Mozingo v. North Carolina National Bank

229 S.E.2d 57 (1976) 31 N.C. App. 157

Larry G. MOZINGO and wife et al.
v.
NORTH CAROLINA NATIONAL BANK.

No. 763SC404.

Court of Appeals of North Carolina.

October 20, 1976.

Joseph F. Bowen, Jr., Greenville, for plaintiffs-appellants.

Everett & Cheatham by James T. Cheatham and Edward J. Harper, II, Greenville, for defendants-appellees.

ARNOLD, Judge.

We first consider whether the trial court erred in dismissing, under Rule G.S. 1A-1, 12(b)(6), plaintiffs' claim for breach of the alleged oral contract to renew plaintiffs' unsecured notes until payment could be made from proceeds of the sale of the apartment projects. Rule 12(b)(6) provides that a complaint must be dismissed when on its face it appears that no law supports it, that some fact essential to it is missing, or that some disclosed fact necessarily defeats it. Hodges v. Wellons, 9 N.C.App. 152, 175 S.E.2d 690, cert. den. 277 N.C. 251 (1970). The trial court held that because the complaint alleged the contract to be in parol plaintiff failed to state a claim for which relief could be granted. We disagree.

The parol evidence rule, upon which the trial court relied, prohibits introduction of parol evidence to contradict the terms of a written agreement. If, however, only part of a contract is written, the test for determining whether the remaining part can be proved by parol is simply stated: If oral evidence does not contradict written it is admissible; otherwise, it is not admissible.

Plaintiffs allege an oral agreement that the note was to be paid only out of the proceeds from the sale of the projects. The note itself is silent on the question of the method of payment. Therefore, the plaintiffs' evidence is admissible to prove the existence of this alleged oral term.

The general rule is that parol evidence is admissible to show the agreed upon method of payment on a note. See, Borden, Inc. v. Brower, 284 N.C. 54, 199 S.E.2d 414 (1973), and cases cited therein. See also, 2 Stansbury, Law of Evidence, § 256 (Brandis Rev., 1973). Plaintiffs particularly rely on a line of cases admitting parol evidence to show agreement that a note was to be paid out of a particular fund. For example, in National Bank v. Winslow, 193 N.C. 470, 137 S.E. 320 (1927), the maker of a demand note gave it to the payee who, in turn, endorsed it to the holder. The holder sued the maker on the note. The maker, by way of a defense, introduced evidence to prove a parol agreement, known to the holder, that the note be paid only out of proceeds from the sale of peanuts. Our Supreme Court held that such evidence was admissible and affirmed judgment for the maker. Accord, Trust Co. v. Wilder, 206 N.C. 124, 172 S.E. 884 (1934) (note payable only out of proceeds from the sale of land); Stack v. Stack, 202 N.C. 461, 163 S.E. 589 (1932) (note payable only out of proceeds from land); Evans v. Freeman, 142 N.C. 61, 54 S.E. 847 (1906) (note payable only out of proceeds from sale of patent rights in a machine).

NCNB argues that since the note in question was a demand note, an agreement that it could be paid only out of the proceeds from the sale of the projects, in effect, meant that it was not payable on demand, but only upon the occurrence of an uncertain event. Thus, they argue, the underlying oral agreement contradicts the terms of the writing. However, the case of National Bank v. Winslow, supra, stems from a suit on a demand note, and other cases, supra, involving notes payable on certain dates, substantially support the rule in Winslow. We do not agree with NCNB's argument that the oral agreement contradicts the demand note. All notes, including demand notes, are subject to the risk that the maker will be unable to pay upon presentment. By contracting to restrict the source of funds from which the note can be paid, the maker of the note only increases the already-present risk that the note cannot be paid. He does not change the demand provision at all.

NCNB asserted that we should not consider plaintiffs' next argument that the court erred in striking their second, fourth, fifth, sixth and seventh defenses, because plaintiffs fail to argue the legal principles underlying a motion to strike pursuant to G.S. 1A-1, Rule 12(f). Rule 12(f) permits the trial court to strike any "insufficient defense." We note however that plaintiffs do argue the principles for Rule 12(b)(6), an analogue to Rule 12(f), and the same tests apply. Trust Co. v. Akelaitis, 25 N.C.App. 522, 214 S.E.2d 281 (1975).

