Driftwood Manor Investors v. CITY FED. SAV. AND LOAN ASS'N.

305 S.E.2d 204 (1983)

DRIFTWOOD MANOR INVESTORS v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION and James M. Kimzey, Substitute Trustee.

No. 8210SC942.

Court of Appeals of North Carolina.

August 2, 1983.

*206 Smith, Moore, Smith, Schell & Hunter by Larry B. Sitton and E. Garrett Walker, Greensboro, and Joslin, Culbertson, Sedberry & Houck by John K. Culbertson, Raleigh, for plaintiff-appellee.

Manning, Fulton & Skinner by Charles B. Morris, Jr. and Robert S. Shields, Jr., Raleigh, for defendant-appellant.

Kimzey, Smith & McMillan by James M. Kimzey, Raleigh, for James M. Kimzey, trustee.

WEBB, Judge.

The issue in this case is whether a default has occurred under the deed of trust entitling defendant to accelerate the indebtedness and foreclose the property. Defendant argues that two separate defaults have occurred(1) failure to obtain written approval prior to transfer of the security property (hereinafter the transfer default), and (2) failure to timely pay the March 1980 installment (hereinafter the payment default)either of which alone is sufficient to entitle defendant to exercise the acceleration clause in the deed of trust. For the reasons that follow, we hold the trial court was correct in finding there is no default under the deed of trust and in directing a verdict for plaintiff.

The determination of whether a transfer default occurred in this case depends upon the interpretation given paragraph fourteen of the deed of trust. We read this paragraph to say the deed of trust may only be assumed if City Federal gives prior written approval, and if the property *207 is transferred without such written approval, City Federal may declare the balance due and payable. The property was sold subject to the deed of trust. We believe the difference between a sale of real property with an assumption of the indebtedness and a sale subject to an indebtedness is well enough known in this state so that we should not hold that City Federal is entitled to accelerate the indebtedness when the property is sold subject to the deed of trust.

The defendant argues that the second clause of Paragraph Fourteen is separate and divisible from the first clause so that regardless of the first clause, it prohibits a sale of the property without the prior written approval of City Federal. We do not so read this paragraph. We believe the use of the word "such" refers the prior written approval to the clause dealing with an assumption. It is only in case of an assumption that prior written approval is required.

Both the note and deed of trust provide that in the event of default, City Federal will look solely to the property covered by the deed of trust for satisfaction of the indebtedness and will not hold the maker of the note personally liable. The defendant argues that since it cannot look to the maker of the note in the event of default it has greater need to approve the owner of the property before a transfer is made. It says this is so because only by approving the property owner can it be assured that the property will be properly maintained. Whatever the needs of City Federal, we do not believe we can change the words of the agreement.

The issue presented by the facts of this case is whether the holder of a note who has repeatedly accepted monthly installment payments after their respective due dates will be allowed to accelerate the entire indebtedness because of a subsequent late payment. This is a case of first impression in North Carolina but the question has been addressed in numerous other jurisdictions. See Northside Bank of Miami v. Melle, 380 So. 2d 1322 (Fla.App.1980); Verner v. McLarty, 213 Ga. 472, 99 S.E.2d 890 (1957); Federal Nat. Mortgage Ass'n. v. Walter, 363 P.2d 293 (Okl.1961); Annot. 97 A.L.R.2d 997 (1964). We believe the majority of jurisdictions hold that a noteholder in this situation will be held to have waived the right to insist on punctual payment unless prior to the late payment the noteholder notified the payor that prompt payment is again required. We believe this is the better reasoned rule. We hold that on the facts of this case, City Federal waived the prompt payment of the March 1980 payment. This is without prejudice for City Federal to require payment by the first of each month in the future.

For the reasons stated in this opinion, we affirm the judgment of the Superior Court.

Affirmed.

ARNOLD and BRASWELL, JJ., concur.