Brenner v. Little Red Sch. House, Ltd.

274 S.E.2d 206 (1981)

Ralph N. BRENNER, Jr. v. The LITTLE RED SCHOOL HOUSE, LIMITED.

No. 46.

Supreme Court of North Carolina.

February 2, 1981.

*208 Wyatt, Early, Harris, Wheeler & Hauser by A. Doyle Early, Jr., High Point, for plaintiff-appellant.

Max D. Ballinger, High Point, for defendant-appellee.

COPELAND, Justice.

Plaintiff sets forth several arguments in support of his allegation that the Court of *209 Appeals erred in reversing the trial court's order entering summary judgment in his favor. We have carefully reviewed each of plaintiff's contentions and find that summary judgment could not properly be granted in favor of either party. For the reasons stated below, we reverse that portion of the Court of Appeals' decision which remanded the case for entry of summary judgment in favor of defendant.

Plaintiff-appellant first contends that the doctrine of impossibility of performance and frustration of purpose should apply in this case to bring about a recission of the contract. Impossibility of performance is recognized in this jurisdiction as excusing a party from performing under an executory contract if the subject matter of the contract is destroyed without fault of the party seeking to be excused from performance. Sechrest v. Forest Furniture Co., 264 N.C. 216, 141 S.E.2d 292 (1965). Plaintiff's former wife's refusal to send the child to defendant school did not destroy the subject matter of the contract; it was still possible for the child to attend the school. The doctrine of impossibility of performance clearly has no bearing on this case.

In support of the applicability of the doctrine of frustration of purpose, plaintiff argues that his former wife's refusal to allow the child to attend defendant school was a fundamental change in conditions which destroyed the object of the contract and resulted in a failure of consideration. Judge Harry C. Martin agreed with plaintiff and dissented on this basis, discussing the doctrine of frustration of purpose at length. While we agree with Judge Martin's general discussion of the law concerning frustration of purpose, we hold that the doctrine does not apply to bring about a recission under the facts of this case.

The doctrine of frustration of purpose is discussed in 17 Am.Jur.2d Contracts § 401 (1964) as follows:

"Changed conditions supervening during the term of a contract sometimes operate as a defense excusing further performance on the ground that there was an implied condition in the contract that such a subsequent development should excuse performance or be a defense, and this kind of defense has prevailed in some instances even though the subsequent condition that developed was not one rendering performance impossible.... In such instances, ... the defense doctrine applied has been variously designated as that of `frustration' of the purpose or object of the contract or `commercial frustration.'

Although the doctrines of frustration and impossibility are akin, frustration is not a form of impossibility of performance. It more properly relates to the consideration for performance. Under it performance remains possible, but is excused whenever a fortuitous event supervenes to cause a failure of the consideration or a practically total destruction of the expected value of the performance. The doctrine of commercial frustration is based upon the fundamental premise of giving relief in a situation where the parties could not reasonably have protected themselves by the terms of the contract against contingencies which later arose."

If the frustrating event was reasonably foreseeable, the doctrine of frustration is not a defense. In addition, if the parties have contracted in reference to the allocation of the risk involved in the frustrating event, they may not invoke the doctrine of frustration to escape their obligations. 17A C.J.S. Contracts § 463(2) (1963). See also Perry v. Champlain Oil Co., 101 N.H. 97, 134 A.2d 65 (1957); Blount-Midyette & Co. v. Aeroglide Corp., 254 N.C. 484, 119 S.E.2d 225 (1961); Annot., 84 A.L.R.2d 12 (1962).

In the present case, plaintiff contracted to pay the tuition for the entire school year in advance of the first day of school. In consideration therefor, defendant promised to hold a place in the school for plaintiff's child, to make all preparations necessary to educate the child for the school year, and to actually teach the child during that period. Both parties received valuable consideration under the terms of *210 the contract. After receiving plaintiff's tuition payment, defendant reserved a space for plaintiff's child, made preparations to teach the child, and at all times during the school year kept a place open for the child. This performance by defendant was sufficient consideration for plaintiff's tuition payment. A school such as defendant must make arrangements for the education of its pupils on a yearly basis, prior to the commencement of the school year. Many of these arrangements are based upon the number of pupils enrolled, for example, the teaching materials to be ordered, the number of teachers to be hired, and the desks and other equipment which will be used by the children. In addition, private schools are often limited in the number of pupils that can be accommodated, so that the reservation of a space for one child may prevent another's enrollment in the school. Had it been advised before the first day of school that plaintiff's child would not be in attendance, defendant might have been able to fill the vacant position. After the start of the school year, the probability of filling the position decreased substantially, thus to allow plaintiff to recover the tuition paid might deprive defendant of income it would have received had the contract not been entered into. Therefore, although plaintiff did not receive the full consideration contemplated by the contract, he received consideration sufficient to avoid the application of the doctrine of frustration of purpose. There was no substantial destruction of the value of the contract.

