Plaintiff's assertion that the evidence supports its allegations that it was unlawfully forced to make the premium payment to save itself from great financial loss necessitates a review of the evidence. The evidence is very largely documentary, consisting principally of the deed of trust and correspondence between the president of plaintiff and the assistant treasurer of defendant.
E. L. Farris, president of plaintiff and of Liberty, testified that in the fall of 1951 defendant made a complaint about the loan. On 30 November 1951 Farris wrote M. H. Crocker, assistant treasurer of defendant, replying to a letter from Crocker dated 16 November. In that letter Farris stated that plaintiff’s operation had not shown the result hoped. He attributed this to problems created by the Office of Price Stabilization. On 5 December 1951 Crocker wrote Farris referring to a conversation had on 3 December. Crocker’s letter stated: “We feel that berore we can reach a definite decision, we should have the following additional information:
“1. How do you justify payment of interest on the debentures of Liberty Baking Corporation by its subsidiary, Bell Bakeries Inc.? We have noted the reason given by your auditors but that is an inadequate explanation.”
The letter requested copies of operating and financial statements. On 10 December Farris replied and enclosed financial and operating statements through 24 November 1951. These statements showed an excess of disbursements over receipts of $101,617.21 for forty-seven weeks, a loss incurred in the operation of seven of plaintiff’s plants, but a net profit of $69,647.58 which was transferred to surplus; net working capital of $58,414. In response to the inquiry as to payment of Liberty’s obligations by Bell, the letter said: “You have requested also that we justify payment on interest of Liberty Baking Corporation debenture bonds by its subsidiary, Bell Bakeries, Inc. Liberty Baking Corporation has no other source of income except through its subsidiary, Bell Bakeries, Inc., of which it, Liberty Baking Corporation, is the sole owner. It has long been the considered opinion of management and our auditors that the operating company, Bell Bakeries, Inc., should be required to pay to Liberty Baking Corporation interest on its invested capital for use of operating facilities enjoyed by the subsidiary. It was therefore determined, at the time the Liberty Baking Corporation preferred stock was exchanged for Liberty Baking Corporation debenture bonds, that this expense would be an obligation of the operating company, Bell Bakeries, Inc. and this expense has been absorbed since 1948, at which time the debenture plan became operative. We *415therefore feel that this charge for interest expense against the subsidiary is justifiable and in order.” On 19 December 1951 Crocker replied to Farris’ letter of 5 December. He stated that the company’s working capital on 10 March 1951 was $173,000; 19 May 1951 it had been reduced to $112,000; 23 June 1951 it had been reduced to $81,000. He then said: “Your working capital at November 24, 1951 amounted to $53,400, which is a violation of the Indenture requirement that it be maintained at $75,000.
“The dual violation of this contract justifies an immediate declaration of default and calling the issue. We are disposed to take that action unless you will assure us at once:
“1. That working capital has been restored to $75,000 or more.
“2. That your Company will enter into a supplemental indenture duly authorized by your directors and if necessary, your stockholders, providing among other things that Bell will pay no dividends on its stock, will make no interest or principal payments on its long-term debt other than the bonds of this issue, or that of Liberty Baking Corporation, and will make no disbursements to Liberty Baking Corporation, or loans or advances to any person, firm or corporation except in the due course of business, unless after such payment or disbursement working capital amounts to $200,000 or more.” On 27 December 1951 Farris acknowledged receipt of this letter and stated that working capital was then in excess of $75,000. He stated further: “Regarding the paragraph numbered 2 of your letter, it is our interpretation that interest and principal payments on the debentures of Liberty Baking Corporation are excepted from the $200,000. working capital requirement. With this understanding our Directors have authorized the making of a supplemental Indenture in substance as set forth by you.” He further stated that he would exercise his best efforts to maintain a working capital in excess of $200,000 and expressed appreciation for cooperation which has been given by Jefferson.
