Case Title: Ussery v. Branch Banking & Trust Co.

Citation: 

Docket Number: 277A13

State: north-carolina

Court: North Carolina Supreme Court

Date: 2015-09-25T00:00:00Z

Document:
NO. COA13-331 
NORTH CAROLINA COURT OF APPEALS 
Filed: 3 December 2013 
 
 
HIGH POINT BANK AND TRUST 
COMPANY, 
 
Plaintiff-Appellant, 
 
 
 
 
v.                                  
 
Guilford County 
No. 10 CVS 10910 
HIGHMARK PROPERTIES, LLC; 
MITCHELL BLEVINS, CYNTHIA 
BLEVINS, CHARLES WILLIAMS 
and JANICE WILLIAMS, 
Defendants-Appellees. 
 
 
 
 
Appeal by Plaintiff from orders entered 19 September 2011 and 
4 October 2011 by Judge Ronald E. Spivey and judgment entered 11 
July 2012 by Judge Stuart Albright in Superior Court, Guilford 
County.  Heard in the Court of Appeals 24 September 2013. 
 
Roberson Haworth & Reese, P.L.L.C., by Alan B. Powell, 
Christopher C. Finan, and Matthew A.L. Anderson, for 
Plaintiff-Appellant. 
 
Wells Jenkins Lucas and Jenkins PLLC, by Ellis B. Drew, III 
and Ann G. Sugg, for Defendants-Appellees. 
 
Brooks Pierce McLendon Humphrey & Leonard LLP, by Robert A. 
Singer, S. Leigh Rodenbough IV, Kathleen A. Gleason, and 
Joseph A. Ponzi, for the North Carolina Bankers Association, 
amicus curiae. 
 
 
McGEE, Judge. 
 
 
-2- 
At all times relevant to this appeal, Highmark Properties, 
LLC (“Borrower”) was a company involved in real estate development.  
Mitchell Blevins, Cynthia Blevins, Charles Williams, and Janice 
Williams (“Guarantors” and, together with Borrower, “Defendants”), 
were Borrower’s members.  High Point Bank and Trust Company 
(“Plaintiff”) was a financial institution, with its principal 
place of business in Guilford County, North Carolina.  Borrower 
obtained loans totaling $6,450,000.00 from Plaintiff, through two 
promissory notes: one executed on 18 January 2007 for $4,700,000.00 
(“first note”), and one executed on 2 May 2007 for $1,750,000.00 
(“second note”), for the purposes of developing real estate.  The 
two notes were secured by deeds of trust to two parcels of real 
property (“the property”) owned by Borrower.  The first note was 
secured by the first parcel of real property, and the second note 
was 
secured 
by 
the 
second 
parcel 
of 
real 
property. 
Contemporaneously with the promissory notes, Plaintiff and 
Guarantors 
executed 
guaranty 
agreements 
whereby 
Guarantors 
“guarantee[d] full and punctual payment and satisfaction of the 
indebtedness 
of 
Borrower 
to 
Lender 
[Plaintiff], 
and 
the 
performance and discharge of all Borrower’s obligations under the 
Note[s][.]”  
Borrower defaulted with an indebtedness of $3,541,356.00 
remaining on the first note, and $1,336,556.00 remaining on the 
-3- 
second note.  Plaintiff filed a complaint on 19 October 2010 
initiating an action against Defendants on the two notes, seeking 
to recover this outstanding indebtedness. 
Plaintiff sold both parcels of the property at foreclosure 
sales on 8 February 2011.  Plaintiff was the sole bidder, and 
purchased the first parcel for $2,578,070.00 and the second parcel 
for $720,000.00.  Plaintiff filed a motion for summary judgment on 
28 July 2011.  Plaintiff then voluntarily dismissed Borrower from 
Plaintiff’s action on 18 August 2011.  Guarantors filed a motion 
on 2 September 2011 to re-join Borrower as a defendant in the 
action, and simultaneously filed a motion for leave to file a 
third-party complaint against Borrower.  Plaintiff filed a motion 
in limine, requesting that the trial court issue an “order 
excluding all evidence involving or relating . . . to the value of 
the properties foreclosed on[.]”  Plaintiff’s motion was in 
response to its belief that Guarantors intended  
to present certain evidence in support of two 
separate 
defenses. 
 
