Appeal by Plaintiff from order dated 25 May 2006 and from
order and judgment entered 28 December 2006 by Judge Peter M.
McHugh, and from final order and judgment entered 30 April 2007 by
Judge Anderson D. Cromer in Superior Court, Rockingham County.
Heard in the Court of Appeals 19 February 2008.
Baron & Berry, L.L.P., by Frederick L. Berry; Robertson Medlin
& Blocker, PLLC, by John F. Bloss, for Plaintiff-Appellant.
Womble Carlyle Sandridge & Rice, PLLC, by Hada de Varona
Haulsee, for Defendants-Appellees.
The record in this case shows that Nancy E. Odell (Plaintiff)
was involved in a motor-vehicle collision in June 2001. Plaintiff
retained counsel and pursued a personal injury claim against the
driver of the second motor vehicle. Although Plaintiff expected to
recover at least thirty thousand dollars from her personal injury
claim, Plaintiff was having financial difficulties and approachedLegal Bucks, LLC (Defendant Legal Bucks) to obtain an advance.
Defendant Legal Bucks is a Limited Liability Company. James
Keith Tart (Defendant James Tart) and Lynn Davies Tart (Defendant
Lynn Tart) are member-managers of Defendant Legal Bucks
(collectively, Defendants). Defendant Legal Bucks is in the
business of "litigation funding." Specifically, Defendant Legal
Bucks advances money to borrowers who are expecting to recover in
pending tort claims, but who need money for personal expenses
before their claims go to trial or settle. When a potential
borrower approaches Defendant Legal Bucks to obtain an advance,
Defendants James Tart and Lynn Tart investigate the borrower's
legal claim to determine the merit of the borrower's claim, how
much the borrower is likely to recover, and, if an advance is made,
the appropriate amount of the advance. The borrower then repays
Defendant Legal Bucks, with interest, out of the proceeds of his or
After investigating Plaintiff's personal injury claim,
Defendant James Tart agreed to advance Plaintiff three thousand
dollars. The parties executed a "Transfer and Conveyance of
Proceeds and Security Agreement" (the Agreement) on 28 March 2003.
The Agreement provided, in pertinent part:
[F]or and in consideration of the sum of Three
Thousand and No/100 Dollars ($3,000.00) (the
"Advance") . . . Legal Bucks and Plaintiff do
hereby agree as follows:
. . . .
2. Plaintiff unconditionally and
irrevocably transfers and conveys to Legal
Bucks all of Plaintiff's control, right, titleand interest in the first monies paid to
Plaintiff from the Proceeds [of Plaintiff's
personal injury claim] as follows:
(A) If Legal Bucks is paid prior to July
1, 2003: $4,200 (the amount of the
Advance ($750) plus 40% of the Advance
(See footnote 1)
(B) If Legal Bucks is paid on or after
July 1, 2003: The amount from
Subparagraph A ($4,200) plus $234 (7.8%
of the Advance) for each month thereafter
and until Legal Bucks is paid (the
"monthly assignment"). The monthly
assignment will occur the first day of
each month, beginning July 1, 2003.
Under no circumstances, however, shall
the amount owed under this Subparagraph
exceed three hundred twenty-five percent
(325%) of the Advance ($9,750).
3. Plaintiff hereby grants to Legal Bucks
a security interest in the Proceeds of the
Litigation . . . in order to secure the
conveyance, subject to the terms and
conditions of this Agreement[.]
4. This Agreement is expressly intended
to transfer, convey and relinquish control
over only a specified portion of the Proceeds
which may flow from and are received as a
result of the Litigation, to wit: the Security
Interest. This Agreement is not an
assignment, nor a purchase of any right, chose
in action, cause of action, or claim which
Plaintiff may have or possess as against any
responsible party, respondent or defendant
referred to herein. No control, input,
influence, right or involvement of any kind as
concerns any claim, right, or interest of
Plaintiff in the Litigation is contemplated by
any party to this Agreement.
5. Except as expressly provided for
herein, this Agreement is contingent,speculative and without recourse on the part
of Legal Bucks.
6. If there is no recovery of Proceeds by
Plaintiff, then Legal Bucks shall receive
NOTHING. If the Proceeds do not allow for
payment of the Security Interest in full,
Plaintiff shall . . . satisfy the Security
Interest to the maximum extent possible from
the Proceeds and owe nothing further . . . .
. . . .
13. In the event that Plaintiff
terminates or otherwise breaches the
covenants, conditions or terms of this
Agreement, Plaintiff shall pay liquidated
damages to Legal Bucks in the amount of three
times (3x) the Security Interest[.]
Plaintiff's personal injury claim settled for $18,000.00 in May
2005. Pursuant to subparagraph (2)(B) of the Agreement, Plaintiff
owed Defendant Legal Bucks $9,582.00 at the time her claim settled.
Plaintiff's debt reached the contractual cap of $9,750.00 on 1 June
Rather than repay Defendant Legal Bucks out of the proceeds of
her settlement, Plaintiff filed a complaint on 15 June 2005 against
Defendants alleging, inter alia, that the Agreement: was usurious;
constituted champerty and maintenance; constituted unlawful gaming;
violated the Consumer Finance Act; and was an unfair and deceptive
trade practice. Plaintiff's complaint also included class
allegations. The Chief Justice of the North Carolina Supreme Court
issued an order on 17 August 2005 designating Plaintiff's case as
exceptional and assigning Judge Peter M. McHugh to preside over the
Defendants filed an amended answer on 31 August 2005 denyingthe allegations in Plaintiff's complaint. Defendants also filed a
counterclaim for breach of contract and sought $29,250.00 in
liquidated damages pursuant to paragraph thirteen of the Agreement.
