{
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  "name": "FOOTE & DAVIES, INC. v. ARNOLD CRAVEN, INCORPORATED",
  "name_abbreviation": "Foote & Davies, Inc. v. Arnold Craven, Inc.",
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    "judges": [
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      "FOOTE & DAVIES, INC. v. ARNOLD CRAVEN, INCORPORATED"
    ],
    "opinions": [
      {
        "text": "WHICHARD, Judge.\nPlaintiff contends the court erred in granting defendant\u2019s motion for summary judgment, in that defendant\u2019s president had either actual, implied, or apparent authority to bind the corporation to its guaranty, and the guaranty was supported by adequate consideration. We hold that there was evidence sufficient to warrant a jury finding that the guaranty signed for the corporation by its president was supported by valuable consideration. We also hold as a matter of law that defendant\u2019s president had the apparent if not the actual authority to make a guaranty agreement binding on the corporation.\nThe test on a motion for summary judgment is whether the materials presented raise an issue of fact so essential that its resolution can defeat a party, of such nature as to affect the outcome of the action, or of such nature as to constitute a legal defense. Summary judgment is proper only if no such factual issue exists. Kessing v. Mortgage Corp., 278 N.C. 523, 534-35, 180 S.E. 2d 823, 830 (1971); Gillespie v. DeWitt, 53 N.C. App. 252, 256, 280 S.E. 2d 736, 740, disc. rev. denied, 304 N.C. 390, 285 S.E. 2d 832 (1981).\nThe evidence is as follows:\nDefendant-corporation operates a retail clothing store. Three family members \u2014father, mother, and son \u2014are its only stockholders and directors. The father is chairman of the board, the mother is secretary-treasurer, and the son is president. The son was also president of a mail order sales subsidiary of defendant that did business at another location. Defendant owned all the stock in the subsidiary.\nPlaintiff is a printing company. In late 1981 plaintiffs representative solicited a catalog-printing order for the subsidiary from its president. Following negotiations in which plaintiffs representative learned of the son\u2019s presidency of both defendant and the subsidiary, final arrangements were made for plaintiffs printing of catalogs for defendant\u2019s subsidiary. Plaintiffs representative delivered to the son, as president of defendant\u2019s subsidiary, a letter enclosing a proposal along with a proposed letter from defendant guaranteeing its subsidiary\u2019s payment for the catalogs. The son accepted and signed the proposal. After having the guaranty typed under the subsidiary\u2019s letterhead, the son signed it as defendant\u2019s president and mailed it to plaintiff.\nPlaintiff later learned that defendant\u2019s subsidiary was having difficulty raising sufficient operating capital. After discussions of that situation between defendant\u2019s president and plaintiffs representative, plaintiff printed the catalogs. It then billed defendant\u2019s subsidiary for approximately $225,000.00. The following day defendant\u2019s subsidiary filed a petition for liquidation in Bankruptcy Court in which it listed its debt to plaintiff. Upon demand, neither the subsidiary nor defendant paid the debt.\nI.\nA guaranty is a promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another person who is liable therefor in the first instance. Gillespie, 53 N.C. App. at 258, 280 S.E. 2d at 741, quoting O\u2019Grady v. Bank, 296 N.C. 212, 220, 250 S.E. 2d 587, 593 (1978). The enforceability of the guarantor\u2019s promise is determined primarily by the law of contracts. Id. at 259, 280 S.E. 2d at 741. Therefore, for a guaranty to be enforceable, it must be supported by consideration. Id., 280 S.E. 2d at 742. However, the same consideration may suffice for both the principal obligation or debt and a guaranty if the guaranty is part of the transaction which created the debt it guarantees. Id. at 260, 280 S.E. 2d at 742; 38 Am. Jur. 2d Guaranty Sec. 44, at 1047 (1968). In that case the extension of credit by the obligee supplies consideration for both the principal debt and the guaranty. Id.\nWe note the following forecast of evidence from the deposition of defendant\u2019s president.\nQ. Do you have any recollection of whether you first raised the possibility of [defendant] guaranteeing [the subsidiary\u2019s] account with [plaintiff] or whether that was raised first by [plaintiffs representative]?\nA. No, \u2014 I didn\u2019t raise that possibility.\nQ. Is it your best recollection that [plaintiffs representative] raised it when he indicated that [plaintiff] could give you the credit terms . . . that you requested, but would require a guaranty from [defendant]?\nA. That was probably at the point that it was requested. ... I think that is probably the point that he requested that.\nQ. Is that your best recollection of the sequence of events?\nA. Uh-huh . . . that . . . would seem to be correct to me.