In 
particular, 
the 
Guarantors are offering evidence relating to 
. . . the value of the properties foreclosed 
on in support of the defense under N.C. Gen. 
Stat. § 45-21.36 that the bid amount at the 
foreclosure sale was substantially less than 
the true market value of the property[.] 
 
In its motion, Plaintiff argued that the defense under N.C. Gen. 
Stat. § 45-21.36, allowing an offset on the amount owed on the 
-4- 
notes based on the value of the property, was not available to 
Guarantors. 
 
The trial court, by order entered 19 September 2011, ruled 
that joinder of Borrower to the action was “appropriate under 
N.C.G.S. § 26-12[,]” and that, pursuant to the North Carolina Rules 
of Civil Procedure, Borrower was a necessary party pursuant to 
Rule 19, or a permissive party pursuant to Rule 20, “and should be 
joined.”  The trial court further found “that [Borrower] is a going 
concern; is not in bankruptcy; is not dissolved; and is subject to 
the jurisdiction of this Court.  In fact, [] Plaintiff sued 
[Borrower], and [Borrower] was a party until August 18, 2011, when 
Plaintiff filed a Dismissal without prejudice as to [Borrower].”   
The trial court also denied Guarantors’ motion to file a third-
party complaint against Borrower. 
 
By order entered 4 October 2011, the trial court entered 
summary judgment against Guarantors on the issue of liability, and 
further ruled that “[t]he value of the property securing payment 
of the Notes and its effect, if any, on the deficiency owed are 
the sole unresolved issues remaining for trial.”  Defendants, now 
including both Borrower and Guarantors, filed a motion to amend 
their answer so they could “assert N.C.G.S. § 45-21.36 specifically 
as a defense.”  Plaintiff consented to Defendants’ motion to amend, 
and leave for Defendants to file an amended answer was granted by 
-5- 
consent order entered 18 April 2012.  Defendants’ amended answer 
was filed that same date.  
 
Plaintiff and Defendants stipulated to the following relevant 
facts by pretrial order entered 18 April 2012: (1) “all parties 
have been correctly designated, and there is no question as to 
misjoinder[,]” (2) “[t]he total deficiency on the First Note 
following the foreclosure sale . . . was . . . $963,286[,]” (3) 
“[t]he total deficiency on the Second Note following the 
foreclosure sale . . . was . . . $616,556[,]” (4) “that the single 
remaining issue for trial is . . . Defendants’ affirmative defense 
under N.C. Gen. Stat. § 45-21.36[,]” and (5) this issue included 
whether the amount paid by Plaintiff at the foreclosure sales for 
the two parcels of the property “was substantially less than [the] 
true value.”  
 
Following a trial in which Plaintiff and Defendants submitted 
evidence related to the fair market value of the real property, 
the jury decided on 20 April 2012, that the amounts paid by 
Plaintiff for the parcels of real property at foreclosure were 
substantially less than the fair market value of the parcels.  The 
jury determined the fair market value of parcel one was 
$3,723,000.00, and the fair market value of parcel two was 
$1,034,000.00.  Judgment was entered 11 July 2012, in which the 
trial court ruled that Borrower’s indebtedness on the first note 
-6- 
was $0.00, because the jury had determined that the fair market 
value of the first parcel of the property was greater than 
Borrower’s remaining debt of $3,541,356.00.  The trial court ruled 
that Borrower’s indebtedness on the second note was reduced to 
$302,556.00, because the jury had determined the fair market value 
of parcel two was $1,034,000.00, and Borrower’s remaining debt was 
$1,336,556.00.  The trial court then ruled that Borrower and 
Guarantors were jointly and severally liable, and ordered 
Defendants to pay Plaintiff $302,556.00 for the remaining 
uncollected debt, as well as granting Plaintiff attorney’s fees 
and interest.  Plaintiff appeals. 
I. 
The issues on appeal are whether: (1) reducing the liability 
of Guarantors based upon N.C. Gen. Stat. § 45-21.36 was improper, 
(2) N.C. Gen. Stat. § 26-12 “enlarge[d] the scope of available 
defenses,” and (3) joinder of Borrower as a party-defendant was 
improper. 
II. 
“[A] guarantor stands in the shoes of the debtor with respect 
to liability[.]”  Gregory Poole Equipment Co. v. Murray, 105 N.C. 
App. 642, 646, 414 S.E.2d 563, 566 (1992).  Therefore, upon 
Borrower’s default, Guarantors were responsible to Plaintiff for 
Borrower’s remaining liability on the first and second notes.  
-7- 
Stated otherwise, and to use language from the guaranty agreements 
drafted by Plaintiff, Guarantors were liable for any remaining 
“indebtedness of Borrower to Lender [Plaintiff].”   
After Plaintiff voluntarily dismissed Borrower from this 
action, Guarantors moved to re-join Borrower pursuant to, inter 
alia, N.C. Gen. Stat. § 26-12, which states in relevant part: 
When any [guarantor] is sued by the holder of 
the obligation, the court, on motion of the 
[guarantor] may join the principal as an 
additional party defendant, provided the 
principal is found to be or can be made subject 
to the jurisdiction of the court.  Upon such 
joinder the [guarantor] shall have all rights, 
defenses, counterclaims, and setoffs which 
would have been available to him if the 
principal and [guarantor] had been originally 
sued together. 
 