Plaintiff filed a motion on 27 October 2005 for partial
judgment on the pleadings pursuant to N.C. Gen. Stat. § 1A-1, Rule
12(c). Defendants also moved to dismiss Plaintiff's action
pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6). The trial court
held a hearing on the parties' motions on 22 November 2005. The
trial court issued an order on 25 May 2006 granting Defendant's
motion with respect to Plaintiff's unlawful gaming claim and two
other claims not pertinent to this appeal. The trial court denied
Defendants' motion as to Plaintiff's remaining claims, and denied
Plaintiff's motion in its entirety.
(See footnote 2)
Plaintiff and Defendants filed cross-motions for summary
judgment on 16 and 17 May 2006 as to Plaintiff's remaining claims
for usury, violation of the Consumer Finance Act, champerty and
maintenance, and unfair and deceptive trade practices. Plaintiff
also filed a motion for class certification. The trial court
issued an order and judgment on 28 December 2006 denying
Plaintiff's motion for summary judgment in its entirety andgranting Defendants' motion for summary judgment in its entirety.
The trial court also stated that "[b]ecause this ruling resolves
all claims raised by [Plaintiff] in favor of [Defendants] and
against [Plaintiff], the Court has not addressed [Plaintiff's]
Motion for Class Certification."
Defendants filed a motion for summary judgment on their
counterclaim for breach of contract and liquidated damages on 6
March 2007. Plaintiff filed a motion for partial summary judgment
on Defendants' counterclaim on 9 March 2007. The trial court
issued a final order and judgment on 30 April 2007 granting
Defendants' motion for summary judgment on their counterclaim and
denying Plaintiff's motion for partial summary judgment. The trial
court awarded Defendants $29,250.00 plus post-judgment interest.
Before we reach the merits of Plaintiff's appeal, we address
Defendants' motion for sanctions for Plaintiff's failure to comply
with the Rules of Appellate Procedure. Defendants argue that
Plaintiff's brief violates a number of the stylistic requirements
set out in N.C.R. App. P. 26(g)(1), N.C.R. App. P. 28(b), and in
the appendices to the appellate rules. Defendants contend that
these violations warrant severe sanctions, including dismissal of
We have reviewed Plaintiff's brief and find that it does not
contain errors that constitute substantial or gross noncompliance
with the appellate rules. See Dogwood Dev. & Mgmt. Co., LLC v.White Oak Transp. Co.
, 362 N.C. 191, 201, 657 S.E.2d 361, 367
(2008). We therefore do not impose any of the sanctions set out in
N.C.R. App. P. 34(b). Id.
We now turn to the merits of
Plaintiff first argues that the trial court erred by denying
Plaintiff's Rule 12(c) motion for judgment on the pleadings, and by
granting Defendants' Rule 12(b)(6) motion to dismiss, with regard
to Plaintiff's claim that the Agreement is void as an illegal
gaming contract. "This court reviews de novo
rulings on motions
made pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) and (c)."
Toomer v. Branch Banking & Tr. Co.
, 171 N.C. App. 58, 66, 614
S.E.2d 328, 335, disc. review denied
, 360 N.C. 78, 623 S.E.2d 263
N.C. Gen. Stat. § 16-1, in defining illegal gaming contracts,
All wagers, bets or stakes made to depend upon
any race, or upon any gaming by lot or chance,
or upon any lot, chance, casualty or unknown
or contingent event whatever, shall be
unlawful; and all contracts, judgments,
conveyances and assurances for and on account
of any money or property, or thing in action,
so wagered, bet or staked, or to repay, or to
secure any money, or property, or thing in
action, lent or advanced for the purpose of
such wagering, betting, or staking as
aforesaid, shall be void.
N.C. Gen. Stat. § 16-1 (2007). Plaintiff argues that the Agreement
is void under N.C.G.S. § 16-1 because Defendants' return on its
advance depended on a contingent event; namely, the amount of
Plaintiff's recovery on her personal injury claim. Defendantsrespond that although their return depended on a contingent event,
the Agreement does not come within the prohibition in N.C.G.S. §
16-1 because it is not a wager or bet.
Our Courts have not previously defined what constitutes a
"wager" or "bet" for the purposes of N.C.G.S. § 16-1. Other
sources have defined these terms as follows:
The term "bet" is defined as . . . an
agreement to pay something of value upon the
happening or nonhappening of a specified
contingent event. Someone must take the other
side of an uncertain event to give meaning to
"Wagers," on the other hand, have been
defined as contracts in which the parties in
effect stipulate that they will gain or lose
upon the happening of an uncertain event, in
which they have no interest except that
arising from the possibility of such gain or
38 Am. Jur. 2d Gambling
§ 3 (1999) (footnotes omitted). We hold
that the Agreement does not fall within either of these
A "bet," as defined above, requires that the parties to the
bet take opposite sides of an uncertain event. It follows that for
an agreement to constitute a "bet," there must be both a winning
party and a losing party. In the Agreement at issue in the current
case, however, both Plaintiff and Defendants desired the same
outcome of the uncertain event: that Plaintiff recover a large sum
of money in her personal injury claim. All parties to the
Agreement stood to gain if Plaintiff recovered an amount equal to
or greater than the sum of the principal of the advance plus the
accrued interest. Likewise, all parties to the Agreement stood tolose if Plaintiff recovered less than the amount she owed to
Defendants. Such an agreement does not constitute a "bet" under
N.C.G.S. § 16-1, notwithstanding that the parties' respective
positions under the Agreement were dependent upon a contingent
A "wager," as defined above, requires that neither party to
the wager have any interest in the contingent event at issue. It
is true that Defendants had no independent interest in the outcome
of Plaintiff's personal injury claim. However, it is equally clear
that Plaintiff did have an independent interest in the outcome of
her personal injury claim. The outcome of Plaintiff's personal
injury claim would not only define Plaintiff's legal rights and
obligations under the Agreement with Defendants, but would also
define her legal rights with respect to the other parties to the
automobile accident giving rise to her claim. Therefore, the
Agreement does not constitute a "wager" under N.C.G.S. § 16-1,
notwithstanding that the parties' respective positions under the
Agreement were dependent upon a contingent event.