Plaintiffs' fourth defense alleges breach by NCNB of their contract that the $600,000 note be paid only out of proceeds from sale of the projects. We have held that plaintiffs can try to prove this breach of contract. If it is proved, it is a defense. G.S. 25-3-305(2); 25-3-306(b). Therefore, the court erred in striking it. Plaintiffs' fifth defense alleges misrepresentation about the legal effect of executing the demand note. Since the parol evidence rule does not bar proof of the contract, there could have been no misrepresentation. This defense was properly stricken. Plaintiffs' sixth defense alleges a mutual mistake of law as to the consequences of the parol evidence rule. There was no mistake, and this defense was also properly stricken.

Plaintiffs' second defense alleges that plaintiffs received no consideration in exchange for executing the $600,000 note and deed of trust. Lack of consideration is a contract defense that can properly be raised in this action on a note. G.S. 25-3-305(2); 25-3-306(c). It appears from facts alleged in the pleadings that plaintiffs may have obtained no benefit in exchange for executing the new note and deed of trust. It is alleged in the pleadings that the total outstanding debt of $750,000 was not reduced. The time for payment was not extended. No more money was loaned, and, the deed of trust itself benefited NCNB, if only for the purpose of satisfying the bank examiners. We conclude that the defense of no consideration is properly raised by the pleadings and that it was error to strike it.

Plaintiffs further contend that it was error to allow defendant's motion to strike their seventh defense wherein they attack the constitutionality of the North Carolina foreclosure procedure. They contend that they had no opportunity for a hearing under G.S. 45-21.34 to assert defenses to the foreclosure, and plaintiffs cite Turner v. Blackburn, 389 F. Supp. 1250 (W.D.N.C.1975) as authority. Plaintiffs' contention is without merit. The Turner decision was more than a year after the foreclosure sale, and Turner only applies prospectively. (Also, see: G.S. 45-21.33(c)(3) which does not apply to foreclosures commenced prior to ratification date of June 6, 1975.)

In summary, the motion to strike by NCNB was properly allowed as to plaintiffs' fifth, sixth and seventh defenses. It was improperly allowed as to the second and fourth defense.

Finally, plaintiffs contend that the court erred in granting summary judgment against them as to the third cause of action, breach of the alleged contract to return the Bell note. Plaintiffs' verified complaint alleged that they had assigned the "Bell collateral" to defendant with defendant's specific agreement to reassign the Bell collateral to plaintiffs upon payment of the $125,000; that plaintiffs had paid the $125,000; and that defendant had failed to reassign the Bell collateral.

By affidavits of its officers, NCNB denied the contract to reassign the Bell collateral and said that the Bell collateral had subsequently been returned to plaintiffs. NCNB argues that summary judgment was proper because its affidavits established that the assignment of the Bell collateral was not subject to any agreement to release the collateral before the entire indebtedness was paid, and because plaintiffs had produced no affidavits in opposition to facts contained in NCNB's affidavits. It cites Rule 56(e) requiring, inter alia: "When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial."

The court may consider, at the hearing on the motion for summary judgment, pleadings, affidavits which meet the requirements of Rule 56(e), depositions, answers to interrogatories, admissions, oral testimony, documentary material, facts subject to judicial notice, and such presumptions as would be available at trial. Butler v. Berkeley, 25 N.C.App. 325, 213 S.E.2d 571 (1975). As pointed out in Page v. Sloan, 281 N.C. 697, 705, 190 S.E.2d 189, 194 (1972):

"A verified complaint may be treated as an affidavit if it (1) is made on personal knowledge, (2) sets forth such facts as would be admissible in evidence, and (3) shows affirmatively that the affiant is competent to testify as to the matters stated therein."

Plaintiffs' verified complaints were made of their own personal knowledge, and they set forth the particulars of such facts as would be admissible in evidence. Moreover, it affirmatively appears that plaintiffs, Mr. and Mrs. Mozingo, are competent to testify as to the matters stated in their complaint. When their verified complaint is treated as an affidavit in compliance with G.S. 1A-1, Rule 56(e) they have established a genuine issue as to whether there was a breach of the alleged agreement to release the Bell collateral upon payment of $125,000. The granting of summary judgment for NCNB as to plaintiffs' third cause of action was error.

Judgment is reversed and the cause remanded for proceedings consistent with this opinion.

Reversed and remanded.

MORRIS and HEDRICK, JJ., concur.