On 28 December Crocker, by telegram, replied to Farris’ letter of the 27th. The telegram read: “PARAGRAPH TWO MY LETTER DECEMBER 19 DOES NOT EXCEPT INTEREST OR PRINCIPAL PAYMENTS ON THE DEBENTURES OF LIBERTY BAKING CORPORATION FROM THE $200,000 WORKING CAPITAL REQUIREMENT.” Farris testified that upon receipt of this telegram he discussed it with counsel for Bell Bakeries. Farris testified: “The wire from Jefferson Standard indicating that they had made an exception to their letter which threw an entirely different light on the interpretation or pertaining to the paying of interest to Liberty on the bonds, naturally it was the most serious thing that had confronted us in quite some time. We didn’t see how we could fail to pay the interest on those bonds, and they had agreed in their letter originally to accept *416it.” Notwithstanding the insistence by Jefferson that Bell should not make any payments to Liberty except in the ordinary course of business, Bell, on 1 January 1952, paid the interest accrued on Liberty’s debentures.
On 7 January Farris conferred in Greensboro with Crocker about the loan and the position of their respective companies. On 8 January 1952 Crocker wrote Farris. In that letter he said: “We construe payment by Bell Bakeries, Inc. of interest or principal on the obligations of Liberty Baking Corporation, owner of the common stock of Bell Bakeries, Inc., to be a dividend on that common stock. Any other payment from Bell to Liberty, except in the due course of business, would bear the same classification. Therefore, such payments violate the agreement of May 16, 1950 unless after they have been made Bell Bakeries, Inc. has net working capital of $200,000 or more.
“We do not intend to protest interest payments already made by Bell on the Debentures of Liberty, but we will not permit such payments in the future in violation of the Indenture of November 1, 1947 and the letter agreement of May 16, 1950. If your Company will not be able to abide by those restrictions, I suggest that you arrange to refinance and retire the bonds we own.” The letters and telegrams quoted above are the evidence on which plaintiff relies to show that it acted under duress. Farris testified that after his conference in Greensboro on 7 January and receipt of the letter of 8 January he began to make arrangements to refinance the loan. Farris testified that on 2 April he went to Greensboro, expecting to see Mr. Crocker to discuss the preliminaries as to what would be required of Bell Bakeries in order to pay off the loan, that he indicated to Mr. Crocker that he felt the payment of the interest to date of retirement and the principal amount would be the amount required by the insurance company to which Crocker replied: “. . . he wasn’t sure of that, that he would have to discuss the matter with his committee, and that he would give me an answer later.” On 10 April 1952 Crocker wrote Farris: “. . . we will accept full payment of this loan at 105 and accrued interest at any time on or before August 1, 1952.”
On 15 April 1952 counsel for Bell wrote counsel for defendant reciting the relationship between Liberty and Bell and stated that Liberty had no source of income except such payments as might be made by Bell, that Bell obligated itself to service Liberty’s debentures on 1 January 1948, that: “The consideration for this was the large amount of money which Liberty Baking Corporation had already invested in Bell and for which it did not exact or receive any return except as stated.” He stated that the amount necessary to meet Liberty’s obligations on its debentures was $62,000 per year and that these payments had been made since 1948 without protest until December 1951. Speaking with *417respect to the amendment of May 1950 to the deed of trust, the letter said: “As Bell had no intention of paying any dividends to its stockholders unless its working capital was at least $200,000 we agreed to this request. It was not then stated by Mr. Crocker, and we did not have the faintest inkling, that this provision was intended to prevent the payment of the amount which had been paid for Bell to Liberty to service the Liberty indentures since January 1948. ... As we have no intention of bringing about a default in the Liberty Baking Corporation debenture issue, and as the management would expose itself to severe criticism if not legal liability for such action, we are endeavoring to follow Mr. Crocker’s demand to replace the loan although we deny any violation of any provision of the indenture by our action. We have sought to make arrangements to refinance the loan and we are confident that we can effect such an arrangement were it not for the fact that in his letter of April 10, 1952, Mr. Crocker informs us that Jefferson will insist on a premium of 5% in payment of the balance of this loan.”
The response to this letter is not in the record, but on 29 May 1952 counsel for Bell wrote Crocker disagreeing with the position taken by defendant that payments by Bell to Liberty violated the provision of the deed of trust as amended in May 1950. He said: “Under the circumstances Bell has no alternative except to protest your position and pay the five point premium in order to avoid the irreparable damage set forth in my letter of April 15th.” It was stated that Bell had arranged a loan and would pay Jefferson on 16 June.