We hold that the trial court did not err by denying
Plaintiff's Rule 12(c) motion for judgment on the pleadings, or by
granting Defendants' Rule 12(b)(6) motion to dismiss, with regard
to Plaintiff's claim that the Agreement is void as an illegal
gaming contract under N.C.G.S. § 16-1. Plaintiff's assignment of
error is overruled.
Plaintiff next argues that the trial court erred in its 28December 2006 order by granting summary judgment for Defendants on
Plaintiff's claim that the Agreement constitutes champerty and
maintenance. A trial court should grant a motion for summary
judgment only "if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that any party is entitled to a judgment as a
matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2007). We
review a trial court's grant of summary judgment de novo
Integrated Tech., Inc. v. Stack
, 132 N.C. App. 807, 809, 513 S.E.2d
572, 574 (1999).
Our Court has defined champerty and maintenance as follows:
"Maintenance" [is] "an officious intermeddling
in a suit, which in no way belongs to one, by
maintaining or assisting either party with
money or otherwise to prosecute or defend it."
"Champerty" is a form of maintenance whereby a
stranger makes a "bargain with a plaintiff or
defendant to divide the land or other matter
sued for between them if they prevail at law,
whereupon the champertor is to carry on the
party's suit at his own expense." . . . [A]n
agreement will not be held to be within the
condemnation of the principles "unless the
interference is clearly officious and for the
purpose of stirring up 'strife and continuing
Wright v. Commercial Union Ins. Co.
, 63 N.C. App. 465, 469, 305
S.E.2d 190, 192, disc. review denied
, 309 N.C. 634, 308 S.E.2d 719
(1983) (quoting Smith v. Hartsell
, 150 N.C. 71, 76, 63 S.E. 172,
174 (1908) (citation omitted)). These doctrines are "intended to
prevent the interference of strangers having no pretense of right
to the subject of the suit, and standing in no relation of duty tothe suitor." Hartsell
, 150 N.C. at 78-79, 63 S.E. at 175 (citation
omitted). The doctrines are further "intended to prevent traffic
in doubtful claims, and to operate upon buyers of pretended rights,
who [have] no relation to the suitor or the subject, otherwise than
as purchasers of the profits of litigation." Id.
at 79, 63 S.E. at
175 (citation omitted). Plaintiff argues that the Agreement was
champertous in that Defendants have no relation to the subject
matter of Plaintiff's personal injury claim or the parties thereto,
other than the fact that Defendants have given Plaintiff an advance
in exchange for an interest in the profits of Plaintiff's claim.
Defendants first respond that the Agreement is not champertous
because it merely gives Defendants an interest in the proceeds of
Plaintiff's personal injury claim, rather than an interest in the
claim itself. Our Supreme Court has stated:
There is a distinction between the assignment
of a claim for personal injury and the
assignment of the proceeds of such a claim.
The assignment of a claim gives the assignee
control of the claim and promotes champerty.
Such a contract is against public policy and
void. The assignment of the proceeds of a
claim does not give the assignee control of
the case and there is no reason it should not
Charlotte-Mecklenburg Hospital Auth. v. First of Ga. Ins. Co.
N.C. 88, 91, 455 S.E.2d 655, 657 (internal citation omitted), reh'g
, 340 N.C. 364, 458 S.E.2d 186 (1995). The Agreement in this
case specifically states that Plaintiff "transfer[ed] and
convey[ed] to [Defendant Legal Bucks] all of Plaintiff's control,
right, title and interest in the first monies paid to Plaintiff
from the Proceeds
" of Plaintiff's personal injury claim (emphasisadded). The Agreement further provides that it "is not an
assignment, nor a purchase of any right, chose in action, cause of
action, or claim which Plaintiff may have or possess as against any
responsible party[.]" Because the Agreement merely assigns the
proceeds of Plaintiff's personal injury claim to Defendants, such
assignment does not render the Agreement champertous under
While the Assignment is not champertous under the rule stated
, this does not end our inquiry.
held that an assignment of litigation
proceeds is not per se
champertous because such an assignment alone
does not give the assignee any control over the underlying
litigation. However, an assignment of proceeds may still be
champertous if some other aspect of the contract gives the assignee
Plaintiff argues that agreements such as the one in this case
give litigation lenders a champertous level of control over
borrowers' lawsuits because they have a deleterious effect on
borrowers' abilities to settle their underlying claims. According
to Plaintiff, a rational borrower is likely to reject any
settlement offer that is less than the amount of the advance and
accrued interest she owes to the lender, even if the settlement
offer is perfectly reasonable. This is because the borrower will
be required to pay her entire recovery to the lender, and will in
effect receive nothing from the settlement. Instead, Plaintiff
argues, the borrower will bring her claim to trial, because she atleast has a chance of securing a larger recovery if she wins at
trial. If the borrower loses at trial or only secures a small
recovery, she is no worse off than she would have been had she
accepted the settlement offer.