N.C. Gen. Stat. § 26-12(b) (2011).  So long as Plaintiff was 
subject to the jurisdiction of the trial court, and that is not 
disputed in this case, the trial court’s joinder of Plaintiff upon 
Guarantors’ request was discretionary.  “[T]he use of [the word] 
‘may’ generally connotes permissive or discretionary action and 
does not mandate or compel a particular act.  [A] discretionary 
order of the trial court is conclusive on appeal absent a showing 
of abuse of discretion.”  Brock and Scott Holdings, Inc. v. Stone, 
203 N.C. App. 135, 137, 691 S.E.2d 37, 38-39 (2010) (quotation 
marks and citations omitted).   
-8- 
Plaintiff makes no argument that the trial court abused its 
discretion in joining Borrower to Plaintiff’s suit seeking 
recovery for Borrower’s default, and we find none.  Plaintiff 
seemed to concede joinder was proper at oral argument, but argues 
in its brief that joinder pursuant to N.C.G.S. § 26-12(b) was 
improper as a matter of law because Guarantors were thereby able 
to benefit from Borrower’s offset defense.  The only authority 
relied upon by Plaintiff in support of this argument is 
Poughkeepsie Sav. Bank, FSB v. Harris, 833 F. Supp. 551 (W.D.N.C. 
1993).  This opinion is not binding on this Court.  More 
importantly, the trial court in Poughkeepsie, assuming arguendo, 
that N.C.G.S. § 26-12(b) “binds a federal court sitting in 
diversity,” recognized that joinder pursuant to N.C.G.S. § 26-
12(b) is discretionary, and decided, in its discretion, against 
joinder.  Id. at 554.  We hold the trial court did not abuse its 
discretion in joining Borrower pursuant to N.C.G.S. § 26-12(b). 
 
Once joined, Borrower was entitled to assert the defense of 
offset pursuant to N.C. Gen. Stat. § 45-21.36 (2011) in order to 
determine Borrower’s indebtedness to Plaintiff.  N.C.G.S. § 45-
21.36 states in relevant part: 
When any sale of real estate has been made by 
a 
mortgagee, 
trustee, 
or 
other 
person 
authorized to make the same, at which the 
mortgagee, payee or other holder of the 
obligation 
thereby 
secured 
becomes 
the 
purchaser and takes title either directly or 
-9- 
indirectly, and thereafter such mortgagee, 
payee 
or 
other 
holder 
of 
the 
secured 
obligation, as aforesaid, shall sue for and 
undertake to recover a deficiency judgment 
against the mortgagor, trustor or other maker 
of any such obligation whose property has been 
so purchased, it shall be competent and lawful 
for the defendant against whom such deficiency 
judgment is sought to allege and show as 
matter of defense and offset, but not by way 
of counterclaim, that the property sold was 
fairly worth the amount of the debt secured by 
it at the time and place of sale or that the 
amount bid was substantially less than its 
true value, and, upon such showing, to defeat 
or offset any deficiency judgment against him, 
either in whole or in part[.] 
 