Furthermore, we find the doctrine of frustration of purpose inapplicable on an additional basis. Although the parties could not have been expected to foresee the exact actions of plaintiff's former wife in refusing to send the child to defendant school, the possibility that the child might not attend was foreseeable and appears expressly provided for in the contract. The contract states that tuition is "payable in advance of the first day of school, no portion refundable." This provision allocates to plaintiff the risk that the child will not attend, and prevents the application of the doctrine of frustration of purpose.

Since the doctrine of frustration of purpose does not apply and the terms of the contract are clear and unambiguous, the courts are bound to enforce it as written. Crockett v. First Federal Savings and Loan Association of Charlotte, 289 N.C. 620, 224 S.E.2d 580 (1976); Weyerhaeuser Co. v. Carolina Power & Light Co., 257 N.C. 717, 127 S.E.2d 539 (1962). This holding is consistent with prior cases in this jurisdiction which state that a contract providing for the nonrefundable payment of tuition is enforceable as written, regardless of the nonattendance of the pupil, where the failure to attend is not caused by some fault on the part of the school. Horner School v. Wescott, 124 N.C. 518, 32 S.E. 885 (1899); Bingham v. Richardson, 60 N.C. 215 (1864). Our decision is also in accord with the majority of jurisdictions in this country. J. J. & L. Investment Co. v. Minaga, 487 P.2d 561 (Colo.App.1971); Missouri Military Academy v. McCollum, 344 S.W.2d 636 (Mo. Ct.App.1961); Annot., 69 A.L.R. 714 (1930).

Defendant argues that even if the contract is not rescinded, this Court should find it unconscionable and refuse to enforce it. We disagree. A court will generally refuse to enforce a contract on the ground of unconscionability only when the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other. Hume v. United States, 132 U.S. 406, 10 S. Ct. 134, 33 L. Ed. 393 (1889); Christian v. Christian, 42 N.Y.2d 63, 365 N.E.2d 849, 396 N.Y.S.2d 817 (1977). In determining whether a contract is unconscionable, a court must consider all the facts and circumstances of a particular case. If the provisions are then viewed as so one-sided that the contracting party is denied any opportunity for a meaningful choice, the contract should be found unconscionable. In re Friedman, 64 A.D.2d 70, 407 N.Y.S.2d 999 (1978); Collins v. Uniroyal Inc., 126 N.J.Super. 401, 315 A.2d 30 (1973), aff'd 64 N.J. 260, 315 A.2d 16 (1974). See, e. g., G.S. 25A-43(c).

*211 After considering all the facts before the trial court, we hold that the contract at issue cannot be declared unenforceable on the grounds of unconscionability. There was no inequality of bargaining power between the parties. Plaintiff was not forced to accept defendant's terms, for there were other private and public schools available to educate the child. The clause providing that tuition payments would be non-refundable is reasonable when considered in light of the expense to defendant in preparing to educate the child and in reserving a space for him. The bargain was one that a reasonable person of sound judgment might accept. "Ordinarily, when parties are on equal footing, competent to contract, enter into an agreement on a lawful subject, and do so fairly and honorably, the law does not permit inquiry as to whether the contract was good or bad, whether it was wise or foolish." Roberson v. Williams, 240 N.C. 696, 700-01, 83 S.E.2d 811, 814 (1954). The contract is enforceable as written.

Plaintiff next contends that the clause prohibiting the refund of any portion of the tuition paid is in the nature of a penalty rather than a provision for liquidated damages, and therefore cannot be enforced. It is well established that a sum specified in the contract as the measure of recovery in the event of a breach will be enforced if the court determines it to be a provision for liquidated damages, but not enforced if it is determined to be a penalty. Knutton v. Cofield, 273 N.C. 355, 160 S.E.2d 29 (1968). However, plaintiff's argument ignores the fact that there has been no breach of contract in this case. Both parties fully performed their obligations under the contract to the extent possible without the presence of the child in the school. Neither party promised that the child would attend. The nonrefundable tuition provision was simply one term of the contract, not a measure of recovery in the event of a breach, thus the law of damages has no bearing upon this case.