Plaintiff argues that such concerns are not merely
hypothetical. Plaintiff points out that Defendant James Tart
testified in his deposition that Defendant Legal Bucks has agreed
to reduce the amount of its lien in a number of cases in order to
facilitate a settlement, because the parties to the underlying
claim were otherwise unable to reach a settlement due in part to
Defendant Legal Bucks' lien on the proceeds of the claim.
We share Plaintiff's concerns regarding the potential negative
effects of litigation funding on a borrower's ability or
willingness to settle her underlying claim, especially given our
State's strong public policy in favor of encouraging settlements.
, Menard v. Johnson
, 105 N.C. App. 70, 73, 411 S.E.2d 825,
827 (1992) (noting that "it is well settled that North Carolina
public policy encourages prompt settlement of disputed claims").
Nonetheless, we hold that the Agreement in this case is not
champertous under controlling North Carolina law.
As noted above, our Courts have held for at least a century
that an outsider's involvement in a lawsuit does not constitute
champerty or maintenance merely because the outsider provides
financial assistance to a litigant and shares in the recovery.
Rather, "a contract or agreement will not be held within the
condemnation of the principle[s] . . . unless the interference isclearly officious and for the purpose of stirring up 'strife and
continuing litigation.'" Hartsell
, 150 N.C. at 76, 63 S.E. at 174
(citation omitted); see, e.g.
, Oliver v. Bynum
, 163 N.C. App. 166,
170-71, 592 S.E.2d 707, 711 (2004) (finding no abuse of discretion
in the trial court's decision to disqualify the plaintiff's
counsel, where the evidence demonstrated that counsel engaged in
champerty and maintenance by facilitating and helping to secure
funding for the plaintiff's lawsuit against the defendant because
counsel desired to ruin the defendant's career).
In this case, Plaintiff has not pointed to any evidence that
Defendants interfered in Plaintiff's personal injury claim "for the
purpose of stirring up 'strife and continuing litigation.'"
, 150 N.C. at 76, 63 S.E. at 174 (citation omitted). The
Agreement between the parties specifically states that Defendants
have "[n]o control, input, influence, right or involvement of any
kind" regarding "any claim, right, or interest of Plaintiff in the
[l]itigation[.]" Further, Plaintiff has never alleged that
Defendants directly attempted to influence her decisions with
respect to her personal injury claim. In fact, Plaintiff's
deposition testimony demonstrates just the opposite:
[DEFENSE COUNSEL]: . . . [W]hat did [Defendant
James Tart] say when you told him that you
were thinking about getting another lawyer?
[PLAINTIFF]: If I'm not mistaken, he just said
[to] keep in touch with him. I might be
[DEFENSE COUNSEL]: Did you ever talk to
[Defendant James Tart] about the settlement
offers that [the defendant in the underlying
[PLAINTIFF]: Not that I know of, not to my
[DEFENSE COUNSEL]: Did anything that
[Defendant James Tart] said to you influence
your decisions with respect to those
[settlement] offers that were made by [the
defendant in the underlying lawsuit]?
[PLAINTIFF]: Not that I _ no.
While the existence of Defendants' lien on the proceeds of
Plaintiff's recovery may have influenced some of Plaintiff's
decisions regarding her personal injury claim, Plaintiff simply has
not demonstrated that Defendants attempted to control the
resolution of her claim for the purpose of stirring up strife and
Plaintiff correctly notes that courts in other jurisdictions
have held similar litigation financing agreements to be champertous
and void. See Rancman v. Interim Settlement Funding Corp.
N.E.2d 217, 221 (Ohio 2003) (holding that "a contract making the
repayment of funds advanced to a party to a pending case contingent
upon the outcome of that case is void as champerty and maintenance.
Such an advance constitutes champerty and maintenance because it
gives a nonparty an impermissible interest in a suit, impedes the
settlement of the underlying case, and promotes speculation in
lawsuits."); Johnson v. Wright
, 682 N.W.2d 671, 678 (Minn. App.
2004) (holding a litigation funding contract champertous because
the lending company "effectively intermeddled and speculated in
[the] appellant's litigation and its outcome. We conclude that
because recovery is tied to the outcome of the litigation,
the . . . agreement is champertous.")
The cases cited by Plaintiff, however, do not purport to
require as a prerequisite for champerty and maintenance that a
litigation lender act with a purpose of stirring up strife and
continuing litigation. North Carolina law thus appears to require
a higher level of intermeddling for a lender's actions to be
considered champertous. The evidence in this case does not
demonstrate that Defendants interfered in Plaintiff's personal
injury claim to the extent required to support a claim of champerty
and maintenance. We therefore hold that the trial court did not
err by granting summary judgment for Defendants on Plaintiff's
claim that the Agreement constituted champerty and maintenance.
Plaintiff's assignment of error is overruled.
