Summary
holding choice of law clause enforceable in action for breach of contract
Summary of this case from TMS NC, Inc. v. Total Merch. Servs., LLCOpinion
No. 89
Filed 1 February 1980
1. Courts 21.7 — contract made in Virginia — Virginia law controlling The laws of Virginia governed the validity of an executory contract for the sale of land since the contract was executed in Virginia and since the contract itself provided that the laws of that state should be controlling.
2. Vendor and Purchaser 1 — right to mortgage premises retained by seller — contract not unconscionable — contract supported by consideration In an action to recover the balance due on a note and contract for the purchase of land, the contract was not unconscionable and unsupported by valid consideration because, pursuant to the terms of the contract, plaintiff seller reserved the right to convey its interest in the land in question and to mortgage the premises, since plaintiff's contractual obligation to execute a special warranty deed upon defendant purchasers' final installment payment provided sufficient mutuality of obligation to prevent the contract from being unconscionable and provided sufficient consideration to constitute a valid contract.
3. Vendor and Purchaser 1 — contract to convey voided by prior sale — contract not illusory A land sales contract was not illusory because it provided that "Buyer agrees that in the event of prior sale of said lot(s), this agreement and note shall be cancelled and voided without further liability to either party, except for refund of all payments made hereunder," since such "prior sale" referred to a contract to sell consummated, or a sale consummated, between the seller and another purchaser with reference to the same tract of land prior to the signing of the subject contract, and both seller and purchaser were protected by this provision in the event one of plaintiff's salesmen sold the lot in question to another purchaser unbeknownst to the salesman selling it to defendant.
APPEAL by defendants to review an opinion of the Court of Appeals by Judge Hedrick with Judge Vaughn concurring and Judge Arnold dissenting. 42 N.C. App. 251, 256 S.E.2d 270 (1979). Defendants appealed as a matter of right under G.S. 7A-30(2).
Mast, Tew, Nall Moore, by Allen R. Tew for plaintiff-appellee.
Gulley, Barrow Boxley, by Jack P. Gulley for defendant-appellants.
Justice CARLTON took no part in the consideration or decision of this case.
Justice COPELAND dissenting.
Justice HUSKINS joins in the dissenting opinion.
Plaintiff is a Virginia corporation with its principal place of business located at Bracey, Virginia. Defendants are residents of Wake County. North Carolina. The land involved in this lawsuit is located in Mecklenburg County, Virginia, and known as Lot No. 42E, in the Eagle Village of River Ridge Golf and Camping Club.
On 5 May 1974 plaintiff and defendants entered into an executory contract for the sale of said Lot No. 42E by plaintiff to defendants, and defendants executed their promissory note to plaintiff for the purchase price of said lot payable in equal monthly installments. The total deferred balance on the note, including finance charges, was $8,100.00 payable at the rate of $135.25 per month for 60 consecutive months commencing on 19 June 1974 [the final monthly payment being in the amount of $120.25]. The contract and the note show on their face that they were executed at Bracey, Virginia. The contract provided that upon payment in full of the note by defendants the plaintiff would convey the lot to defendants by a Special Warranty Deed.
Defendants made regular monthly payments on the note and contract until 6 November 1974 after which defendants have paid nothing. On 19 November 1976 plaintiff instituted this action to recover the balance due on the note and contract. A copy of the note and contract was attached to and incorporated in the amended complaint which was filed 31 May 1977.
Defendants answered the amended complaint admitting the execution of the note and contract, and admitting that they had made no payments since 6 November 1974. Defendants denied that they had defaulted in the payment of the note and denied that plaintiff had demanded payment. By their first defense defendants seek dismissal under Rule 12(b) on the grounds that the amended complaint fails to state a claim upon which relief can be granted.
By order filed 3 August 1978 in Superior Court, Wake County, plaintiff's action was dismissed ". . . for reason that it appears upon the face of the contract upon which this suit is based, a copy of which contract is incorporated in the complaint, is unconscionable, and there is a failure of consideration to support the plaintiff's claims . . . ." Plaintiff appealed to the Court of Appeals.
By opinion filed 3 July 1979 ( 42 N.C. App. 251, 256 S.E.2d 270 (1979)) the Court of Appeals reversed the dismissal and remanded the case to the Superior Court for further proceedings.
We note first that this contract was executed in Virginia, and that the interpretation of a contract is governed by the law of the place where the contract was made. Bundy v. Commercial Credit Corporation, 200 N.C. 511, 516, 157 S.E. 860, 863 (1931); Fast v. Gulley, 271 N.C. 208, 155 S.E.2d 507 (1967). Secondly, the contract on its face provides that in construing the contract the laws of the Commonwealth of Virginia shall be controlling. This Court has held that where parties to a contract have agreed that a given jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be given effect. Thus by the provisions of this contact, the law of the Commonwealth of Virginia governs our determination of its validity. Tennessee Carolina Transportation, Inc. v. Strick Corporation, 283 N.C. 423, 431, 196 S.E.2d 711, 716 (1973), later app., 286 N.C. 235, 210 S.E.2d 181 (1974).
Defendants argue to this Court that the land sales contract is on its face unconscionable, illusory and not supported by valid consideration as it is in effect totally one sided in favor of the plaintiff Tanglewood Land Company. Defendants rely first on paragraph 12 of the land sales contract which provides as follows:
12 "Seller reserves the right to convey its interest in the above described premises and its conveyances thereof shall not be a cause for recision. Buyer expressly consents that Seller and its grantees and/or assigns may mortgage said premises and the rights of Seller and Buyer shall be subordinate to the lien of all such mortgages, whether the same shall be given hereinbefore or hereinafter."
