Fred L. PREYER and G. Allen Mebane
v.
J. D. PARKER and wife, Helen H. Parker.
No. 601.
Supreme Court of North Carolina.
June 15, 1962.*918 Smith, Moore, Smith, Schell & Hunter and Richmond G. Bernhardt, Jr., Greensboro, for plaintiff appellants.
Bailey & Bailey, Plymouth, for defendant appellees.
SHARP, Justice.
The sole question presented by this appeal is whether the plaintiffs' evidence establishes as a matter of law that the contract upon which they sued was a usurious transaction.
"In order to constitute a usurious transaction, four requisites must appear: (1) There must be a loan express or implied; (2) an understanding between the parties that the money lent shall be returned; (3) that for such loan a greater rate of *919 interest than is allowed by law shall be paid or agreed to be paid as the case may be; and (4) there must exist a corrupt intent to take more than the legal rate for the use of the money loaned * * * unless these four things concur in every transaction it is safe to say that no case of usury can be declared. * * *
"Where the facts are admitted and the unlawful intents plainly manifest from them, the court may declare a transaction usurious as a matter of law." Doster v. English, 152 N.C. 339, 67 S.E. 754.
Applying these well settled principles, as was said in Doster, it is plain that the Court could not declare the transaction between plaintiffs and defendants in the instant case usurious as a matter of law. On the motion for nonsuit plaintiffs are entitled to have the evidence considered in the light most favorable to them. Rouse v. Jones, 254 N.C. 575, 119 S.E.2d 628.
The contract and note which form the basis of plaintiffs' action were obviously not the work of a skilled, legal craftsman. Without doubt, the source of this controversy is paragraph (a) of the settlement provisions of the contract which became pertinent only in the event defendants themselves should sell the property. This paragraph reads as follows: "For the use of $35,000.00 received from you I will repay $35,000.00 plus $17,500.00 at time of sale of this timber." Standing alone this paragraph would have justified the nonsuit on the ground of usury. However, when the contract is read as a whole it is unambiguous, and the intent of the parties at the moment of its execution emerges clearly.
The parties themselves would make this case turn upon whether or not the transaction between the plaintiffs and defendants constituted a loan or a joint adventure. The briefs are evidence that much research has been done on the law of joint adventure. We do not think the agreement between the parties constituted a joint adventure nor do we think the only alternative to a joint adventure is a usurious loan requiring a nonsuit of plaintiffs' cause of action. As we construe the agreement it was a twelve-months option which, for a consideration, reserved to the optionors the right to cancel it and to sell the property themselves at any time before it was exercised by the optionees.
Between January 3, 1956 and July 24, 1956, plaintiffs had attempted to sell the defendants' land under an oral agreement. On July 24, 1956 plaintiffs lent defendants $35,000.00 for ninety days without interest. On that date defendants executed a note and an option under seal whereby they granted to the plaintiffs or their assigns the right at any time during one year from January 3, 1956 to buy the timber on defendants' 23,000 acre tract of land in Hyde County for $1,450,000.00 or to buy the land and timber for $1,650,000.00. The contract specified in detail the method and time for payments, and it limited the time in which the timber might be cut if timber alone were purchased. In the agreement, however, the defendants retained the right to sell the property themselves but, if they did so, they were to repay the plaintiffs the $35,000.00 plus $17,500.00 specified in Paragraph (a) out of the sale proceeds. It is implicit in the agreement and the dealings between the parties that if plaintiffs had exercised the option, the $35,000.00 would have been applied to the purchase price of the property sold. If plaintiffs had not exercised the option and defendants had not sold the land during the twelve-months period involved, the defendants would have been obligated to pay the note with interest at 6% after the ninety days specified in the note. While plaintiffs were to have a return of the $35,000.00 in all events, the obligation to pay the $17,500.00 arose only in the event defendants themselves sold the property during the time of plaintiffs' option.
The defendants admitted in their answer that during August 1956, before plaintiffs' option had expired, they sold both the land and the timber for $900,000.00. They further *920 alleged in the answer that plaintiffs expected to make a large profit out of this transaction. Under the facts in this case it appears to us that the sum of $17,500.00 specified in Paragraph (a) of the contract was neither interest, penalty, nor liquidated damages; it was the consideration which defendants agreed to pay the plaintiffs for the privilege of canceling the option they had granted plaintiffs under seal. Both had expected to make a large profit at the time defendants signed the contract and plaintiffs advanced the $35,000.00. "A provision for payment of a specified sum as compensation for acts contemplated by the contract, and not for any breach of the contract, is neither a penalty nor liquidated damages." 15 Am.Jur., Damages, Section 241; Kirby v. United States, 260 U.S. 423; 43 S. Ct. 144, 67 L. Ed. 329. However, even if the sum of $17,500.00 could be considered liquidated damages, in view of the amounts involved and the expectation of the parties at the time the contract was made, it is clearly reasonable and not disproportionate to the presumable loss. See Annotation entitled "Stipulation in Land Contract for Payment of Specified Sum by Vendor in Case of Default as Provision for Liquidated Damages," 48 A.L.R. 899.
Our interpretation of the dealings between these parties is corroborated and sustained by the action of the defendants themselves. As soon as the plaintiffs discovered that defendants had canceled their option by selling the property, they demanded compliance with the contract. Mr. Parker complied in part by repaying the $35,000.00 and making a payment of $3,000.00 on the $17,500.00. At the same time he promised to pay the balance of $14,500.00 out of the proceeds of the sale as soon as he collected. This promise to pay was repeated from time to time; the defense of usury came three years later, after the suit was started and after the statute of limitations had run against any action to recover the penalty for usury. G.S. § 1-53. "The conduct of the parties in dealing with the contract indicating the manner in which they themselves construe it is important, sometimes said to be controlling in its construction by the court." Commercial Nat. Bank of Charlotte v. Charlotte Supply Co., 226 N.C. 416, 432, 38 S.E.2d 503, 514.
The judgment of involuntary nonsuit is
Reversed.