In paragraph five of his amended complaint, plaintiff alleged that after his former wife informed him that she did not intend to send the child to defendant school, plaintiff contacted Patsy Ballinger, headmistress of the school, who promised to refund to plaintiff the full tuition payment of $1,072.00. Before answering the other portions of plaintiff's complaint, defendant moved to strike the allegations of paragraph five. This motion was denied 19 September 1979 by an order which did not specify a time within which defendant was to reply to the allegations in that paragraph. On 25 September 1979 defendant filed an amended answer, for the first time denying the allegations of paragraph five. Plaintiff filed a motion to strike the amended answer on 27 September 1979, on the grounds that defendant failed to obtain permission of the court before filing the amended answer, in violation of G.S. 1A-1, Rule 15. Plaintiff's motion was allowed 16 October 1979. Plaintiff therefore contends that since the allegations of paragraph five were never denied, they are deemed admitted under G.S. 1A-1, Rule 8(d). We hold that the trial court erred in granting plaintiff's motion to strike defendant's amended answer, and therefore find plaintiff's argument without merit.

Defendant's motion to strike paragraph five of the complaint was made under the authority of G.S. 1A-1, Rule 12(f). G.S. 1A-1, Rule 12(a)(1)a provides that when the court denies a motion permitted under Rule 12, a responsive pleading may be served within 20 days after notice of the court's action. Defendant's amended answer, which was the first responsive pleading to paragraph five of the complaint, was filed well within the 20 day limit. Thus, although Rule 15(a) mandates that defendant could only amend his answer after obtaining the court's permission or plaintiff's written consent, Rule 12(a)(1)a expressly authorized defendant to file without permission those portions of his amended answer which were a responsive pleading to the paragraphs of the complaint subject to defendant's motion to strike. Consequently, the court's 16 October 1979 order granting plaintiff's motion to strike the amended *212 answer was in error to the extent that it struck those portions which were responsive pleadings to the paragraphs of the complaint subject to defendant's motion to strike. The allegations in paragraph five of the complaint were properly denied by defendant's amended answer, and plaintiff's arguments to the contrary are without merit.

However, we find that by his allegation that Ms. Ballinger agreed to refund the tuition paid, plaintiff raised an issue of fact sufficient to avoid the entry of summary judgment against him. If Ms. Ballinger did agree to refund plaintiff's payment, her agreement would constitute an enforceable modification of the provision of the contract prohibiting a refund. Where, as in this case, a contract has been partially performed, an agreement to alter its terms is treated as any other contract and must be supported by consideration. Wheeler v. Wheeler, 299 N.C. 633, 263 S.E.2d 763 (1980); Lenoir Memorial Hospital, Inc. v. Stancil, 263 N.C. 630, 139 S.E.2d 901 (1965). In return for defendant's promise to refund the tuition paid, plaintiff would relinquish his right to have his child educated in defendant school. Defendant received a benefit in being relieved of the responsibility to teach the child for the school year. It is well established that any benefit, right, or interest bestowed upon the promisor, or any forbearance, detriment, or loss undertaken by the promisee, is sufficient consideration to support a contract. Carolina Helicopter Corp. v. Cutler Realty Co., 263 N.C. 139, 139 S.E.2d 362 (1964); 17 C.J.S. Contracts § 74 (1963). We believe that there was consideration sufficient to support an agreement by Ms. Ballinger to refund plaintiff's payment, if such an agreement was made. Whether such an agreement was reached is a material fact to be determined by the jury. Summary judgment is properly granted only if all the evidence before the court indicates that there is no genuine issue as to any material fact and that one party is entitled to judgment as a matter of law. The burden of establishing the absence of any triable issue of fact is on the party moving for summary judgment. Econo-Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200, 271 S.E.2d 54 (1980); Middleton v. Myers, 299 N.C. 42, 261 S.E.2d 108 (1980); G.S. 1A-1, Rule 56(c). Plaintiff failed to meet his burden to prove, as a matter of law, that an enforceable agreement to refund his payments existed. Hence, the trial court erred in granting plaintiff's motion for summary judgment. Likewise, defendant did not prove, as a matter of law, that no agreement to refund plaintiff's payment was made, and that portion of the Court of Appeals' opinion which remanded to the trial court for entry of summary judgment in favor of defendant was also in error.

For the reasons stated, we reverse the decision of the Court of Appeals and remand to that court with instructions to remand to the District Court, Guilford County, for a

NEW TRIAL.

MEYER, J., did not participate in the consideration or decision of this case.