It is defendant-appellants' contention that in light of this paragraph they as purchasers could make all payments under the terms of the contract, and receive no interest in the property in return for such payments. Defendant-appellants argue that plaintiff-appellee could have placed a mortgage in any amount on the property and its rights in the property would be subordinate to such a mortgage by the terms of the contract. For the reasons that follow we disagree and hold that the contract is supported by valid consideration and is not unconscionable on its face.
We turn first to the question of the contract's unconscionability. Paragraph 4 of the land sales contract provides that seller retains title to the property as a security interest until receipt of all payments from the buyer. Upon such receipt seller shall "deliver a conveyance of said lot(s) to Buyer consisting of a SPECIAL WARRANTY DEED . . . ." The code of Virginia, Section 55-69, defines a covenant of special warranty as one where: "the grantor has covenanted that he, his heirs and personal representatives will forever warrant and defend such property unto the grantee . . . against the claims and demands of the grantor, and all persons claiming or to claim by, through or under him." See also Pic Construction Company, Inc. v. First Union National Bank, et al., 218 Va. 915, 919, 241 S.E.2d 804, 806 (1978).
Reading paragraph 12 of the contract in light of paragraph 4 it is apparent that plaintiff has retained the right to encumber title to the property so long as it holds said title as security however upon defendants' final payment plaintiff is contractually obligated to provide defendants with unencumbered title to the property and defend such title against all of those claiming through them as grantors.
If plaintiff acts in good faith and should be unable for good cause to provide clear title as warranted, the defendants as purchasers may bring suit for specific performance or for nominal damages with return of all monies paid with interest. However, if plaintiff as vendor has acted in bad faith in originally undertaking to convey title, or has voluntarily disabled itself from making such a conveyance (i.e., by mortgaging the property subsequent to the original sale to these defendants) it will be liable to the purchasers-defendants for their loss of bargain. This is computed as the market value of the land at the time of the breach with interest from the date of purchase less the original purchase price left unpaid. (NOTE: Subject to the terms of this contract, defendants must pay the full purchase price before they acquire title thus the purchase price left unpaid would necessarily be zero, and defendants could recover full market value as of date of breach.) Davis v. Beury, 134 Va. 322, 340, 114 S.E. 773, 777-78 (1922); Williams v. Snider, 190 Va. 226, 230, 56 S.E.2d 63, 65 (1949).
We hold that plaintiff's contractual obligation to execute a Special Warranty Deed upon purchasers' final installment payment provides sufficient mutuality of obligation to prevent the contract from being unconscionable.
We now turn to the question of whether or not the contract is supported by valid consideration. The contractual duty on the part of the plaintiff as seller to execute to the defendants as purchasers a Special Warranty Deed upon defendants' payment of the final installment provides sufficient consideration to constitute a valid contract under Virginia law. Midkiff v. Glass, 139 Va. 218, 223-24, 123 S.E. 329, 330 (1924) held that a promise of a seller to convey property in return for a promise by the buyer to pay the unpaid remainder of the purchase price furnishes a valid and sufficient consideration to hold buyer or his estate liable to pay the remainder of the purchase price.
Finally we turn to the question of whether or not this land sales contract is illusory in that there is no enforceable duty on the part of the plaintiff-vendor to actually convey the property to the defendants as purchasers. Defendants argue to this Court that paragraph 6 of the contract when combined with paragraph 12 noted supra renders the contract illusory. We do not agree. In its pertinent part paragraph 6 reads as follows:
"Buyer agrees that in the event of prior sale of said lot(s), this agreement and note shall be cancelled and voided without further liability to either party, except for refund of all payments made hereunder . . . ."
We interpret the words "prior sale" in paragraph 6 of the contract to mean a contract to sell consummated, or a sale consummated, between the seller and another purchaser with reference to the same tract of land prior to the signing of the subject contract. These words, "prior sale", do not refer to a sale or contract to sell to another purchaser entered into after the time of signing the subject contract or at any time during which the subject contract is being complied with by the subject purchaser.
The reason for paragraph 6 being in the contract is readily apparent. The seller had eight or ten authorized salesmen on the premises of the development for the purpose of driving prospective purchasers through the development to select a lot or tract suitable to the prospective purchaser. Obviously two or more prospective purchasers, accompanied by different salesmen, may select the same lot or tract. The salesman with any one prospective purchaser, easily might not be aware of the prior sale of a particular lot or tract within a short span of time by another salesman. Under these circumstances it is conceivable that the same lot or tract could have been the subject of a prior sale without a second salesman's knowledge, and the second salesman in good faith might offer the lot for sale and execute a contract with a second purchaser. Under such circumstances the "prior sale" provided for in paragraph 6 of the contract would permit the seller to refund whatever the second purchaser had paid upon such second sale, or such second contract to sell, and to void the contract and note. This is a reasonable arrangement for the protection of both the seller and the second would be purchaser. At oral argument in this Court counsel for defendant conceded that allowing a period to set a second sale aside in the event of the above noted contingency was the practical application of paragraph 6.
As so interpreted the provisions of paragraph 6 of the contract do not render the agreement illusory.
All of the foregoing arguments were previously rejected by the Court of Appeals in Land Co. v. Wood, 40 N.C. App. 133, 252 S.E.2d 546 (1979). We find also that the land sale contract in this case is valid under Virginia law and therefore we affirm the opinion of the Court of Appeals.
Affirmed.
Justice CARLTON took no part in the consideration or decision of this case.