On discretionary review of the decision of the North Carolina Court of Appeals reported at
The plaintiff brought suit seeking, inter alia, to have a note declared void as the product of economic duress. The defendant counterclaimed for the value of the note, plus other damages. The jury found the plaintiff's defenses to liability under the note not to exist, yet awarded the defendant no damages. Following trial, the court set aside the verdict and the judgment it had entered
thereon, and entered judgment for the amount of the note plus other liquidated damages. The plaintiff contends that the Court of Appeals erred in affirming the trial court's judgment. For the reasons stated herein, we affirm.
This action was brought as a consequence of a dispute between two experienced and relatively sophisticated entrepreneurs who contemplated the joint development and construction of federally subsidized rental housing units in eastern North Carolina. The plaintiffs are Carl W. Johnson and two entities owned and controlled by him. Housing, Inc. is a corporation wholly owned by Johnson, and Merha, Ltd. is a limited partnership whose sole general partner is Housing, Inc. These entities collectively will be referred to hereinafter as "the plaintiff." The defendants include H. Michael Weaver and his corporation, W.H. Weaver Construction Company. These entities collectively will be referred to hereinafter as "the defendant."
In January of 1971, Carl Johnson became the sole owner of Housing, Inc. as a result of the severance of the interest of a former principal who had provided the corporation's construction capability. Housing, Inc. was left with four employees and less than $1500 in cash. The corporation had no working capital, no staff, no bonding capacity, and no construction capability. Housing, Inc.'s major asset was a letter of intent issued by the Mid-East Regional Housing Authority for the construction of 340 public housing units.
The Mid-East Regional Housing Authority was created to initiate and coordinate development of low-income housing through contracts administered and supported by the federal Department of Housing and Urban Development (HUD). The Regional Housing Authority performed its function by obtaining from HUD an Annual Contributions Contract which guaranteed annual payment of a fixed sum for a 20-year period following construction of the project. The Regional Housing Authority would then contract with a developer by means of a letter of intent. The developer's duty would be to locate and obtain appropriate land sites, obtain approval of sites, plans, and specifications, and build the project.
Housing, Inc. was incapable of completing the development of the 340 housing units in early 1971. In February, 1971, Johnson approached Weaver to propose that Weaver participate as a coowner
and provide financing and construction capability in the Mid-East project. The parties negotiated through April, 1971 and specified their intentions in a letter from Weaver to Johnson on 21 April 1971. The letter, signed by Johnson as well as Weaver, provided:
Greensboro, North Carolina
This letter will constitute a memoranda of our understanding with respect to a proposed joint venture between W.H. Weaver Construction Company and Housing, Inc. for the development of housing for Mid East Regional Housing Authority. It is our intention to supplement this letter of understanding by a more definitive agreement as this matter develops, it being the intention of the parties that the problems which are incurred will be, within the framework of this understanding, worked out to the mutual benefit of the parties.
We understand that Housing, Inc. has negotiated with Mid East Regional Housing Authority and that it has in hand letters of intention covering projects in Washington, Beaufort, Bertie, Hyde and Martin counties. We also understand that Housing, Inc. has secured options on lands in some or all of these counties covering lands which in your opinion will be suitable for the proposed housing.
Housing, Inc. on the one hand and W.H. Weaver Construction Company, or its shareholders, on the other expect to form a joint venture. This joint venture may be in the form of a limited partnership or in the form of a corporation, as may be mutually agreed upon. The letters of intent and the options will be transferred by Housing, Inc. to the joint venture and the joint venture shall thereafter be the owner of the projects.
Division of Responsibility
It is intended that both parties to the joint venture shall have active parts in the entire development of the projects and that both parties shall be kept informed of all developments and except as hereinafter agreed both parties shall sign all contracts and other agreements; however, it has been agreed that Housing, Inc. shall primarily be responsible for negotiation with Mid East Regional Housing Authority and that W.H. Weaver Construction Company shall be primarily responsible for the building of the projects. It is the intention of the parties that W.H. Weaver Construction Company will furnish all personnel required in the building of the projects, such as superintendents, and shall be responsible for the organization of the work with the sub-contractors and purchasing.
(1) Prior to the closing of construction financing upon the property, working capital shall be contributed by W. H. Weaver Construction, or its shareholders, it being understood, however, that Housing, Inc. shall not be reimbursed for its predevelopment expenses until the closing of the construction loan. Housing, Inc. shall immediately, however, submit to W.H. Weaver Construction Company a statement of the expenses it has incurred to date together with a schedule of its outstanding commitments and obligations relative to the projects.
(2) Working capital after the execution of leases with Mid East Regional Housing Authority shall be furnished by borrowing from some bank or other financial institution which borrowing shall be arranged by and upon the credit of W.H. Weaver Construction Company. Working capital shall include all amounts expended under the provisions of subparagraph 1 of this section, all land costs and the sum of $50,000.00 which shall be advanced to Housing, Inc. upon the execution of the lease or leases as a part of its profit.
Compensation of W.H. Weaver Construction Company
W.H. Weaver Construction Company shall accomplish the building and shall be reimbursed for the actual costs of the project including job overhead and shall receive a fee of four (4%) per cent of the costs of construction, including job overhead to cover its home office overhead. This 4% shall be prior to the division of any profits.
Profits are hereby defined as the difference between the costs of all development and the amount which is borrowed upon the completed project. Profits shall be divided 30% to W.H. Weaver Construction Company and 70% to Housing, Inc.
Losses shall be divided 50% to W.H. Weaver Construction Company and 50% to Housing, Inc.
The completed projects shall belong one-half to W.H. Weaver Construction Company, or its shareholders, and one-half to ...