Plaintiff next argues that the trial court erred in its 28
December 2006 order by granting summary judgment for Defendants on
Plaintiff's claim for usury. Our Supreme Court has stated that for
a plaintiff to succeed on a claim of usury, the plaintiff must
[(1)] a loan or forbearance of the collection
of money, [(2)] an understanding that the
money owed will be paid, [(3)] payment or an
agreement to pay interest at a rate greater
than allowed by law, and [(4)] the lender's
corrupt intent to receive more in interest
than the legal rate permits for use of the
Swindell v. Federal National Mortgage Assn.
, 330 N.C. 153, 159, 409
S.E.2d 892, 895 (1991). N.C. Gen. Stat. § 24-1.1 (2007), entitled
"Contract rates and fees," expands the types of transactions
subject to usury restrictions and specifies the maximum interestrate allowed by law. This statute provides in part:
(a) Except as otherwise provided in this
Chapter or other applicable law, the parties
to a loan, purchase money loan, advance,
commitment for a loan or forbearance other
than a credit card, open-end, or similar loan
may contract in writing for the payment of
interest not in excess of:
(1) Where the principal amount is twenty-
five thousand dollars ($25,000) or less,
the rate set under subsection (c) of this
. . . .
(c) On the fifteenth day of each month, the
Commissioner of Banks shall announce and
publish the maximum rate of interest permitted
by subdivision (1) of subsection (a) of this
section on that date. Such rate shall
be . . . [no greater than] sixteen percent
N.C. Gen. Stat. § 24-1.1(a)-(c) (2007). It is undisputed in this
case that the rate of interest provided for in the Agreement
substantially exceeds that permitted by N.C.G.S. § 24-1.1.
Plaintiff argues that the Agreement constitutes an "advance"
that comes within the scope of N.C.G.S. § 24-1.1. According to
Plaintiff, the inclusion of "advance" transactions within N.C.G.S.
§ 24-1.1 means that the usury prohibition applies despite the fact
that Plaintiff's obligation to repay the money owed under the
Agreement was contingent upon Plaintiff's recovery in her personal
injury claim. Defendants disagree. According to Defendants, it
does not matter whether the Agreement is styled as a "loan" or an
"advance," because the second element of a usury claim makes clear
that to run afoul of usury prohibitions, the borrower must be under
an absolute obligation to repay the money lent or advanced. We first consider whether element one of Plaintiff's usury
claim is met in this case. While Swindell
asks only whether there
has been a "loan or forbearance," Swindell
330 N.C. at 159, 409
S.E.2d at 895, it is clear that N.C.G.S. § 24-1.1 expands the types
of transactions subject to its usury prohibition to include
advances and other types of transactions. We must therefore
determine whether the type of transaction at issue falls within the
scope of N.C.G.S. § 24-1.1.
Our Courts have consistently recognized that a "loan" is a
type of transaction in which the borrower has an unconditional
obligation to repay the principal. See, e.g.
, Auto Supply v. Vick
303 N.C. 30, 39, 277 S.E.2d 360, 367, reaff'd on reh'g
, 304 N.C.
191, 283 S.E.2d 101 (1981) (defining a "loan" as "a delivery or
transfer of a sum of money to another under a contract to return at
some future time an equivalent amount
with or without an additional
sum being agreed upon for its use" (emphasis added)); Kessing v.
, 278 N.C. 523, 529, 180 S.E.2d 823, 827 (1971)
(defining a "loan" as "'a contract by which one delivers a sum of
money to another and the latter agrees to return at a future time
a sum equivalent to that which he borrows
'" (emphasis added)
(citation omitted)); State ex rel. Cooper v. NCCS Loans, Inc.
N.C. App. 630, 634, 624 S.E.2d 371, 374 (2005) (defining a "loan"
as "'an agreement, express or implied, to repay the sum lent
or without interest'" (emphasis added) (quoting Kessing
, 278 N.C.
at 529, 180 S.E.2d at 827 (citation omitted))).
These cases make clear that one primary characteristic of a"loan" is repayment of the principal, or its equivalent.
Therefore, a transaction in which the borrower's repayment of the
principal is subject to a contingency is not considered a "loan,"
because the terms of the transaction do not necessarily require
that the borrower "repay the sum lent," id.
at 634, 624 S.E.2d at
374, or return "a sum equivalent to that which he borrow[ed]."
, 278 N.C. at 529, 180 S.E.2d at 827.
While definitions of "advance" are not as common, those that
are available demonstrate that an "advance," while similar to a
loan, does not require unconditional repayment of the principal.
Black's Law Dictionary, for example has defined "advance" as "money
advanced to be repaid conditionally[.]" Black's Law Dictionary 52
(6th ed. 1990). Our Court has also defined "advance" as "'[to]
furnish money or goods for others in expectation of
reimbursement.'" Louchheim, Eng & People v. Carson
, 35 N.C. App.
299, 304, 241 S.E.2d 401, 404 (1978) (citation omitted). While
parties to an advance transaction may have an "expectation of
reimbursement," this expectation does not necessarily suggest an
absolute right to repayment. In the current case, for example,
before Defendants decided to advance money to Plaintiff, they
investigated the merits of Plaintiff's personal injury claim and
determined that Plaintiff's claim was likely meritorious and would
likely yield a recovery sufficient to allow Plaintiff to repay the
amount advanced. Therefore, while Plaintiff's obligation to repay
the principal was conditional on her recovery, Defendants certainly
made the advance "in expectation of reimbursement." In the current case, Defendants delivered three thousand
dollars to Plaintiff. While the parties expected that Plaintiff
would repay the entire principal and accrued interest, Plaintiff's
repayment obligations were ultimately subject to a contingency;
namely, whether Plaintiff's recovery on her personal injury claim
was sufficient to satisfy all or part of her debt to Defendants.
