{
  "id": 8528034,
  "name": "ZORBA'S INN, INC. v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. STEPHEN C. EATON",
  "name_abbreviation": "Zorba's Inn, Inc. v. Nationwide Mutual Fire Insurance",
  "decision_date": "1989-04-04",
  "docket_number": "No. 8821DC467",
  "first_page": "332",
  "last_page": "335",
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      "year": 1972,
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    {
      "cite": "281 N.C. 191",
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    {
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  "analysis": {
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  "last_updated": "2023-07-14T17:06:43.799233+00:00",
  "provenance": {
    "date_added": "2019-08-29",
    "source": "Harvard",
    "batch": "2018"
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  "casebody": {
    "judges": [
      "Judges Arnold and Wells concur."
    ],
    "parties": [
      "ZORBA\u2019S INN, INC. v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. STEPHEN C. EATON"
    ],
    "opinions": [
      {
        "text": "COZORT, Judge.\nThe question raised by this appeal is whether a secured party under Article 9 of North Carolina\u2019s Uniform Commercial Code may maintain an action against an insurer to enforce the secured party\u2019s right to insurance proceeds as provided in N.C. Gen. Stat. \u00a7 25-9-306. We hold that, under the facts of the case before us, the secured party has no enforceable claim against the insurer. We therefore affirm the judgment below.\nOn or about 4 March 1986, plaintiff and third-party defendant Eaton entered into an asset purchase agreement whereby Eaton purchased from plaintiff the assets of plaintiffs restaurant business for $75,000. Of that purchase price, Eaton paid $50,000 in cash and executed a note for the remaining $25,000. To secure the loan, the parties entered into a Security Agreement granting plaintiff a security interest in the machinery, equipment, and fixtures located on the premises of the restaurant.\nOn 5 June 1986, defendant Nationwide Mutual Fire Insurance Company issued to \u201cSteve C. Eaton DBA Steve\u2019s Restaurant\u201d an insurance policy covering equipment and other personal property located in the restaurant. Plaintiff was not named a loss payee under that policy. Two months later, the restaurant was damaged by fire. Eaton thereafter defaulted on his obligations under the promissory note, thus triggering plaintiff\u2019s rights under the Security Agreement.\nPlaintiff informed defendant Nationwide of plaintiff\u2019s security interest in the insured property and requested that any payments made for damages to the contents of the restaurant be made payable jointly to Eaton and plaintiff. Plaintiff\u2019s verified complaint alleges that, in return for its promise not to sue defendant, defendant agreed to include plaintiff in any payments made to Eaton under the insurance policy. However, in contravention of this alleged promise, defendant paid Eaton $7,000.00 in settlement of Eaton\u2019s claim.\nPlaintiff thereafter brought the instant action for breach of contract and negligent payment. The trial court granted summary judgment in defendant\u2019s favor. We affirm.\nIn order to maintain an action for breach of contract, a plaintiff must show that the contract to be enforced was supported by consideration. Investment Properties of Asheville, Inc. v. Norburn, 281 N.C. 191, 188 S.E. 2d 342 (1972). Forbearance or a promise to forbear the exercise of a legal right is a sufficient consideration for a promise made on account of it. Myers v. Allsbrook, 229 N.C. 786, 51 S.E. 2d 629 (1949). However, forbearance of a right which does not exist, or a promise to refrain from doing that which the promisee cannot legally do, cannot constitute consideration. 17 C.J.S. Contracts \u00a7 103 (1963). Whether plaintiff\u2019s forbearance from bringing suit against defendant constituted adequate consideration thus depends on whether plaintiff had a legal or equitable right to the insurance funds which was enforceable before the funds reached the hands of the debtor.\nThe law governing the relationship between debtors and their secured creditors is set forth in Article 9 of Chapter 25 of our General Statutes. See N.C. Gen. Stat. \u00a7\u00a7 25-9-101 et seq. Transactions with respect to interests in or claims under insurance policies are excluded from Article 9, see N.C. Gen. Stat. \u00a7 25-9-104(g), except insofar as a secured creditor\u2019s interest in collateral continues in proceeds of insurance covering that collateral. Id.