\nFurther evidence from defendant\u2019s president was as follows:\nQ. Prior to the time that you and [plaintiffs representative] entered into the agreement for [plaintiff] to print the catalog, he requested a guaranty from [defendant], didn\u2019t he?\nA. He said that our credit \u2014 that the credit terms had been approved and that they would like to have the guaranty of [defendant].\nQ. And you told him that that wouldn\u2019t be any problem?\nA. That is correct.\nQ. And that you would send it to him later?\nA. That\u2019s correct.\nFrom this evidence a jury could find that the guaranty was negotiated and agreed to as part of the original transaction and thus was supported by adequate consideration.\nII.\nA principal is liable upon a contract duly made by its agent with a third person in three instances: when the agent acts within the scope of his or her actual authority; when a contract, although unauthorized, has been ratified; or when the agent acts within the scope of his or her apparent authority, unless the third person has notice that the agent is exceeding actual authority. Investment Properties v. Allen, 283 N.C. 277, 285-86, 196 S.E. 2d 262, 267 (1973). See G.S. 55-36(e). Where a third party in good faith and with reasonable prudence deals with an agent having apparent authority, the principal is bound by the agent\u2019s acts. Thompson v. Assurance Society, 199 N.C. 59, 64, 154 S.E. 21, 24 (1930).\nApparent authority includes authority to do whatever is usual and necessary to transact the business an agent is employed to transact. Research Corporation v. Hardware Co., 263 N.C. 718, 721, 140 S.E. 2d 416, 419 (1965), citing Wynn v. Grant, 166 N.C. 39, 47, 81 S.E. 949, 953 (1914). The law of apparent authority usually depends upon the unique facts of each case, Zimmerman v. Hogg & Allen, 286 N.C. 24, 32, 209 S.E. 2d 795, 800 (1974), such as the ordinary course of business, the nature and reasonableness of the contract, the officer negotiating it, the size of the corporation, and the number of shareholders. Thus, in a case where the evidence is conflicting, or susceptible to different reasonable inferences, the nature and extent of an agent\u2019s authority is a question of fact to be determined by the trier of fact. 3 Am. Jur. 2d Agency Sec. 360, at 719 (1962). Where different reasonable and logical inferences may not be drawn from the evidence, the question is one of law for the court. Id. at 720. Such is the case here.\nThe law of this state is clear as to the apparent authority of the president of a closely-held corporation to enter into contracts for the corporation. The president of a corporation is the head and general agent of the corporation and may act for it in matters that are within the corporation\u2019s ordinary course of business or incidental to it. Zimmerman, 286 N.C. at 32, 209 S.E. 2d at 800; Burlington Industries v. Foil, 284 N.C. 740, 758, 202 S.E. 2d 591, 603 (1974).\nThe officers, directors, and shareholders of defendant and its subsidiary consist solely of a mother, father, son, and daughter-in-law. This kind of small, closely-held corporation has been said by our Supreme Court to \u201cmore nearly resemble ... a partnership than ... a corporation.\u201d Zimmerman, 286 N.C. at 33, 209 S.E. 2d at 801. The Court stated:\n\u201cAlthough the same broad principles of corporation and agency law determine the powers of officers in both close and publicly held corporations, the factual differences in the patterns of operation of the two kinds of corporations lead to wide disparities in the powers the courts actually recognize in corporate officers. In a close corporation, ownership and management normally coalesce; and the participants often conduct their enterprise internally much as if it were a partnership. The courts have seldom articulated a difference in the rules governing officers\u2019 powers in close and publicly held corporations; yet they appear in fact to have often cut through the technical legal form of close corporations to reach the results that would be reached if the enterprises were conducted as partnerships. In other words, the courts frequently, and perhaps usually, recognize in officers of a close corporation the same powers that are possessed by partners in a firm under the general rule of partnership law which makes each partner an agent of the firm for the purposes of its business and empowers each partner to bind the firm by acts apparently carried on to further the usual business of the partnership.\n\u201cThe courts have rather consistently held officers in a close corporation to possess powers to bind the corporation under circumstances which would make a similar holding questionable in a publicly held corporation. ... In view of the typical patterns of operation in close corporations, holdings of this kind can usually be reconciled with traditional doctrine by viewing an officer whose powers are questioned as in fact a general manager of the company or as having a general manager\u2019s broad powers, or by applying principles of ratification or of authority or apparent authority by acquiescence. In any event, only in rare instances have courts failed to hold a close corporation bound by inter vivos contracts entered into by any officer of the corporation.