Plaintiff obtained a loan of $600,000 and paid the debt owing defendant plus the premium of $25,120. It incurred expenses in excess of $25,000 in connection with the new loan.
The positions of the respective parties, as shown by the foregoing lengthy narration, may be summarized thus: Defendant was plaintiff’s secured creditor. Plaintiff, debtor, had admittedly breached some of the terms of the trust. Defendant insisted that other acts of plaintiff constituted violations of the terms of the trust. It expressly waived all past violations but notified plaintiff that it would insist on compliance in the future. There is no evidence or suggestion that defendant was not acting in good faith for the protection of the debt owing to it. The deed of trust fixed the terms on which it could be discharged before the maturity of the debt.
Plaintiff was unable to comply with the terms of its mortgage and also pay the debt of its parent corporation which it had voluntarily assumed. It said to its secured creditor that it did not deem the payments to be made on the debt of Liberty a violation of the trust agreement, but it was not willing to test its position in court. Confronted with a choice of complying with the covenants of its deed of trust or *418the prepayment of its bonds at the price fixed in the trust, it chose the latter course. It says that it was forced by business necessities to the path it pursued, that the premium paid was not voluntary but under duress.
We are of the opinion that plaintiff has failed to establish the duress alleged and is therefore not entitled to recover.
Since money, like other commodities, is for hire, we may safely assume that the parties had extensive negotiations with respect to the terms each deemed important before agreeing upon the terms of the loan of November 1947. Plaintiff naturally sought terms which it regarded as important, such as rental or interest rate, length of loan, prepayment privileges, if it should no longer need the money or could hire other money on more advantageous terms. Defendant, charged with responsibility of hiring out the money of its policyholders, would naturally seek such things as safety of investment, a high yield consistent with safety of investment, and having satisfied itself as to these conditions, it would wish the hiring to continue for a relatively long time.
The law prescribes the maximum rate which can be charged for the use of money, G.S. 24-1. The parties were at liberty to contract for the loan on any terms not in conflict with the statute. The deed of trust and notes fixed the rate of return at 5%. Principal and interest were payable quarterly. The loan could run twelve and one-half years or plaintiff, at its option, and without extra cost to it, could, beginning in November 1950, pay two notes on each payment date, thus reducing the time the loan would run to approximately seven and one-half years. These additional payments could be made on only 30 days’ notice to the creditor. This provision enabled plaintiff to shorten the time of hiring if it did not need the money or if interest rates should decrease and it could obtain the money at a cheaper rate.
Further provision was made by which plaintiff could, whenever advantageous to it, pay the loan. This privilege could only be exercised by compensating defendant for the trouble it would incur and the loss it would probably sustain because of lower interest rates. The amount of premium to be paid was dependent on the length of time plaintiff had used the money, varying from 10% to 5%; the longer the use, the lower the premium. This provision was legal and plaintiff could not elect to repay the entire loan without complying with this provision. Smithwick v. Whitley, 152 N.C. 366, 67 S.E. 914; French v. Mortgage Guarantee Co., 104 P. 2d 655, 130 A.L.R. 67 (Cal.); 55 Am. Jur. 359.
A loan to a company with adequate reserves and working capital is of course to be preferred to one to a company without such reserves or losing money. The provisions of the deed of trust inserted for the protection of the lender that borrower should maintain a minimum working *419capital and should not pay dividends or retire stock when borrower’s financial condition did not meet the minimum requirements were valid.
The insertion in the deed of trust of the provision prohibiting the payment of dividends when working capital was below a fixed sum was intended to assure the ability of plaintiff to continue in business and hence to strengthen the security held by defendant. “The word 'dividend’ denotes a fund set apart by a corporation out of its profits, to be apportioned among shareholders.” Trust Co. v. Mason, 151 N.C. 264, 65 S.E. 1015. The only claim which Liberty had on the assets of Bell was stock ownership. It did not claim to be a creditor. The moneys paid it by Bell were not asserted to be loans but were paid solely because of stock ownership and the need of the stockholder for funds. Hence it would seem that these payments met the definition of dividends as used in the deed of trust. As said in U. S. v. E. Regensburg & Sons, 124 F. Supp. 687: “. . . in a closely held family corporation dividends may be distributed with considerable informality and not be denominated as such in the corporate documents.” That these disbursements by Bell to Liberty met the definition of dividend is in conformity with numerous decisions. Peoples Gin Co. v. Commissioner of Int. Rev., 118 F. 2d 72; Mid-west Rubber Reclaim. Co. v. Commissioner Int. Rev., 131 F. 2d 157; Helvering v. Gordon, 87 F. 2d 663; Angelus Building & Investment Co. v. Com’r. of Int. Rev., 57 F. 2d 130. The officers and directors of Liberty and Bell were the same.
