DeCarlo v. Gerryco, Inc.

264 S.E.2d 370 (1980)

46 N.C. App. 15

Mike F. DeCARLO v. GERRYCO, INC.

No. 7912DC759.

Court of Appeals of North Carolina.

April 1, 1980.

*373 McCoy, Weaver, Wiggins, Cleveland & Raper by Richard M. Wiggins, Fayetteville, for plaintiff-appellee.

Ling & Farran by Stephen D. Ling, Greensboro, for defendant-appellant.

HEDRICK, Judge.

Defendant contends that, if either party was entitled to judgment as a matter of law, it was, and thus the court erred in entering summary judgment for the plaintiff.

While summary judgment is recognized as a "drastic remedy" which must be cautiously used, Taylor v. Lutz-Yelton Heating & Air Conditioning Corp., 43 N.C. App. 194, 258 S.E.2d 399, cert. denied, 298 N.C. 809, 262 S.E.2d 4 (1979), nevertheless, under Rule 56, "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," summary judgment shall be entered. G.S. § 1A-1, Rule 56(c); Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392 (1976). "The judge's role in ruling on a motion for summary judgment is to determine whether any material issues of fact exist that require trial." Stroup Sheet Metal Works, Inc. v. Heritage, Inc., 43 N.C.App. 27, 30, 258 S.E.2d 77, 79 (1979). The burden of proving that no triable issue of fact exists is on the movant, whose papers are carefully scrutinized while those of the opposing party are indulgently regarded. North Carolina National Bank v. Gillespie, 291 N.C. 303, 230 S.E.2d 375 (1976); Emanuel v. Colonial *374 Life & Accident Insurance Co., 35 N.C.App. 435, 242 S.E.2d 381 (1978).

We agree with the judge and the parties in the present case that the uncontradicted evidence of record discloses there are no genuine issues of fact to be tried. Thus, the only question before us, as before the trial judge, is which party is entitled to judgment as a matter of law. The trial court concluded that the plaintiff was entitled to judgment as a matter of law. We disagree and hold that summary judgment should have been entered for the defendant.

Defendant argues, and plaintiff concedes, that, since the defendant was not a party to either the original contract or the amendment thereto, the only theory upon which plaintiff could prevail is that of adoptionthat is, that the defendant "adopted" as its own the contract entered into by Brooks and plaintiff. Whether a set of uncontroverted facts establishes an adoption is a question of law for the court. See Moriarity v. Meyer, 21 N.M. 521, 157 P. 652 (1916).

An adoption occurs when the corporation, after coming into existence, accepts the benefits of a contract made prior to incorporation with full knowledge of the contract's provisions. R. Robinson, N.C. Corporation Law, § 2-4 (2d ed. 1974); see also 18 Am.Jur.2d, Corporations §§ 119-123 (1965). The question of whether the corporation had knowledge of the contract is easily determined: If the sole shareholder or the "responsible officers have, or are chargeable with, knowledge" of the agreement, such knowledge will be imputed to the corporation itself. 18 Am.Jur.2d, Corporations § 123 at 665 (1965); accord, Whitten v. Bob King's AMC/Jeep, Inc., 292 N.C. 84, 231 S.E.2d 891 (1977). When knowledge on the part of the corporate entity is made to appear, then "by accepting the benefits the company becomes bound to perform the obligations incident to [the] contract." Beachboard v. Southern Railway Co., 16 N.C.App. 671, 677, 193 S.E.2d 577, 581 (1972), cert. denied, 283 N.C. 106, 194 S.E.2d 633 (1973).

Reference to the record before us establishes beyond peradventure that the defendant corporation is chargeable with knowledge of the contract at issue, as it existed originally and as it was subsequently amended, since the defendant's first president, Joe Brooks, is a party to the instrument. However, the issue of whether the defendant has accepted the contract's benefits is not so readily resolved under the circumstances of this case. Research reveals that the issue most often arises in situations which present, in comparison to this case, clear-cut factual patterns. For example, a promoter of the corporation to be formed enters into a preincorporation agreement with another party to provide initial capital for the enterprise. The promoter thereafter becomes a responsible officer of the company, and the company uses the money advanced by the outside party. In that situation, the corporation will be held to have accepted the benefits of the preincorporation contract, with full knowledge of its provisions. Thus, the company will be liable to perform the obligations incident to the contract. See Whitten v. Bob King's AMC/Jeep, Inc., supra. See also Chartrand v. Barney's Club, Inc., 380 F.2d 97 (9th Cir. 1967).

Other situations similarly susceptible of relatively ready resolution involve contracts to lease property into which the corporate body ultimately moves; or to buy land which the corporation thereafter uses; or to employ a person in a particular position at a specified salary whose services the company does indeed use. See, e. g., cases cited at 18 Am.Jur.2d, Corporations § 122 (1965); Annot., 123 A.L.R. 726 (1939); Smith v. Ford Motor Co., 289 N.C. 71, 221 S.E.2d 282 (1976); McCrillis v. A & W Enterprises, Inc., 270 N.C. 637, 155 S.E.2d 281 (1967). The benefits available to the corporation in such circumstances are obvious and, when the corporation avails itself of such benefits, it thereby adopts the contract to which they are incident.

Although we have discovered no North Carolina case which treats the question, we believe that the existence of benefits *375 under the contract's terms which are concrete and capable of accruing directly is essential to the finding that an adoption has occurred. At least one other jurisdiction has so held. The rule that a corporation which accepts the benefits of a contract, with knowledge of the contract, must also assume the burdens does not apply to a case in which the corporation receives "no direct, tangible benefits." Williams v. McNally, 39 Wyo. 130, 139, 270 P. 411, 414 (1928). In Williams, a promoter of the corporation to be formed entered into a contract with plaintiff whereby he promised to pay plaintiff's expenses incurred in work on behalf of the prospective company. Plaintiff actually performed certain services, especially in promoting the company to others and in seeking subscriptions to shares. After the company incorporated, he submitted his bill for expenses arising out of those activities. The court found that the benefits, if any, to the corporation were too indirect and intangible, and thus the corporation could not be said to have "accepted" benefits.

Plaintiff in the case before us has presented an even weaker example of benefits which this defendant could be deemed to have accepted. He has produced no evidence that he provided the defendant with any recipes or formulas for preparing its seafood. The record is devoid of proof that he at any time actually advised defendant or furnished any information regarding the operation of its business. At best, plaintiff has shown that he was "available" to the defendant to provide such services if and when defendant requested his aid. "The benefits of a contract are the advantages which result to either party from a performance by the other." Moriarity v. Meyer, supra at 525, 157 P. at 653. See also Weatherford v. Granger, 86 Tex. 350, 24 S.W. 795 (1894). Had defendant requested and plaintiff performed any of the services which he stood ready to perform, the situation would be radically different. We do not think, however, that his availability to provide services affords any direct or tangible benefit to this defendant so as to satisfy the essential element of plaintiff's adoption theory.

We note plaintiff's argument that defendant did make one payment "for commissions for March and July of 1977." That fact does not alter our position that plaintiff has failed to demonstrate the existence of concrete benefits accruing directly to this defendant.

We hold that the trial court erred in entering summary judgment for plaintiff. Accordingly, the summary judgment for plaintiff is reversed, and the cause is remanded to the District Court for the entry of summary judgment for defendant.

Reversed and remanded.

WEBB and WELLS, JJ., concur.