Every North Carolina buyer signs an Offer to Purchase and Contract that says what happens to the due diligence fee and the earnest money deposit if the deal falls apart. In June 2022 the state Supreme Court gave those paragraphs real teeth. In Reynolds-Douglass v. Terhark, the Court held that the standard purchase contract is an evidence of indebtedness under N.C.G.S. § 6-21.2, which means a prevailing party can enforce the contract’s attorney’s fee clause and recover reasonable fees, not just the deposit itself.
What happened in Reynolds-Douglass v. Terhark?
The case started with a $250,000 contract in Wake County. The buyer signed the standard Offer to Purchase and Contract, agreeing to a $2,000 due diligence fee and a $2,500 additional earnest money deposit. Three days later she demanded a $5,500 price cut, never paid either fee, and the deal collapsed. The seller sued, won the due diligence fee in small claims, then amended to add the earnest money deposit and attorney’s fees. The trial court awarded $18,343.92 total, including $13,067.70 in attorney’s fees. The buyer appealed all the way to the state Supreme Court.
Why did the court call the contract an evidence of indebtedness?
North Carolina’s general rule is that each side pays its own attorney’s fees unless a statute says otherwise. N.C.G.S. § 6-21.2 creates an exception for notes, conditional sale contracts, and other evidence of indebtedness. The buyer argued a real estate purchase contract is not that kind of instrument. The Supreme Court disagreed, holding that an Offer to Purchase and Contract is a written instrument, signed by the parties, that on its face evidences a legally enforceable obligation to pay money. That is the test the Court set in a 1980 case, Stillwell Enterprises v. Interstate Equipment, and it applies here. The Court also confirmed the prevailing party can collect attorney’s fees for defending the judgment on appeal.
What did the dissent argue?
Two justices dissented. They argued the statute’s fee formula would cap attorney’s fees at 15 percent of the outstanding balance, which here would mean 15 percent of the $2,500 earnest money deposit, or $375, not the full $13,067.70 awarded. They also argued the statute was written for commercial transactions, not residential sales contracts. The majority rejected both points: nothing in the statute limits it to commercial deals, and the contract’s own language authorized reasonable attorney’s fees for the prevailing party.
How does this play out in Chowan County?
Edenton’s market is heavy with historic homes and waterfront inventory, and many of its buyers are moving here from somewhere else. Older houses carry title quirks: old easements, unrecorded improvements, and flood-zone insurance requirements that get sorted out during due diligence. That makes the diligence period the real decision point. Once a buyer lets it pass and the contract is firm, the exposure is not abstract. In this county, the 1767 Chowan County Courthouse has recorded deeds for more than 250 years, and the same courthouse is where a contract dispute would be filed.
Where do Chowan County closings actually happen?
The county offices you touch in a Chowan County closing are the practical machinery behind the contract. The Chowan County Land Records Office keeps the property maps and public-access terminals for deeds and surveys, and the Tax Department handles property tax proration and collects occupancy taxes on short-term rentals, which matters for buyers planning an Edenton rental property. Civil filings go through the Clerk of Superior Court at the courthouse on South Broad Street. And because so much of Edenton is near the water, the FEMA Flood Map Service Center is the first stop for checking a parcel’s flood zone before you commit earnest money.
A local example: Edenton
Picture a buyer who signs a $375,000 contract on a historic Edenton house near the waterfront, pays a $1,500 due diligence fee and a $3,500 earnest money deposit, then decides during the due diligence period that the flood insurance cost is more than expected and walks away. The due diligence fee stays with the seller, and if the walk-away happens during the diligence period, the earnest money is returned. If the buyer lets the period expire, the contract is firm, and the earnest money becomes the seller’s liquidated damages. And if the seller has to sue to collect that deposit, the Supreme Court’s 2022 ruling means the seller can also recover reasonable attorney’s fees. The walk-away that started as a flood-insurance calculation can end with a judgment for the deposit plus a legal bill.
The bottom line
Read the contract before you sign it, and know which fees are at risk if the deal falls through. The due diligence period is the time to do your inspections, your financing work, and your second-guessing. Once you let it expire and the contract is firm, walking away can cost you the deposit, the fees, and the other side’s legal bill on top.
If you are in a dispute over a contract, a North Carolina real estate attorney is the right person to talk to. This article explains what the court decided, not what any particular contract says, and every contract should be reviewed by a lawyer before you sign it.