On these facts, we find that Defendants' contract with Plaintiff
was an "advance" within the meaning of N.C.G.S. § 24-1.1. We
therefore hold that the first element of Plaintiff's usury claim is
met in this case.
The second element of a usury claim requires that the parties
to the qualifying transaction had "an understanding that the money
owed [would] be paid." Swindell
330 N.C. at 159, 409 S.E.2d at
895. Plaintiff argues that the parties had such an understanding,
even if Plaintiff's obligation to repay the principal was
Defendants contend that this element demonstrates that a
transaction can only be considered usurious if the borrower has an
unconditional obligation of repayment. Defendants correctly note
that a number of early cases from our Courts suggest that an action
for usury only lies when the borrower's obligation to repay the
principal is not subject to any contingency. In Carter v. Brand
1 N.C. 255 (1800), for example, our Supreme Court held that the
contract at issue was usurious because "[n]o part of the principal
is put in hazard, but the whole is actually secured by [a lien];
nor is the agreement to pay the [interest] subject to anycontingency, but is found to have been positive and absolute." Id.
at 257. So, too, in Riley v. Sears
, 154 N.C. 509, 70 S.E. 997
(1911), our Supreme Court cited with approval the following
explanation from the New York Court of Chancery:
"Whenever, by the agreement of the parties, a
premium or profit beyond the legal rate of
interest for a loan or advance of money is,
either directly or indirectly, secured to the
lender, it is a violation of the [usury]
statute, unless the loan or advance is
attended with some contingent circumstances by
which the principal is put in evident hazard.
A contingency merely nominal, with little or
no hazard to the principal of the money loaned
or advanced, can not alter the legal effect of
at 518, 70 S.E. at 1000-01 (quoting Colton v. Dunham
, 2 Paige
Ch. 267 (N.Y. Ch. 1830)).
We note, however, that other decisions from our Supreme Court
during the same time period suggested that the second element of a
usury claim did not require an absolute obligation of repayment.
In MacRackan v. Bank
, 164 N.C. 24, 80 S.E. 184 (1913), for example,
our Supreme Court stated the elements of a usury claim as:
1. A loan or forbearance of money, either
express or implied.
2. An understanding between the parties that
the principal shall be or may be
3. That for such loan or forbearance a greater
profit than is authorized by law shall be paid
or agreed to be paid.
4. That the contract is entered into with an
intention to violate the law.
at 34, 80 S.E. at 188 (emphasis added); see also Nat'l Bank v.
Wysong & Miles Co.
, 177 N.C. 380, 386, 99 S.E. 199, 202, cert.denied
, 250 U.S. 665, 63 L.E. 1197 (1919) (stating that the second
element of a usury claim requires "an understanding that the
principal shall be or may be
returned" (emphasis added)).
We further note that our State's usury statute has expressly
included both "loan" and "advance" transactions within its scope
since the General Assembly enacted a prior version of N.C.G.S. §
24-1.1 in 1969. See
1969 N.C. Sess. Laws ch. 1303, § 1. We may
therefore presume that the General Assembly intended for the usury
prohibition in § 24-1.1 to apply to at least two distinct types of
transactions. See, e.g.
, Transportation Service v. County of
, 283 N.C. 494, 500, 196 S.E.2d 770, 774 (1973) (noting that
"[i]n the absence of contrary indication, it is presumed that no
word of any statute is a mere redundant expression. Each word is
to be construed upon the supposition that the Legislature intended
thereby to add something to the meaning of the statute.").
Defendants' argument that a contract may only be usurious if the
borrower has an absolute obligation of repayment is inconsistent
with the General Assembly's inclusion of both "loan" and "advance"
transactions within the scope of N.C.G.S. § 24-1.1.
In the current case, the parties agreed that Plaintiff's
repayment obligation would depend on the circumstances of her
recovery on her personal injury claim. If Plaintiff recovered an
amount equal to or greater than the sum of the principal of the
advance and the accrued interest, Plaintiff would pay the entire
principal and accrued interest out of the proceeds of her recovery.
If Plaintiff recovered some amount greater than zero, but less thanthe sum of the principal of the advance and the accrued interest,
Plaintiff would pay her entire recovery to Defendants in complete
satisfaction of her debt. Finally, if Plaintiff recovered nothing,
Plaintiff would have no obligation to repay the principal of the
advance or any accrued interest.
The terms of the Agreement demonstrate that the parties had an
understanding that the principal of the advance "shall be or may be
, 164 N.C. at 34, 80 S.E. at 188. These terms
also satisfy the contemporary requirement set out in Swindell
the parties had "an understanding that the money owed [would] be
330 N.C. at 159, 409 S.E.2d at 895. There is
nothing in the Agreement suggesting that Plaintiff would be excused
from paying the amount she owed, whether that amount was the full
sum of the principal of the advance plus accrued interest, or some
lesser amount. Rather, the parties simply agreed that under
certain circumstances, the "money owed" under the Agreement would
be as little as zero dollars. We therefore hold that the second
element of a usury claim was met in this case.
