#### J. H. HENLEY v. FLOYD H. HOLT and MARY ELIZABETH HOLT.

(Filed 9 November, 1938.)

3. Contracts § 22—

While prior negotiations are merged in the contract, evidence of prior negotiations may be competent to show the intent of the parties or the actual contract.

2. Evidence § 24—

Evidence need not bear directly on the question in issue, but is competent if it shows the circumstances surrounding the parties necessary to an understanding of their conduct and motives and the reasonableness of their contentions.

3. Trusts §§ lb, 7 — In an action to establish a parol trust evidence of prior negotiations and conduct of parties is competent.

Plaintiff instituted this action to establish a parol trust, contending that he owned lands subject to a deed of trust, and that after foreclosure it *385was agreed by him and defendant, bis former tenant, that defendant should buy tbe property Jmck from tbe cestui que trust who purchased tbe property at tbe foreclosure sale, apply a portion of the crop to the payment of taxes and tbe debt each year, and reconvey to plaintiff when the debt was discharged, in consideration of plaintiff’s agreement to sell him a portion of the lands and a certain other tract of land. Held: Although the alleged agreement was made after foreclosure, evidence of negotiations prior to foreclosure when it was contemplated that plaintiff should allow the property to be foreclosed and that defendant should purchase at the sale for the benefit of plaintiff, and evidence that defend- ' ants, after foreclosure, admitted they held title as trustees under the agreement, made no claim to the land when plaintiff and his surveyor came upon the land to divide same in accordance with the agreement, and other evidence of the conduct of defendants before and after the sale, is held competent to show the intention of the parties and the reasonableness of plaintiff’s contention, and the exclusion of such evidence from the jury’s consideration is prejudicial error.

4. Appeal and Error § 41—

When a new trial is awarded on certain exceptions relating to the exclusion of evidence, other exceptions relating to matters which may not arise on the subsequent hearing need not be considered.

Appeal by plaintiff from Williams, Jat February Term, 1938, of Lee.

Civil action to establish a parol trust to tbe end that tbe defendant be declared trustee for plaintiff as to tbe title of tbe Henley borne place in Lee County, North Carolina.

Plaintiff owned a tract of land containing 85 acres, more or less, known as tbe Henley home place in Lee County, subject to tbe lien of a deed of trust dated 1 July, 1925, and executed by plaintiff and bis wife to secure an indebtedness in tbe sum of $2,000 due to tbe Atlantic Joint Stock Land Bank.

In 1926 plaintiff rented tbe said land to tbe defendant Floyd H. Holt, who has since resided thereon.

Plaintiff defaulted in payment of tbe said indebtedness. Tbe deed of trust was thereafter foreclosed and tbe land was sold in May, 1933. Tbe Land Bank became tbe purchaser, and later in 1933 conveyed tbe land by deed to tbe defendants.

Plaintiff alleges that after the foreclosure sale be entered into an agreement with tbe defendant Floyd H. Holt, by which be, Holt, in bis own name but as trustee for tbe plaintiff, should seek to redeem tbe said land, and that title should be taken in tbe name of tbe defendant Floyd H. Holt, who should bold tbe same as trustee and, remaining thereon as tenant, pay one-fourth of tbe crops on tbe taxes, insurance and tbe unpaid balance of tbe indebtedness, and convey tbe land to plaintiff on demand. Tbe reason assigned for this was bis belief that Holt could *386secure a more advantageous price than be. Tbe consideration of tbis trust agreement in accordance witb plaintiff’s contention was an agreement on bis part to convey to tbe defendant Floyd H. Holt, upon tbe final' discharge of tbe indebtedness against tbe property, two tracts of land, 40 acres of tbe land in question and another tract of 11% acres, upon payment to bim of tbe proportionate cost of sucb tracts.

Plaintiff further alleges that tbe defendant, thereafter in accordance with their agreement, purchased tbe land from tbe Land Bank for tbe sum of $1,800 — $300 in cash and the balance secured by mortgage or deed of trust; that tbe $300 cash payment represented plaintiff’s share of tbe 1933 crops from said land; and that the balance of tbe indebtedness due to tbe said Land Bank was refinanced through tbe Federal Land Bank of Columbia by the defendant Floyd H. Holt, under direction of tbe plaintiff. Plaintiff alleges that one-fourth of tbe crops for tbe years 1934, 1935 and 1936 were sufficient to pay off tbe indebtedness, and that the defendant now refuses to carry out the trust.

Defendants deny that trust agreement was entered into with tbe plaintiff, and contend that they purchased the land in question after tbe foreclosure in their own right, and that plaintiff has no interest in tbe lands or in tbe rents therefrom.

Upon tbe trial several issues were submitted to the jury. Only the first was answered. That issue and the answer thereto are as follows:

“1. Did tbe defendant Floyd H. Holt agree, at or before receiving tbe conveyance from tbe Atlantic Joint Stock Land Bank, to take title to tbe Henley home place, described in tbe complaint, in trust for tbe joint benefit of plaintiff and himself, as alleged in tbe complaint? Answer: No.’ ”

From judgment declaring defendants to be tbe owners of tbe land known as tbe Henley home place, plaintiff appeals to tbe Supreme Court and assigns error.

