Miles v. Carolina Forest Ass'n
604 S.E.2d 327, 2004 N.C. App. LEXIS 2053, 167 N.C. App. 28 (2004)
Rule of Law:
An implied in fact contract can obligate property owners to pay for subdivision maintenance and services, even if the original restrictive covenants governing such payments have expired by their own terms, where the owners' conduct demonstrates an agreement to receive and pay for the benefits.
Facts:
- On June 1, 1970, Russwood, Inc., a land development company, prepared and recorded declarations for Carolina Forest Subdivision in Montgomery County.
- The declarations included a requirement that each lot owner maintain membership in and abide by the rules of Carolina Forest Association (CFA).
- The declarations explicitly limited the duration of all restrictions, conditions, covenants, and agreements to January 1, 1990, but allowed for changes, alterations, amendments, or revocations by a 2/3 written agreement of record lot owners.
- CFA subsequently sold lots in Carolina Forest to various plaintiffs under these recorded declarations.
- As January 1, 1990, approached, CFA requested lot owners' written consent to amend declaration No. 10 to extend its duration beyond the expiration date.
- Of the 906 lots in the subdivision, 618 lot owners, including approximately half of the plaintiffs, agreed to the amendments to extend the declarations.
- In 1997 and 1998, CFA voided some of the plaintiffs' gate cards, preventing their access to the subdivision, due to their failure to pay assessments.
Procedural Posture:
- Plaintiffs initiated an action against CFA, seeking a declaratory judgment regarding their rights and obligations as lot owners and an injunction to prohibit the levying of fees and assessments and to allow access to the subdivision and common areas.
- CFA filed a counterclaim seeking payment of certain fees and assessments.
- The trial court granted partial summary judgment, categorizing plaintiffs: Category 1 (those who voluntarily consented to amendments or whose deeds expressly referred to the covenants) were found bound, and their claims were dismissed; Category 2 (those who did not consent and whose deeds did not provide notice) had their claims proceed, but the court found them bound by an implied in fact contract to pay for road maintenance for three years preceding CFA’s answer.
- The trial court's partial summary judgment order was appealed to the North Carolina Court of Appeals (Miles I).
- In Miles I, the Court of Appeals reversed the trial court's conclusion as to Category 1 plaintiffs, holding that there was no authority under the original declarations to extend them beyond January 1, 1990, and remanded the case as to all plaintiffs for the trial court to determine whether they had impliedly agreed to pay for maintenance, upkeep, and operation of the roads, common areas, and recreational facilities, and if so, in what amount.
- On remand, the trial court granted CFA a directed verdict at the close of all evidence, concluding that an implied contract existed between CFA and all plaintiffs, and ordered plaintiffs to pay fees for benefits received.
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Issue:
Does an implied in fact contract bind lot owners to pay for the maintenance and upkeep of subdivision roads and common areas after the original restrictive covenants requiring such payments have expired, when the owners continued to receive and benefit from these services?
Opinions:
Majority - McCullough, judge
Yes, an implied in fact contract can bind lot owners to pay for subdivision maintenance and services even after the original restrictive covenants expire, provided their conduct demonstrates an agreement to receive and pay for those benefits. The court affirmed the trial court's finding of an implied in fact contract. The court reasoned that an implied contract is a cognizable claim separate from the expired covenant; it does not "breathe new life" into the void covenant but rather uses the terms of the expired covenant as evidence of the implied contract's terms. The Statute of Frauds does not apply because the claim concerns payment for services rendered, not an interest in land, and does not seek to bind subsequent purchasers. The trial court's unchallenged findings of fact, which detailed specific assessments for benefits protecting property access and value (such as maintained private roads, recreational facilities, a pool, a guard station, and an administrative office), supported the conclusion of an implied in fact contract. The fact that approximately half of the plaintiffs voted for the amendments extending the covenants (which included assessment fees for these benefits), and all plaintiffs had previously paid some or all fees and assessments until 1997-1998, further demonstrated conduct consistent with such an implied agreement. This established a genuine agreement between the parties inferred from their conduct, and attempting to stop payments on these known benefits constituted a breach of that contract.
Analysis:
This case is significant for clarifying the distinct legal grounds for enforcing community association fees when express covenants expire. It distinguishes between the unenforceability of expired written covenants and the potential for a separate, enforceable implied contract based on the parties' conduct and the receipt of services. The ruling prevents property owners from receiving benefits of common area maintenance without contributing, even if the formal legal framework for those contributions has lapsed. Future cases involving expired covenants or similar agreements may rely on this precedent to establish implied contracts based on the parties' historical conduct and the ongoing provision and acceptance of benefits.
