Whitten v. Bob King's AMC/Jeep, Inc.

Annotate this Case

231 S.E.2d 891 (1977)

292 N.C. 84

Jerry W. WHITTEN v. BOB KING'S AMC/JEEP, INC. and R. L. King, Jr.

No. 96.

Supreme Court of North Carolina.

February 8, 1977.

*893 Henry C. Frenck, Winston-Salem, for plaintiff.

White & Crumpler by Fred G. Crumpler, Jr. and G. Edgar Parker, Winston-Salem, for defendant.

BRANCH, Justice.

The sole question before us is whether the Court of Appeals erred in concluding that the trial judge properly allowed the motion for summary judgment in favor of the corporate defendant, Bob King's AMC/Jeep, Inc.

The entry of summary judgment is appropriate 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 *894 of law." G.S. 1A-1, Rule 56(c). The burden of establishing the absence of any genuine issue as to a material fact rests on the moving party. Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392. If the other party opposes the motion with evidentiary materials which indicate the existence of a genuine issue of material fact, or if the movant's own supporting materials suggest the existence of such an issue, then the motion must be denied. Kidd v. Early, supra.

Plaintiff alleged in both his original complaint and his amended complaint that "on or about the 4th day of November, 1968 the plaintiff and the defendant corporation through its president R. L. King, Jr. entered into a contract for the sale and transfer of stock . . . ." [Emphasis added.] However, all the evidence presented at the hearing on the motion for summary judgment tends to show that the alleged agreement (whether it be plaintiff's version or defendant's version) was orally entered into prior to the acknowledged date of incorporation of Triangle Motor Sales, Inc. in May of 1968. The written contract of 4 November 1968 was merely a memorandum reflecting the terms of that prior agreement. The deposition of plaintiff reveals the following pertinent information:

. . . I gave $5,000 directly to Mr. King in March of 1968, pursuant to our prior discussions to invest in the business. We had previously agreed that I would be a stockholder but a silent stockholder. * * * * * * . . . In November of 1968 he reduced this agreement to writing which is Exhibit "A", attached to the Complaint filed herein.

The deposition testimony of individual defendant is consistent with this chronology of events:

. . . In February of 1968 we discussed his coming to Winston to work for me . . .. At that time we did talk about Mr. Whitten investing in the corporation, about him loaning me money for a business . . .. He agreed to loan me $5,000 . . .. In February, March or April of 1968, Mr. Whitten did give me $5,000, which I deposited into my bank account. * * * * * * . . . Prior to the statement [Exhibit "A"] we had only a verbal agreement. When Mr. Whitten gave me the $5,000, he had never had anything in writing. He subsequently asked me to prepare this statement. We had previously agreed that he was going to loan me $5,000. We reduced the agreement to writing. . ..

Although the complaint did not specifically allege that corporate defendant adopted the contract made on its behalf, we are of the opinion that the evidence presented at the hearing supported this theory.

It is recognized by case law and leading treatises that where the evidence presented at a hearing upon a motion for summary judgment would justify an amendment to the pleadings, such amendment should not be precluded by entry of summary judgment. Indeed, in proper cases it is desirable to treat the pleading as though it were amended to conform to the evidence presented at the hearing. Freeman v. Marine Midland Bank-New York, 2 Cir., 494 F.2d 1334; Rossiter v. Vogel, 2 Cir., 134 F.2d 908; 6 Moore's Federal Practice ¶ 56.10 (2d ed. 1976); Wright & Miller, Federal Practice and Procedure: Civil § 2738. See also Bank v. Gillespie, 291 N.C. 303, 230 S.E.2d 375. Under the facts of instant case, it is both proper and desirable that the complaint be treated as amended to conform to the evidence. We hasten to add that it is the better procedure at all stages of a trial to require a formal amendment to the pleadings.