Gavin & Jachson, JD. B. King, and K. JR. Hoyle, for plaintiff, appellant.

D. B. Teague and Varser, McIntyre <& Henry for defendant, appellees.

"WiNBORNE, J.

The principal question raised on tbis appeal is whether tbe plaintiff was prejudiced on tbe trial below by tbe exclusion of proper evidence for tbe consideration of tbe jury on tbe determinative issue. We think so.

Plaintiff seeks to establish a parol trust, alleging that be and defendant Floyd Holt entered into a trust agreement after tbe foreclosure sale, whereby tbe land was to be purchased by Holt for tbe benefit of the plaintiff. Considerable evidence offered by plaintiff tending to show *387negotiations and agreements with Holt concerning tbe purchase of tbe land, prior to tbe foreclosure, was excluded because plaintiff bad alleged an agreement made after tbe foreclosure. Plaintiff contends tbat while tbe final agreement was concluded after tbe foreclosure, tbe negotiations leading to it began long prior thereto, and tbat be has a right to show these preliminary negotiations and agreements, and to show what was done pursuant thereto, as tbe basis for tbe final trust agreement. To this end be asked to be allowed to amend bis complaint so as to allege tbe preliminary negotiations. This tbe judge, in tbe exercise of bis discretion, refused to permit. C. S., 547; McIntosh, N. C. Prac. & Proc., p. 513. However, tbe judge did permit tbe filing of a more restricted amended complaint, and it was upon tbe latter tbat tbe case was tried. Speas v. Greensboro, 204 N. C., 239, 167 S. E., 807.

In tbe course of tbe trial tbe judge below excluded plaintiff’s evidence tending to show tbe following: (1) Tbat prior to tbe foreclosure sale plaintiff and defendant Floyd Holt agreed tbat plaintiff should consent to a foreclosure, defendant Holt agreeing to bid in tbe property, to bold title until tbe purchase price bad been paid, and finally to purchase for himself from plaintiff a part of this property; (2) tbat long after defendants allege they bad bought tbe farm, plaintiff brought a surveyor to tbe farm to run certain boundary lines and plaintiff and tbe surveyor discussed with both defendants tbe proposed survey, neither of defendants then made any claim to any interest in tbe farm; (3) tbat when defendant Floyd Holt gave plaintiff tbe receipt for tbe down payment of tbe purchase price, Holt admitted tbat be held tbe land as trustee under a parol trust for tbe benefit of plaintiff; (4) tbat witness Sykes beard plaintiff and defendant Floyd Holt state tbe terms of tbe trust agreement in tbe presence of each other, and tbat, on several other occasions, be beard defendant Holt admit tbat be held title to tbe farm in trust for plaintiff; and (5) tbat witness Cole knew tbe terms of tbe trust agreement between plaintiff and defendant Holt; tbat be discussed tbe trust agreement with representatives of tbe Land Bank both before and after tbe foreclosure sale and tbat they were favorable to tbe sale of tbe land to Holt to be held in trust for plaintiff; tbat be, Cole, bad, and was ready to furnish to plaintiff tbe money demanded by tbe Land Bank as down payment on tbe purchase of tbe farm; tbat be, Cole, was present at tbe foreclosure sale ready to bid in tbe farm for plaintiff and would have done so but for tbe trust agreement which be then knew existed between plaintiff and defendant Holt.

“Anything which shows tbe intention or tbe actual contract of tbe parties is material, and any evidence which goes to show tbe real intention of tbe parties is admissible whether it be by way of conduct or documentary in nature.” 34 Cyc., 980, quoted in Potato Co. v. Jeanette, *388 174 N. C., 236, 93 S. E., 795. As stated by Allen, J., in Bank v. Stack, 179 N. C., 514, 103 S. E., 6: “It is not required that the evidence should bear directly on the question in issue, but it is competent and relevant if it is one of the circumstances surrounding the parties, and necessary to be known to properly understand their conduct or motives, or to weigh the reasonableness of their contentions.”

In Potato Go. v. Jeanette, supra, this Court said: “While negotiations leading to the execution of the contract are merged in it at law, they are competent in equity to show what was the real agreement, for the purpose of correcting the instrument and doing justice.” Quoted with approval in Ollis v. Board of Education, 210 N. C., 489, 187 S. E., 772. In the case in hand there is no instrument, but the rule applies with equal force to the proof of an oral contract.

We cannot say that this excluded testimony did not prejudice plaintiff’s case, as the jury found that there was no trust agreement between plaintiff and defendant Floyd Holt. What the jury would have found had this excluded testimony been admitted is a matter for speculation. We think, however, that plaintiff is entitled to an opportunity to present testimony of this character to the jury.

The exceptions bearing upon the class of excluded testimony cover in the main the subject matter of the 263 assignments of error. We do not deem it necessary to consider other assignments, as the matters to which objection is there made may not recur on another trial.

New trial.