\nIf a debtor and a creditor enter into a security agreement granting to the creditor a security interest in certain collateral, and if value is given and the debtor has rights in the collateral, then the creditor becomes a secured party with a security interest which is enforceable against the debtor as to that collateral. See N.C. Gen. Stat. \u00a7\u00a7 25-9-203(l)(a)-(c) (1988). Once the creditor has enforceable rights against the debtor as a secured party, it is said that the secured party\u2019s interest \u201cattaches\u201d to the collateral. See \u00a7 25-9-203(2). Furthermore, unless otherwise agreed, a security agreement gives the secured party the rights to proceeds, including insurance proceeds. N.C. Gen. Stat. \u00a7\u00a7 25-9-203(3) and 25-9-306(1).\nSection 25-9-306 provides, in pertinent part, as follows:\n(1) \u201cProceeds\u201d includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds. Insurance payable by reason of loss or damage to the collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement.\nN.C. Gen. Stat. \u00a7 25-9-306 (1988). Therefore, Article 9 clearly gives the secured party a security interest in insurance proceeds which is enforceable against the debtor upon default. In other words, the secured party\u2019s interest in damaged or destroyed collateral continues in the insurance proceeds payable because of that damage or loss. See \u00a7 25-9-306(2).\nHaving an enforceable security interest does not necessarily mean that a secured party has a claim against the insurer for those proceeds. The creditor\u2019s security interest in proceeds is enforceable against the debtor as soon as the proceeds are in the debtor\u2019s hands, and, if continuously perfected, that interest is superior to the claims of intervening creditors from the moment insurance is payable. See \u00a7\u00a7 25-9-306(3) and 25-9-312.\nIf the secured party is not named as a loss payee or coinsured, or if the security agreement does not require the debtor to obtain insurance on the collateral for the benefit of the secured party, and there has been no assignment of rights to the insurance policy, then the secured party has no right, legal or equitable, enforceable against the insurer with respect to the proceeds of the policy. The mere fact that plaintiff has a security interest (and that is all the record before us will support) is insufficient to give rise to a claim against defendant under Article 9 or otherwise. Therefore, there was no consideration for defendant\u2019s alleged promise, and the trial court properly concluded that defendant was entitled to judgment as a matter of law.\nFor the reasons stated above, we also hold that plaintiff cannot maintain an action against defendant for negligent payment. Defendant owed no duty to plaintiff, the breach of which would give rise to an action in negligence. There is likewise no merit to plaintiff\u2019s third-party beneficiary theory.\nJudgment affirmed.\nJudges Arnold and Wells concur.",
        "type": "majority",
        "author": "COZORT, Judge."
      }
    ],
    "attorneys": [
      "John R. Surratt, P.A., by John R. Surratt and Anita M. Yova, for plaintiff appellant.",
      "Petree Stockton & Robinson, by W. Thompson Comerford, Jr., and Barbara E. Brady, for defendant appellee."
    ],
    "corrections": "",
    "head_matter": "ZORBA\u2019S INN, INC. v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. STEPHEN C. EATON\nNo. 8821DC467\n(Filed 4 April 1989)\nInsurance \u00a7 134; Uniform Commercial Code \u00a7 43\u2014 insurance on collateral \u2014no right of secured party against insurer\nIf a secured party is not named as a loss payee or coin-sured on a policy of fire insurance on the collateral, or if the security agreement does not require the debtor to obtain insurance on the collateral for the benefit of the secured party, and there has been no assignment of rights to the insurance policy, then the secured party has no right, legal or equitable, enforceable against the insurer with respect to the proceeds of the policy. N.C.G.S. \u00a7 25-9-306.\nAPPEAL by plaintiff from Order of Loretta C. Biggs, Judge, entered 21 December 1987 in FORSYTH County District Court. Heard in the Court of Appeals 2 November 1988.\nJohn R. Surratt, P.A., by John R. Surratt and Anita M. Yova, for plaintiff appellant.\nPetree Stockton & Robinson, by W. Thompson Comerford, Jr., and Barbara E. Brady, for defendant appellee."
  },
  "file_name": "0332-01",
  "first_page_order": 362,
  "last_page_order": 365
}