Even if these payments did not meet the strict definition of a dividend, there was such close analogy that it cannot be said that defendant was not justified in so asserting.
The creditor had a legal right to insist that its debtor should comply with the contract. It had a right to call the debtor’s attention to the terms of the contract and to inform it that upon failure to comply creditor would exercise its legal contractual rights. If, in these circumstances, the debtor declines to comply with the contractual provisions inserted for the protection of creditor but exercises his optional rights under the contract, he is not acting under duress. “Duress exists where one, by the unlawful act of another, is induced to make a contract or perform or forego some act under circumstances which deprive him of the exercise of free will.” Smithwick v. Whitley, 152 N.C. 369, 67 S.E. 913; Boyles v. Insurance Co., 209 N.C. 556, 183 S.E. 721.
“A threat to do what one has a legal right to do cannot constitute duress.” Kirby v. Reynolds, 212 N.C. 271, 193 S.E. 412. Illegality is the foundation on which a claim of coercion or duress must exist. Hence a threat to exercise a power of sale in a mortgage when such right exists and to compel compliance with the terms of the mortgage does not constitute duress. Bank v. Smith, 193 N.C. 141, 136 S.E. 358; Luff v. Levey, 203 N.C. 242, 165 S.E. 703; Gunter v. Thomas, 36 N.C. *420199; Starks v. Field, 89 P. 2d 513 (Wash.); Weiner v. Minor, 197 A. 691 (Conn.); Walvoord v. Keystone Mortgage Co., 140 S.W. 2d 307 (Tex.); Ochiuto v. Prudential Ins. Co., 52 A. 2d 228 (Pa.); Inland Empire Refineries v. Jones, 206 P. 2d 519 (Idaho); Wise v. Midtown Motors, 42 N.W. 2d 404, 20 A.L.R. 2d 735 (Minn.); Stott Realty Co. v. Detroit Sav. Bank, 264 N.W. 297 (Mich.); Boyles v. Insurance Co., supra; Carey v. Fitzpatrick, 17 N.E. 2d 882; 17 C.J.S. 532, 13 C.J. 399, 70 C.J.S. 358.
Defendant was acting within its legal rights in insisting upon a compliance with the terms of the deed of trust as fairly interpreted by it. A breach by plaintiff of the covenants made by it for the protection of defendant did not give it any rights or advantage which it could not have asserted if it had complied with the provisions of the deed of trust.
Had defendant in January declared a default and demanded payment, it would only have been entitled to collect the debt and interest accrued thereon to the date of payment. Such is the holding in Kilpatrick v. Germania Life Ins. Co., 75 N.E. 1124; Union Cen. Life Ins. Co. v. Erwin, 145 P. 1125, and Steffen v. Refrigeration Discount Corporation, 205 P. 2d 727, cited and relied upon by plaintiff. These decisions conform to our own holding in Moore v. Cameron, 93 N.C. 51.
Plere no default had been declared. Past defaults were expressly waived. Defendant die! not elect to terminate the loan. The distinction between the cases cited and relied upon by appellant and this case is pointed out in Hamilton v. Kentucky Title Savings Bank & Trust Co., 167 S.W. 898.
Plaintiff was put on notice that it must in the future comply with its contract or meet a default. It had a right to comply and continue with the loan. With the right to comply or pay the debt in accordance with the terms of the mortgage, it deliberately chose to pay. Since the evidence fails to disclose that defendant was guilty of illegal conduct or acted in bad faith for the purpose of oppressing plaintiff, appellant has failed to establish duress, coercion, or business compulsion creating any liability on the part of the defendant. The judgment is
Affirmed.
WinboRNE, C. J., took no part in the consideration or decision of this case.
JOHNSON, J., not sitting.