N.C.G.S. § 45-21.36.  This Court has stated: 
N.C. Gen. Stat. § 45-21.36 applies well-
settled principles of equity to provide 
protection for debtors whose property has been 
sold and purchased by their creditors for a 
sum less than its fair value.  Richmond 
Mortgage & Loan Corp. v. Wachovia Bank & Trust 
Co., 210 N.C. 29, 185 S.E. 482 (1936), aff'd, 
300 U.S. 124, 81 L.Ed. 552 (1937). 
 
NCNB v. O'Neill, 102 N.C. App. 313, 316, 401 S.E.2d 858, 859 
(1991).  N.C.G.S. § 45-21.36 is a statute based in equity enacted 
to prevent “abuse leading to a windfall,” Id. at  316, 401 S.E.2d 
at 859, it “does not relieve the [borrower] of its debt[,] 
. . . [i]t simply limits the plaintiff to what it bargained for – 
repayment in full plus interest.”  Id. at  317, 401 S.E.2d at 860 
(citations omitted).  
 
After the jury in the present case determined the fair market 
value 
of 
the 
property, 
the 
trial 
court 
determined 
that 
-10- 
“[Borrower’s] indebtedness on the First Note was reduced to 
$0.00[,]” and that “[Borrower’s] indebtedness on the Second Note 
was reduced to $302,556.00.”  The trial court then ruled that 
Guarantors were jointly and severally liable with Borrower for 
$302,556.00.  
Pursuant to established principles of surety law, Gregory 
Poole, 105 N.C. App. at 646, 414 S.E.2d at 566, and the guaranty 
agreements drafted by Plaintiff, Guarantors were liable to 
Plaintiff for “the Indebtedness of Borrower to [Plaintiff.]”1  The 
guaranty agreements state: “The word ‘Indebtedness’ means 
Borrower's indebtedness to [Plaintiff] as more particularly 
described in this Guaranty[,]” and further state: 
The word “Indebtedness” as used in this 
Guaranty means all of the principal amount 
outstanding from time to time and at any one 
or more times, accrued unpaid interest thereon 
and all collection costs and legal expenses 
related thereto permitted by law, attorneys' 
fees 
arising 
from 
any 
and 
all 
debts, 
liabilities and obligations that Borrower 
individually 
or 
collectively 
or 
interchangeably with others, owes or will owe 
Lender under the Note[.] 
 
                     
1 The guaranty agreements all begin with the following language: 
“For good and valuable consideration, Guarantor absolutely and 
unconditionally 
guarantees 
full 
and 
punctual 
payment 
and 
satisfaction of the Indebtedness of Borrower to [Plaintiff], and 
the performance and discharge of all Borrower's obligations under 
the Note and the related Documents.” 
-11- 
That indebtedness was established at trial, and Plaintiff does not 
argue on appeal that there was any error at trial concerning the 
jury’s determination of the fair market value of the property, or 
concerning the trial court’s determination of the remaining 
indebtedness in light of the jury’s determination.  Plaintiff 
argues that it should be allowed to recover from Borrower, through 
purchase and sale of the two parcels of real property, then recover 
again from Guarantors, based upon Guarantors’ agreement to 
guarantee Borrower’s indebtedness to Plaintiff.  
However, 
according to the guaranty agreements: “This Guaranty . . . will 
continue in full force until all the Indebtedness shall have been 
fully and finally paid and satisfied and all of Guarantor's other 
obligations under this Guaranty shall have been performed in full.”  
That indebtedness was partially satisfied through the Plaintiff’s 
actions at the foreclosure sales.  The trial was conducted to 
determine the remainder of the indebtedness. 
 
