certiorari on 28 January 1986, seeks reversal of that portion of the Court of Appeals' opinion which affirmed the trial court's finding of excusable neglect. We will address plaintiff's contention first.

I.

Plaintiff contends that the trial court erred in finding that defendant's failure to respond to the complaint in this action was the result of excusable neglect. This Court finds no merit in plaintiff's argument.

Rule 60(b) of the North Carolina Rules of Civil Procedure provides that:

On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons:

(1) Mistake, inadvertance, surprise, or excusable neglect....

N.C.R.Civ.P. 60(b). Although a motion for relief under Rule 60(b) is addressed to the sound discretion of the trial court and will not be disturbed unless the trial court has abused its discretion, Sink v. Easter, 288 N.C. 183, 198, 217 S.E.2d 532, 541 (1975), whether excusable neglect has been shown is a question of law--not of fact. Land Co. v. Wooten, 177 N.C. 248, 98 S.E. 706 (1919); Equipment, Inc. v. Lipscomb, 15 N.C.App. 120, 189 S.E.2d 498 (1972). Based on the facts found by the trial court, an appellate court must determine, as a matter of law, whether defendant's actions constitute excusable neglect.

While there is no clear dividing line as to what falls within the confines of excusable neglect as grounds for the setting aside of a judgment, what constitutes excusable neglect depends upon what, under all the surrounding circumstances, may be reasonably expected of a party in paying proper attention to his case. Dishman v. Dishman, 37 N.C.App. 543, 246 S.E.2d 819 (1978). Excusable neglect must have occurred at or before entry of judgment and must be the cause of the default judgment being entered. Norton v. Sawyer, 30 N.C.App. 420, 227 S.E.2d 148, cert. denied, 291 N.C. 176, 229 S.E.2d 689 (1976).

A close examination of the facts herein discloses that defendant's actions were reasonable under the surrounding circumstances. Defendant did not respond to the complaint upon the assurance by her husband that the matter had been resolved by payment of the judgment in the first action and that there was no necessity to respond. Defendant was aware that the prior action against her husband was based upon the very auction contract on which she was being sued and that her husband paid $7,964.29 to satisfy the judgment entered against him in that action. Defendant was also aware that this payment by her husband was not made until three days after the filing of the complaint in the second action and three days prior to service upon her of the summons. Under these circumstances, it seems quite reasonable for defendant to have concluded that in suing her, plaintiff was only trying to get payment of the judgment in the first action, that payment of this judgment by her husband resolved all controversy, and that there was no need to respond to the complaint.

Defendant cites Trucks, Inc. v. Greene, 34 N.C.App. 279, 237 S.E.2d 862 (1977), and Gregg v. Steele, 24 N.C.App. 310, 210 S.E.2d 434 (1974), as authority in support of the trial court's finding of excusable neglect. Both cases rely upon an opinion of this Court, Abernethy v. Nichols, 249 N.C. 70, 105 S.E.2d 211 (1958), in which it is said that:

[T]his Court has held that under G.S. 1-220 [since repealed; now N.C.G.S § 1A-1, Rule 60(b)(1) ] a wife's failure or neglect to file answer in a suit against her and her husband, upon assurances by her husband that he will be responsible for and assume the defense of the action, is excusable neglect.

Abernethy, 249 N.C. at 72, 105 S.E.2d at 213.

Plaintiff contends that there is a difference between a husband's assurance to his wife that he will take care of the matter and take action and a husband's assurance to his wife that he has already taken care of the matter so that no action need be taken. However, this Court agrees with the unanimous panel of the Court of Appeals which declined to make such a fine distinction. Instead, we hold that the principle above stated is applicable to the present case.

Plaintiff further contends that to hold that Mrs. Hall's actions constitute excusable neglect is to hold as a general proposition that if a defendant wife seeks the legal advice of her husband and the legal advice proves to be erroneous, the wife can raise the erroneous legal advice given to her by her husband as excusable neglect on her part. Our decision should not be so broadly construed. Instead, we narrowly interpret the trial court's ruling, upheld by the Court of Appeals, to mean that under the circumstances surrounding this case it was not unreasonable for Mrs. Hall to rely on her husband's assurance that the matter had been taken care of and thus that her actions constitute excusable neglect.

II.

Turning now to defendant's appeal, we must next determine whether the trial court erred in concluding that defendant does not have a meritorious defense. Defendant contends that plaintiff should not be permitted to recover in a second action interest from the date of breach which was denied to it in...