We note that Defendants have also argued that Vick
the proposition that the usury prohibition in N.C.G.S. § 24-1.1
does not apply unless the borrower's repayment obligations are
absolute. Defendants' reliance on Vick
is misplaced. In Vick
Supreme Court considered a business arrangement in which a
franchisor extended credit to a franchisee. The franchisee could
satisfy its debt either by paying the amount due in cash, or by
transferring to the franchisor chattel paper that was generated bythe franchisee's sales. Vick
, 303 N.C. at 33-34, 277 S.E.2d at
363-64. However, the franchisee remained responsible for
collecting the payments due on the chattel paper and was liable to
the franchisor for the balance of any delinquent accounts each
month. Further, the franchisee was required to repurchase from the
franchisor any chattel paper representing an account more than
ninety days past due. Id.
at 35, 277 S.E.2d at 364. The
franchisor sued the franchisee for default on its obligations, and
the franchisee answered that the transactions at issue were
at 35, 277 S.E.2d at 364-65.
On appeal, the question before our Supreme Court was whether
the type of transaction at issue was a "forbearance" within the
meaning of N.C.G.S. § 24-1.1. Id.
at 39, 277 S.E.2d at 367. The
Court held that because the franchisee's liability for the
underlying debt represented by the chattel paper remained absolute
until the account was fully paid off, the franchisor's acceptance
of chattel paper in the interim constituted "a forbearance of a
debt due and payable." Id.
at 41, 277 S.E.2d at 368.
We find Vick
clearly distinguishable from the current case.
The issue in Vick
was not whether the transaction in question
constituted an advance, but whether it constituted a forbearance.
Further, the franchisee's absolute liability for the underlying
debt in Vick
was not the component of the transaction that brought
the transaction within the scope of N.C.G.S. § 24-1.1. Rather, it
was the franchisor's acceptance of chattel paper in forbearance of
that debt that subjected the transaction to the usury prohibition. Contrary to Defendants' contention, Vick
did not purport, and
cannot be read, to stand for a broad proposition that N.C.G.S. §
24-1.1 only applies where the borrower is under an absolute
repayment obligation. Further, Defendants' interpretation of Vick
contradicts the express inclusion of "advance" transactions within
the scope of N.C.G.S. § 24-1.1, as discussed above.
We now turn to the third element of Plaintiff's usury claim.
As noted above, Defendants do not dispute that the rate of interest
provided for in the Agreement substantially exceeds that permitted
by N.C.G.S. § 24-1.1. We therefore hold that the third element of
Plaintiff's usury claim was met in this case.
Finally, we must determine whether Defendants acted with a
"corrupt intent to receive more in interest than the legal rate
permits for use of the money loaned." Swindell
330 N.C. at 159,
409 S.E.2d at 895. To satisfy this element, Plaintiff is not
required to show that Defendant "had the specific 'corrupt intent'
to enter into a usurious loan agreement." NCCS Loans
, 174 N.C.
App. at 639, 624 S.E.2d at 377. Rather, Plaintiff simply must show
that Defendant "intentional[ly] charg[ed] . . . more for money lent
than the law allows." Id. See also Wysong & Miles
, 177 N.C. at
386, 99 S.E. at 202-03 (stating that "[t]he fourth element [of a
usury claim] may be implied if all the others are expressed upon
the face of the contract"). As discussed above, we have found that
Defendants intentionally entered into a contract to receive a
greater amount of interest than that allowed by N.C.G.S. § 24-1.1.
We therefore hold that Plaintiff has satisfied all four elements ofa usury claim. We further hold that the trial court erred by
granting summary judgment for Defendants on Plaintiff's usury
Plaintiff next argues that the trial court erred in its 28
December 2006 order by granting summary judgment for Defendants on
Plaintiff's claim that Defendants violated the Consumer Finance
The Consumer Finance Act provides in part:
No person shall engage in the business of
lending in amounts of ten thousand dollars
($10,000) or less and contract for, exact, or
receive, directly or indirectly, on or in
connection with any such loan, any charges
whether for interest, compensation,
consideration, or expense, or any other
purpose whatsoever, which in the aggregate are
greater than permitted by Chapter 24 of the
General Statutes . . . without first having
obtained a license from the Commissioner [of
N.C. Gen. Stat. § 53-166(a) (2007). Our Court has previously noted
that "for an unlicensed lender to charge a rate of interest on a
small loan greater than the rates permitted is a violation both of
the Consumer Finance Act, and of Chapter 24's prohibitions on
usury." NCCS Loans
, 174 N.C. App. at 634, 624 S.E.2d at 374.
It is undisputed in this case that Defendants have not
obtained the license required by N.C.G.S. § 53-166(a). Further, as
we concluded in Part IV above, Defendants contracted with Plaintiff
for a payment of interest that exceeded the maximum amount
permitted by Chapter 24 of the General Statutes. We therefore find
that Defendants violated the Consumer Finance Act, and we hold thatthe trial court erred by granting summary judgment for Defendants
on Plaintiff's claim for violation of the Consumer Finance Act.
Plaintiff next argues that the trial court erred in its 28
December 2006 order by granting summary judgment for Defendants on
Plaintiff's claim that Defendants committed unfair and deceptive
To establish a claim for unfair and deceptive trade practices
under N.C. Gen. Stat. § 75-1.1, a plaintiff must show that: "(1)
[the] defendant committed an unfair or deceptive act or practice,
(2) the action in question was in or affecting commerce, and (3)
the act proximately caused injury to the plaintiff." Dalton v.
, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001).