Plaintiff argues that the defense and offset provided for in 
N.C.G.S. § 45-21.36 is personal to Borrower, and not available to 
Guarantors simply because Borrower had availed itself of the offset 
defense, and Borrower was re-joined in the action pursuant to 
N.C.G.S. § 26-12(b).  We agree that the plain language of N.C.G.S. 
§ 26-12(b) does not, upon re-joinder of Borrower, expand the 
defenses available to Guarantors beyond those that were available 
-12- 
to Guarantors when Plaintiff originally brought action against 
both Borrower and Guarantors together.  However, in the present 
case Guarantors were not allowed an offset defense, Borrower was.  
The fact that Guarantors “benefitted,” because the amount of 
Borrower’s indebtedness was determined at trial to be less than 
what Plaintiff claimed, does not alter this fact.  Plaintiff 
directs us to no controlling nor persuasive law in support of its 
position in this matter.   
The issue in the case before us is not whether a guarantor 
can personally assert an offset defense pursuant to N.C.G.S. § 45–
21.36.  We have not held that Guarantors had the right to avail 
themselves of the offset defense in N.C.G.S. § 45-21.36.  We quite 
assiduously avoided making that determination.  We hold that 
Guarantors were only responsible for Borrower’s indebtedness.  
This holding is in accord with precedent and the language of the 
guaranty agreements drafted by Plaintiff.  Once the jury and the 
trial court determined Borrower’s indebtedness to Plaintiff, 
Guarantors’ liability to Plaintiff was thereby established.  
 
Plaintiff does raise legitimate questions concerning a 
guarantor’s rights, if any, with respect to N.C.G.S. § 45–21.36.  
The earliest opinion addressing this issue appears to be Trust Co. 
v. Dunlop, 214 N.C. 196, 198 S.E.2d 645 (1937).  Our Supreme Court 
in Dunlop held that the guarantor, though not a “mortgagee, or 
-13- 
trustee, or holder of the notes secured by the mortgage,”  id. at 
196, 198 S.E. at 646, had a right to “present the facts” concerning 
the statutory offset defense at trial.  Id.  Our Supreme Court 
further stated: “It is not, of course, for us to say whether the 
defendants can make good the allegations of their [offset] defense: 
We only say that at this stage of the case we do not deny their 
right to make it.”  Id.  Dunlop seems to allow a guarantor to step 
into the borrower’s shoes and assert the offset defense because  
[i]t 
would 
not 
be 
an 
unreasonable 
interpretation of the statute to hold that it 
proceeds upon the equitable assumption that 
the debtor has received payment in full when, 
by his own choice, he takes the land, and that 
the purpose of the law is, under such 
circumstances, to discharge the debt. 
   
Id.  Opinions of this Court have acknowledged this reading of 
Dunlop.  Chem. Bank v. Belk, 41 N.C. App. 356, 368-69, 255 S.E.2d 
421, 429 (1979) (“even a guarantor could likely assert [N.C.G.S. 
§ 45-21.38 as a] defense.  See Trust Co. v. Dunlop, 214 N.C. 196, 
198 S.E. 645 (1938).”); Smith v. Childs, 112 N.C. App. 672, 684, 
437 S.E.2d 500, 508 (1993) (“While personal guaranties are not 
explicitly covered by G.S. 45-21.38, the statute does preclude ‘a 
deficiency judgment on account of’ a purchase money deed of trust.  
This Court has previously commented even a guarantor arguably could 
assert G.S. § 45-21.38 as a defense.  Chemical Bank v. Belk, 41 
N.C. App. 356, 368-69, 255 S.E.2d 421, 429, disc. review denied, 
-14- 
298 N.C. 293, 259 S.E.2d 911 (1979).  Moreover, our Supreme Court 
has ruled the guarantor of a purchase money deed of trust is 
entitled to plead the anti-deficiency statute as a defense in an 
action brought on his personal guaranty.  Virginia Trust Co. v. 
Dunlop, 214 N.C. 196, 198-99, 198 S.E. 645, 646 (1938).  While the 
anti-deficiency statute at issue in [Dunlop] was not identical to 
present G.S. § 45-21.38, both statutes are similar in that 
guarantors are not expressly covered.”).   
To the extent Dunlop stands for the proposition that 
guarantors can claim the offset defense in N.C.G.S. § 45-21.38 
under appropriate circumstances, opinions of this Court holding 
otherwise are not controlling.  Andrews ex rel. Andrews v. Haygood, 
188 N.C. App. 244, 248, 655 S.E.2d 440, 443 (2008) (“this Court 
has no authority to overrule decisions of our Supreme Court and we 
have the responsibility to follow those decisions ‘until otherwise 
ordered by . . . [our] Supreme Court’”) (citation omitted).  
However, our holding in this matter does not require us to resolve 
this issue, and we do not presume to do so. 
We hold that once Borrower successfully obtained an offset 
pursuant to N.C.G.S. § 45–21.36, reducing Borrower’s indebtedness 
thereby, Guarantors could only be held responsible for Borrower’s 
indebtedness.  Plaintiff’s arguments are without merit. 
No error. 
-15- 
Judge McCULLOUGH concurs. 
Judge DILLON concurs in part and concurs in result only in 
part by separate opinion.
NO. COA13-331 
NORTH CAROLINA COURT OF APPEALS 
Filed: 3 December 2013 
 
