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Notarized Contract Does Not Give Rise to the Presumption of Adequate Consideration

By Sean E. Andrussier

The North Carolina Court of Appeals discussed the presumption that contracts executed under seal are supported by adequate consideration in Burton v. Williams.

In early 1998, Walter Burton sold his home to the defendant, Tony Williams. Burton provided "owner-financing for $160,000.00 of the $185,000.00 purchase price." The terms of the Promissory Note Burton and Williams executed required Williams "to pay Burton $160,000.00 at 7% interest in 151 monthly payments of $1,240.48." In September 2005, Williams and Burton executed a Promissory Note Addendum and Payment Agreement Release that provided, in relevant part, "that if Mr. Burton died prior to the defendant completely repaying the promissory note, then the note became null and void and defendant would be 'relieved of any and all remaining financial obligations to or claims by the estate, beneficiaries, creditors, heirs, or assignees of Mr. Burton.'"

In April 2007, Burton's son, Luther Burton discovered the Release while cleaning out his father's home. Luther Burton, who had been named his father's power of attorney in March 2005, filed an action seeking to have the Release declared void and unenforceable because, among other reasons, the Release was not supported by consideration.

At the close of all the evidence, both parties moved for a directed verdict. Williams argued that Burton was not entitled to a directed verdict because "the notary public's acknowledging the release constituted the release being executed 'under seal,' which created a presumption that the release was supported by consideration." The trial court rejected this argument and granted Burton's motion for a directed verdict "on the ground that the release was void and unenforceable for lack of consideration." Williams appealed.

The Court of Appeals found that Williams argument failed because he mistook "the effect of a notary public's acknowledging a document as opposed to a party's executing an agreement 'under seal.'" A notarial seal only authenticates a document. However, "when a party executes an agreement under seal 'the presence of the seal renders the document to which it is affixed indisputable as to the terms of the underlying obligation ... and 'imports consideration' to support that instrument." In other words, "the presence of a seal raises the presumption that the instrument is supported consideration."

The Court of Appeals held that the because the Release was not executed under seal there was no presumption that it was supported by consideration. The Court affirmed the trial court's decision to direct a verdict in favor of Burton because Burton established that the Release was unsupported by consideration and Williams, because he could not rely on the presumption of consideration, had failed to present sufficient evidence to allow the matter to be submitted to the jury.

Full post as published by North Carolina Appellate Blog on January 20, 2010 (boomark / email).