Plaintiff first argues that she may succeed on a claim for
unfair and deceptive trade practices merely by establishing a
violation of N.C. Gen. Stat. § 24-1.1. We disagree. The General
Assembly has specifically provided that certain violations of
Chapter 24 are both usurious and unfair and deceptive acts. See
N.C. Gen. Stat. § 24-1.1E(d) (2007) (providing that "the making of
a high-cost home loan which violates . . . this section is hereby
declared usurious in violation of the provisions of this Chapter
and unlawful as an unfair or deceptive act or practice in or
affecting commerce in violation of the provisions of G.S. 75-1.1").
The fact that the General Assembly has not included a similar
provision in N.C.G.S. § 24-1.1 leads us to conclude that the
General Assembly did not intend for violations of N.C.G.S. § 24-1.1to be per se
violations of N.C.G.S. § 75-1.1.
Plaintiff may still succeed on her claim, however, if she
demonstrates that Defendants committed unfair and deceptive acts in
addition to violating N.C.G.S. § 24-1.1. Plaintiff argues that
Defendants committed such acts by failing to inform her that she
was entering into an unlawful contract, and by violating
established public policies supporting N.C.G.S. § 24-1.1.
Defendants respond that even if their contract with Plaintiff was
usurious, they did not engage in any deceptive conduct because they
accurately disclosed the terms of the transaction to Plaintiff
before she signed the agreement.
In NCCS Loans
, the defendants engaged in "payday lending"
practices in which the defendants made immediate cash advances to
customers who signed contracts for Internet service. NCCS Loans
174 N.C. App. at 635-36, 624 S.E.2d at 375. The defendants then
charged high interest rates on the underlying cash advance. Id.
635-37, 624 S.E.2d at 375-76. Our Court held that the defendants'
payday lending practices were usurious and also violated the
Consumer Finance Act. Id.
at 640, 624 S.E.2d at 378. The Attorney
General further argued that the defendants' practices were unfair
and deceptive, and our Court agreed:
[The] [d]efendants herein assert that, if one
assumes that their customers knew they were
executing contracts for a loan . . . , then
[the] defendants' conduct was not "deceptive."
However, "[p]roof of actual deception is not
necessary; it is enough that the statements
had the capacity to deceive." We observe that
[the] defendants did not inform consumers that
they were executing documents in violation of
North Carolina's Consumer Finance Act. On allthe facts of this case, we conclude that [the]
defendants' contracts "had the capacity to
Moreover, "violations of statutes
designed to protect the consuming public and
violations of established public policy may
constitute unfair and deceptive trade
practices." In this regard, we note that it
is a "paramount public policy of North
Carolina to protect North Carolina resident
borrowers through the application of North
Carolina interest laws." N.C. Gen. Stat. §
24-2.1 (2003). [The] [d]efendants' practice
of offering usurious loans was a clear
violation of this policy.
at 640-41, 624 S.E.2d at 378 (quoting Pinehurst, Inc. v.
O'Leary Bros. Realty
, 79 N.C. App. 51, 59, 338 S.E.2d 918, 923,
disc. review denied
, 316 N.C. 378, 342 S.E.2d 896 (1986); Stanley
, 339 N.C. 717, 723, 454 S.E.2d 225, 228 (1995)). Our
Court therefore concluded that the trial court did not err by
ruling that the defendants committed unfair and deceptive trade
practices as a matter of law, in violation of N.C.G.S. § 75-1.1.
at 641, 624 S.E.2d at 378.
Similar circumstances exist in the current case. Although
Defendants disclosed the terms of the advance to Plaintiff,
Defendants did not inform Plaintiff that she was executing a
contract that violated the Consumer Finance Act. Therefore,
Defendants' conduct "had the capacity to deceive," as Defendants
did not disclose the actual nature of the transaction to Plaintiff.
Further, Defendants' contract with Plaintiff for an illegal advance
violated "the paramount public policy of North Carolina to protect
North Carolina resident borrowers through the application of North
Carolina interest laws." N.C. Gen. Stat. § 24-2.1(g) (2007). Onthese facts, we hold that Defendants committed unfair and deceptive
trade practices as a matter of law. The trial court therefore
erred by granting summary judgment in favor of Defendants on
Plaintiff's claim for unfair and deceptive trade practices.
In sum, we affirm the trial court's 25 May 2006 order
dismissing Plaintiff's claim for illegal gaming. We affirm the
portion of the trial court's 28 December 2006 order granting
summary judgment for Defendants on Plaintiff's claim of champerty
and maintenance. We reverse the portion of the trial court's 28
December 2006 order granting summary judgment in favor of
Defendants on Plaintiff's claims for usury, violation of the
Consumer Finance Act, and unfair and deceptive trade practices.
Because we find the Agreement to be invalid and unenforceable, we
likewise reverse the trial court's 30 April 2007 order granting
summary judgment in favor of Defendants on Defendants' counterclaim
for breach of contract and liquidated damages. We remand to the
trial court for further proceedings as may be necessary, including
entry of judgment for Plaintiff and consideration of Plaintiff's
outstanding motion for class certification.
Finally, Plaintiff argues that even should our Court find the
Agreement to be valid and enforceable, the trial court erred by
granting summary judgment in favor of Defendants on their
counterclaim for $29,250.00 in liquidated damages. Specifically,
Plaintiff argues that the liquidated damages clause in the
Agreement is unenforceable as a matter of law because it did notprovide a reasonable estimate of Defendants' damages in the event
that Plaintiff breached the Agreement. Because we find the
Agreement to be invalid and unenforceable, it is unnecessary for us
to address Plaintiff's argument.
Affirmed in part; reversed and remanded in part.
Judges WYNN and CALABRIA concur.