 
HIGH POINT BANK AND TRUST  
COMPANY, 
 
Plaintiffs-Appellant, 
 
 
 
 
v. 
 
Guilford County 
No. 10 CVS 10910 
HIGHMARK PROPERTIES, LLC;  
MITCHELL BLEVINS, CYNTHIA 
BLEVINS, CHARLES WILLIAMS  
and JANICE WILLIAMS, 
     Defendants-Appellees. 
 
 
 
 
DILLON, Judge, concurring in part and concurring in the result 
only in part. 
 
I concur with the majority’s conclusion that the trial court 
did not abuse its discretion in joining Highmark Properties, LLC, 
(“Borrower”) to this action.  However, regarding the majority’s 
holding that the trial court did not err by reducing the liability 
of the individual defendants (“Guarantors”) based upon N.C. Gen. 
Stat. § 45-21.36 (2011), I concur in result only for the reasons 
set forth below.  
I believe that holdings from our Court, discussed infra, would 
compel us to conclude that the trial court erred in reducing the 
liability of the Guarantors based on the jury’s determination of 
the collateral’s fair market value rendered in connection with the 
Borrower’s assertion of the defense provided in G.S. § 45-21.36.  
-2- 
 
 
However, I reach the same holding as the majority because I believe 
this case is controlled by our Supreme Court’s holding in Trust 
Co. v. Dunlop, 214 N.C. 196, 198 S.E. 645 (1937), where the Court, 
essentially, held that a guarantor could assert the defense 
provided by G.S. § 45-21.36 in a case even where the mortgagor-
borrower was not a party.  
Normally, following a foreclosure sale, the amount of the 
underlying indebtedness securing a mortgage is deemed reduced by 
the amount of the net proceeds realized from the sale.  N.C. Gen. 
Stat. § 45-21.31(a)(4) (2011).  This general rule is abrogated in 
situations where the creditor, who commenced the foreclosure, is 
the high bidder at the foreclosure sale.  I believe the key 
question here is whether the Legislature, by enacting  G.S. § 45-
21.36, intended for the actual value of the collateral at the time 
of the foreclosure – as opposed to the net proceeds realized from 
the sale – to serve as a measure by which the indebtedness is 
reduced or as a measure by which the mortgagor-borrower’s personal 
liability to pay the indebtedness is reduced.  If the former is 
true, then I believe a guarantor should be able to assert G.S. § 
45-21.36, even if the borrower whose property served as the 
collateral for the debt is not a party to the action since the 
guarantor is only liable for the actual amount of the underlying 
-3- 
 
 
indebtedness.  However, if the latter is true – and the defense 
provided by G.S. § 45-21.36 is intended to provide a defense that 
is personal to the mortgagor-borrower - then I believe a guarantor 
cannot benefit from the defense.2   
Our Court has held that the guarantor of a mortgagor’s debt 
may not avail himself of the defense provided by G.S. § 45-21.36.  
For instance, in Wells Fargo Bank, N.A. v. Arlington Hills of Mint 
Hill, LLC, which involved a deficiency suit by a creditor against 
a mortgagor-borrower and the guarantors, our Court affirmed the 
trial court’s summary judgment order against the guarantors, 
stating that “[t]he fact that Bank also named Borrower, the 
mortgagor, as a defendant in the deficiency action does not expand 
the availability of the offset defense under N.C. Gen. Stat. § 45-
21.36 to non-mortgagor [guarantors].”  __ N.C. App. __, __, 742 
S.E.2d 201, 204 (2013). 
                     
