Court Opinion

ID: 8907653
Source: CourtListenerOpinion
Date Created: 2022-11-27 02:05:17.973245+00
Date Added: 2024-06-11T17:08:19.415024
License: Public Domain

ARNOLD, Judge.
The primary issue on appeal is whether the Superior Court properly entered an order allowing the petitioner, American Federal Savings and Loan, to foreclose under the terms of a deed of trust entered into in February 1982.
The petitioner entered into the February deed of trust with respondents in exchange for a loan to build a house. This deed of trust gave petitioner a lien on the house to be built with the loan proceeds and on the land on which it was located. Respondents, however, needed additional time and money to complete construction and to sell the house. The petitioner agreed to extend the construction period and to lend respondents more money.
The parties therefore entered into a second note and deed of trust, substituting them for the first note and deed of trust. Both the second note and deed of trust reflected the increased loan amount; the deed of trust continued the lien on the property established under the first deed of trust. At the time of the closing, petitioner drew a check for $140,000 and closed the loan account, and opened a new account in the amount of $196,800 in respondents’ names. Petitioner did not surrender or cancel the first note and deed of trust.
*711The second deed of trust, however, was not valid because it did not contain the signatures of the respondents Mr. and Mrs. Bowers in their capacities as officers of Arco, Inc. Arco, Inc. was titleholder of the property which was the subject of the liens and two deeds of trust.
The respondents claim that whether or not the second deed of trust was valid, the petitioner paid off the debt evidenced by the first note and deed of trust when it drew the check for $140,000, applied it to the original loan account, and opened a new account. Respondents argue that petitioner lacks a valid debt and therefore a right to foreclose under the first deed of trust.
Petitioner argues that because the second deed of trust was invalid, there was no consideration for the second loan agreement and, therefore, for the payment of the obligation evidenced by the first note and deed of trust. Petitioner contends that failure of consideration for the second loan transaction restores the parties’ duties under the first transaction for which the second was substituted.
We agree that the second deed of trust was given by respondents as security for the second loan, which was used to pay off the first loan. We agree also that the parties intended the second note and deed of trust to replace and be substituted for the original note and deed of trust. The trial judge’s findings to this effect are supported by competent evidence in the record.
Failure of the respondents to affix the proper signatures to the second deed of trust caused it to be invalid and amounted to substantial failure of consideration for the second loan agreement. Failure of consideration renders the second loan agreement a nullity, see Gore v. Ball, Inc., 279 N.C. 192, 199, 182 S.E. 2d 389, 393 (1971), and revives the parties’ duties under the original loan agreement, for which the second agreement was substituted, see Restatement (Second) of Contracts § 279, Comment b (1979).
The original debt then is still valid and in force. Respondents are in default under it, for they have failed to refinance successfully or to make direct repayment. Petitioner still holds the original note, and the original deed of trust has not been can-celled of record at any time. Petitioner therefore has a right to foreclose under the original deed of trust. See G.S. 45-21.16.
*712Affirmed.
Judges Phillips and Cozort concur.