\u201d\nId. at 33-34, 209 S.E. 2d at 801, quoting 2 O\u2019Neal, Close Corporations Sec. 8.05 (1971).\nHere the by-laws of defendant authorize the president to sign written contracts of the corporation. Defendant wholly owned the subsidiary and stood to benefit from its business. It had on at least five previous occasions guaranteed the obligations of its subsidiary, including a guarantee to the previous printer. The catalog of the subsidiary is identified simply by defendant\u2019s corporate name. Guaranteeing the account and obtaining the advertising materials thus was in defendant\u2019s own interest as well as that of its subsidiary.\nDefendant\u2019s president stated that he thought he had the authority as president to bind the corporation to the guaranty; he at no time advised plaintiff that the board of directors needed to approve the guaranty. Nothing in the facts and circumstances here would put an ordinarily prudent person on notice that defendant\u2019s president was exceeding the scope of his authority. Without such notice, the principal is bound. Zimmerman, 286 N.C. at 31, 209 S.E. 2d at 799. Moreover,\n[t]he general rule that a person dealing with an agent must know the extent of his authority does not apply when dealing with one who is a general agent, as the president of a corporation. In such case the burden is upon the principal to show that the other party had notice of a restriction upon the power of the general agent.\nBank v. Oil Co., 157 N.C. 302, 304, 73 S.E. 93, 94 (1912); Zimmerman, 286 N.C. at 33, 209 S.E. 2d at 800. Defendant here has not carried that burden.\nIII.\nWe hold as a matter of law, therefore, that defendant\u2019s president had the apparent authority to execute a guaranty binding defendant to pay the debt of its subsidiary to plaintiff. We remand for a jury trial on the issue of consideration.\nReversed and remanded.\nJudges Johnson and Phillips concur.\n. The novelist Charles Dickens, through his character Mr. Pancks, offered the following amusing commentary on guaranty agreements:\nIt\u2019s no satisfaction to be done by two men instead of one. One\u2019s enough. A person who can\u2019t pay, gets another person who can\u2019t pay, to guarantee that he can pay. Like a person with two wooden legs getting another person with two wooden legs, to guarantee that he has got two natural legs. It don\u2019t make either of them able to do a walking match. And four wooden legs are more troublesome to you than two, when you don\u2019t want any.\nC. Dickens, Little Dorrit 319 (Penquin Books ed. 1983).",
        "type": "majority",
        "author": "WHICHARD, Judge."
      }
    ],
    "attorneys": [
      "Jackson N. Steele for plaintiff appellant.",
      "Haworth, Riggs, Kuhn, Haworth and Miller, by John Ha-worth and David B. Ashcraft, for defendant appellee."
    ],
    "corrections": "",
    "head_matter": "FOOTE & DAVIES, INC. v. ARNOLD CRAVEN, INCORPORATED\nNo. 8418SC314\n(Filed 5 February 1985)\n1. Guaranty \u00a7 1\u2014 guaranty as part of original transaction \u2014 consideration\nEvidence was sufficient for the jury to find that a guaranty executed by defendant was negotiated and agreed to as part of the original transaction between the parties and thus was supported by adequate consideration where the evidence tended to show that plaintiff agreed to print catalogs for defendant\u2019s mail order business on credit terms requested by defendant but plaintiff would require a guaranty from defendant.\n2. Corporations \u00a7 8; Guaranty \u00a7 1\u2014 president of corporation \u2014 authority to guarantee account of subsidiary\nDefendant\u2019s president had the apparent authority to execute a guaranty binding defendant to pay the debt of its subsidiary to plaintiff where the officers, directors and shareholders of defendant and its subsidiary consisted solely of a mother, father, son and daughter-in-law; the by-laws of defendant authorized the president to sign written contracts of the corporation; defendant wholly owned the subsidiary and stood to benefit from its business; it had on at least five previous occasions guaranteed the obligations of its subsidiary; guaranteeing the account and obtaining advertising materials were in defendant\u2019s own interest as well as that of its subsidiary; defendant president stated that he thought he had the authority as president to bind the corporation to the guaranty; and the president at no time advised plaintiff that the board of directors needed to approve the guaranty.\nAppeal by plaintiff from Freeman, Judge. Judgment entered 5 January 1984 in Superior Court, Guilford County. Heard in the Court of Appeals 28 November 1984.\nPlaintiff appeals from summary judgment for defendant in an action to enforce a guaranty.\nJackson N. Steele for plaintiff appellant.\nHaworth, Riggs, Kuhn, Haworth and Miller, by John Ha-worth and David B. Ashcraft, for defendant appellee."
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