2 Examples of defenses that are personal to the primary borrower, 
which we have stated cannot generally be asserted by a guarantor 
or surety, are found in Exxon v. Kennedy, 59 N.C. App. 90, 295 
S.E.2d 770 (1982) (holding that a discharge of a debtor through 
bankruptcy does not discharge the obligation of a guarantor under 
a guaranty agreement); and in Town v. Smith, 10 N.C. App. 70, 74, 
178 S.E.2d 18, 21 (1970), cert. denied, 277 N.C. 727, 178 S.E.2d 
831 (1971), where we stated that “[a] surety for an idiot or an 
infant, or a surety for a corporation or governmental entity acting 
ultra vires, may be liable, although the principal is liable 
neither to the obligee nor to the surety.”  Id.  (citing Davis v. 
Commissioners, 72 N.C. 441 (1876); Poindexter v. Davis, 67 N.C. 
112 (1872)). 
-4- 
 
 
In Borg-Warner v. Johnston, which involved a deficiency suit 
against only the guarantors of a loan, our Court held that the 
guarantor-defendants could not invoke G.S. § 45-21.36 as a means 
to determine the amount of the indebtedness that they owed, but 
that the defense was only available to the mortgagor-borrower.  97 
N.C. App. 575, 579, 389 S.E.2d 429, 433 (1990).   
We have also held that, in a situation where a loan is 
extended to multiple co-borrowers but where only one of the co-
borrowers actually owned the collateral securing the debt, only 
the borrower who had the ownership in the collateral could assert 
G.S. § 45-21.36.  Specifically, in Raleigh Federal v. Godwin, the 
Court stated: 
The General Assembly’s intention to limit the 
protection of the statute to those who hold a 
property interest in the mortgage property is 
clear; the protection of G.S. § 45-21.36 is 
not applicable to other parties who may be 
liable on the underlying debt.  Defendants, as 
other parties liable on the underlying debt, 
but who hold no property interest in the 
mortgaged property, cannot assert the defense 
of G.S. § 45-21.36. 
 
99 N.C. App. 761, 763, 394 S.E.2d 294, 295 (1990); see also First 
Citizens v. Martin, 44 N.C. App. 261, 261 S.E.2d 145 (1979) 
(stating that the General Assembly intended that, in a case 
involving multiple borrowers, only the borrower with an interest 
in the collateral could avail itself of G.S. § 45-21.36), disc. 
-5- 
 
 
rev. denied, 299 N.C. 741, 267 S.E.2d 661 (1980).  Taken together, 
these holdings from our Court discussed above suggest that the 
defense provided by G.S. § 45-21.36 is personal to the mortgagor-
borrower.  
Notwithstanding the holdings in these cases of our Court, I 
believe our Supreme Court’s opinion in Trust Co. v. Dunlop, 214 
N.C. 196, 198 S.E. 645 (1937) - a case which is not referenced in 
any of the decisions of this Court cited above - is controlling.   
In Dunlop, a creditor made a loan to a borrower secured by 
borrower’s real estate collateral and guaranteed by a guarantor.3   
Id. at 196, 198 S.E. at 645.  The borrower defaulted.  Id. at 197, 
198 S.E. at 645.  The creditor foreclosed on the collateral.  Id.  
The successful bidder at foreclosure was not the creditor, but 
rather a subsidiary of the creditor.  Id.  The net proceeds, 
however, did not cover the amount owed on the underlying debt.  
Id.  Accordingly, the creditor sued the executors of guarantor’s 
estate for the deficiency under the guaranty; however, the borrower 
was not sued.  Id.   
                     
3 The guaranty agreement appears to be a “guaranty of payment,” 
stating that “[t]he undersigned [guarantor] hereby guarantees the 
prompt payment of the within obligation, both principal and 
interest, as and when same becomes due according to its terms. . 
. .  The undersigned further agrees to remain bound notwithstanding 
any extension of time which may be granted to the maker of the 
within obligation.”  Dunlop, 214 N.C. at 196, 198 S.E. at 645. 
-6- 
 