A corporation cannot ratify a contract made on its behalf prior to its incorporation, since it could not have authorized the contract at that time. However, the corporation adopts the contract and becomes bound by its terms, if it accepts the benefits of the contract with knowledge of its provisions. Smith v. Ford Motor Co., 289 N.C. 71, 221 S.E.2d 282; McCrillis v. Enterprises, 270 N.C. 637, 155 S.E.2d 281; *895 Robinson, North Carolina Corp. Law § 2-4 (2d ed. 1974); 18 Am.Jur.2d, Corporations § 122.

There can be no doubt that corporate defendant accepted the benefits of the contract between plaintiff and individual defendant when the $5,000 advanced by plaintiff was used as a part of its initial capitalization. At no time has corporate defendant attempted to repudiate the contract benefits previously obtained. Rather, it has retained plaintiff's initial contribution as a part of its working capital at all times prior to the institution of this action. Nevertheless, before a corporation can be held to have adopted a prior contract of its promoter, it must not only appear that it has accepted the benefits of the contract, but also that it did so with knowledge of its provisions. McCrillis v. Enterprises, supra. It is our opinion that in instant case the corporation accepted the benefits with knowledge of the provisions of the contract.

It is recognized in this jurisdiction that notice to the president of a corporation is notice to the corporation. Patterson v. Henrietta Mills, 219 N.C. 7, 12 S.E.2d 686.

The facts of this case disclose that from the formation of the corporation defendant King was its president and general manager. He received the money from plaintiff and placed it in the corporate account as soon as the account was opened.

Assuming, arguendo, that such notice to the president and general manager was not sufficient to impute knowledge to the corporation, we find another basis for our conclusion that the corporation was fixed with notice. In 18 Am.Jur.2d, Corporations § 123, we find the following pertinent statement:

As a rule, the knowledge of the promoters cannot be imputed to the corporation, although an exception to the rule may exist in a case where the promoters become directors and stockholders in the corporation or are the controlling stockholders.

See also Federal Land Value Ins. Co. v. Taylor, 9 Cir., 56 F.2d 351.

In instant case the deposition of plaintiff, which was offered in opposition to the motion for summary judgment, contained the following testimony:

. . . In October of 1974 Mr. King was trying to buy a boat from me and I asked him whether American Motors had been paid off and Mr. King responded that they had and he was trying to work out a deal where he would be able to pay my percentage of the company, Mr. King delivered a check to me for $1,000, dated August 16, 1974, and two months prior to that date he told me American Motors has been paid off. That would be in June of 1974. * * * * * * At the time Mr. King gave me the $1,000 check, he just said this was going to be a start of the money that I was due. He never told me how much I was due. He said he hadn't had a chance to figure out yet. He told me that he hadn't had a opportunity to consult the bookkeeper and he would get the net worth of the business and then pay me . . ..

There was evidence that in October of 1974, when corporate defendant still retained and used the benefits of plaintiff's performance under the prior contract, the loan to American Motors had been fully repaid, at which time all stock in corporate defendant was transferred to individual defendant. At that point the sole shareholder, president and general manager of the corporation had complete knowledge of the provisions of the contract and such knowledge, therefore, became the knowledge of the corporation.

Plaintiff has presented evidence which tends to show that the agreement made in early 1968 between him and individual defendant was intended as a purchase of stock in the corporation to be thereafter formed. On the other hand, corporate defendant has offered evidence tending to show that the agreement contemplated nothing more than a loan by plaintiff to individual defendant. The written memorandum of that agreement is ambiguous as *896 to the true intent of the parties. The heart of a contract is the intention of the parties. Pike v. Trust Co., 274 N.C. 1, 161 S.E.2d 453. Since the evidence presented by both sides in this case is diametrically opposed on this crucial issue, the motion for summary judgment should have been denied.

For the reasons stated, the decision of the Court of Appeals is reversed. This cause is remanded to that court with directions that it be returned to the Superior Court of Forsyth County with an order that the entry of summary judgment be vacated and that there be a trial on the issues raised by the pleadings and evidence.

Reversed and remanded.