 
In their answer, the executors of guarantor’s estate pled, as 
a defense, the language in G.S. § 45-21.36, referred to in the 
opinion as “chapter 275 of the Public Laws of 1933[,]”4 as a 
defense, alleging that the collateral “was reasonably and fairly 
worth the amount of the debt . . . and that its market value was 
in excess of such indebtedness; and that under [G.S. § 45-21.36] 
the debt of the plaintiff is fully satisfied and paid, and the 
estate of [the guarantor] was thereby fully released and 
discharged.”  Id. at 197, 198 S.E. at 645. 
The creditor moved to strike the executors’ defense, arguing 
that the pleading was irrelevant to the case because the defense 
under G.S. § 45-21.36 was only available to debtors “‘whose 
property has been so purchased (at foreclosure)’ and that such 
special defense is unavailable to a guarantor of the debt.”  Id. 
at 198, 198 S.E. at 645.   
The trial court denied the creditor’s motion to strike the 
defense pled by the guarantor’s executors.  The creditor’s 
immediately appealed.    
                     
4 The language in the statute has been amended since it was 
originally enacted in 1933.  However, the portions of the statute 
that are relevant to Dunlop and to the present case are 
substantially similar to the current text of G.S. § 45-21.36. 
-7- 
 
 
Regarding motions to strike, our Supreme Court held that “an 
aggrieved party may have [an] irrelevant or redundant matter 
stricken from his opponent’s pleading, especially when such matter 
is prejudicial to him[,]” stating that a motion to strike, timely 
made, was “a matter of right and not addressed to the discretion 
of the court.”  Patterson v. R.R., 214 N.C. 38, 42-43, 198 S.E. 
364, 367 (1937); see also Development Co. v. Bearden, 227 N.C. 
124, 127, 41 S.E.2d 85, 87 (1946) (holding that “[i]f the matter 
sought to be deleted is found to be [irrelevant], the court has no 
alternative but to strike it out”).   
In addressing the issue of the relevancy of the pleadings, 
the Dunlop Court, citing Patterson, stated that “[o]n a motion to 
strike out, the test of relevancy of a pleading is the right of 
the pleader to present the facts to which the allegation relates 
in the evidence upon the trial.”  Dunlop, 214 N.C. at 198, 198 
S.E. at 646.  That is, only those allegations “which, if 
established, will constitute a cause of action or a defense[,]” 
are relevant and will be sustained.  Williams v. Thompson, 227 
N.C. 166, 167, 41 S.E.2d 359, 360 (1947).  In Dunlop, the 
allegations sought by the creditor to be struck – for example, 
allegations that the purchaser at the foreclosure was essentially 
the alter ego of the mortgagee and that the actual value of the 
-8- 
 
 
real estate exceeded the amount of the debt – were only relevant 
to the case if the guarantor’s defense based on G.S. § 45-21.36 
could validly be pled as a defense by a guarantor in a deficiency 
suit, even where the mortgagor-borrower had not been sued.  By 
affirming the trial court’s ruling not to strike the defense, our 
Supreme Court concluded that the allegations were, indeed, 
relevant, based “upon the merits.” Dunlop, 214 N.C. at 199, 198 
S.E. at 646.  In other words, the only basis by which the Supreme 
Court could have affirmed the trial court’s ruling in this case 
was that the defense provided by G.S. § 45-21.36 raised by the 
guarantor’s estate was relevant, and therefore valid:   
It is not, of course, for us to say whether 
[the executors of guarantor’s estate] can make 
good the allegations of their further defense:  
We only say that at this stage of the case we 
do not deny their right to make it. 
 
Id. at 199, 198 S.E. 646.  If the defense was not available to a 
guarantor under the statute, the allegations would have been 
irrelevant to the resolution of the creditor’s action against the 
guarantor; and I believe the Supreme Court would have been 
compelled to reverse the trial court’s ruling, which would have 
prevented the parties from wasting time and resources at trial 
presenting evidence to prove irrelevant issues.   
-9- 
 
 
Our Supreme Court has not abrogated or overruled its 1937 
holding in Dunlop.  Accordingly, notwithstanding the prior 
holdings of our Court discussed above, I believe we are bound to 
follow that holding “until otherwise ordered by [our] Supreme 
Court[,]”  Andrews v. Haygood, 188 N.C. App. 244, 248, 655 S.E.2d 
440, 443 (2008).