Johnson v. Community Development Corp. of Wahpeton

• Decision Date: 31 October 1974
• Docket Number: No. 9014,9014
• Citation: 222 N.W.2d 847
• Parties: Mildred JOHNSON, Individually, and on behalf of all shareholders of Community Development Corporation of Wahpeton, similarly situated, Plaintiff and Appellant, v. COMMUNITY DEVELOPMENT CORPORATION OF WAHPETON, a corporation, et al., Defendants and Appellees. Div.
• Court: North Dakota Supreme Court

Page 847

222 N.W.2d 847

Mildred JOHNSON, Individually, and on behalf of all

shareholders of Community Development Corporation

of Wahpeton, similarly situated, Plaintiff and Appellant, v. COMMUNITY DEVELOPMENT CORPORATION OF WAHPETON, a

corporation, et al., Defendants and Appellees.

Div. No. 9014.

Supreme Court of North Dakota.

Oct. 31, 1974.

Syllabus by the Court

1. Acts of directors at a meeting which was illegal because of want of proper notice may be ratified either expressly by the action of the directors at a subsequent legal meeting or impliedly by the corporation's subsequent course of conduct.

2. When a motion for summary judgment is made and supported, as provided in the rule for summary judgment, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavit or as otherwise provided in the rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not do so, summary judgment shall be entered against him, if appropriate. Rule 56(e), N.D.R.Civ.P.

3. Rule 56(e), N.D.R.Civ.P., requires that supporting and opposing affidavits shall be made on personal knowledge of the facts set forth therein and shall show affirmatively that the affiant is competent to testify as to the matters stated therein.

4. For reasons stated in the opinion, we affirm the summary judgment.

Johnson, Milloy, Eckert & Johnson, Ltd., Wahpeton, for plaintiff and appellant.

Colin A. Bailey, Wahpeton, for defendants and appellees.

PAULSON, Judge.

This is an appeal from a summary judgment granted by the Richland County District Court in favor of the appellee, Community Development Corporation of Wahpeton (hereinafter CDC) and its directors, dismissing the complaint of the appellant, Mildred Johnson, individually, and on behalf of all shareholders of Community Development Corporation of Wahpeton, similarly situated (hereinafter Mrs. Johnson). CDC is a corporation formed to encourage industrial and commercial growth and development within the City of Wahpeton and its surrounding trade territory. In March of 1973, Frontier, Incorporated, a West Fargo manufacturing firm, informed CDC that Frontier, Inc. was interested in moving its operation to Wahpeton. The factual context involved herein concerns the efforts of CDC to secure a Small Business Administration (hereinafter SBA) guaranteed loan for the construction of a building which would be leased by CDC to Frontier, Inc. in order to facilitate Frontier, Inc.'s move to Wahpeton.

On July 5, 1973, after making a preliminary investigation, the board of directors of CDC held a special meeting to discuss the Frontier, Inc. project. A motion was made and passed that CDC should aid Frontier, Inc.'s 'move to Wahpeton using all the means at our disposal'. Both parties to this appeal agree that proper notice of the July 5, 1973, meeting was not given to the board members in accordance with the CDC bylaw and § 10--19--43, of the North Dakota Century Code. A similar special meeting was called on September 4, 1973. Once again, proper notice of the meeting was not given. At the September 4, 1973, meeting the board of directors adopted a resolution that CDC would 'pursue with all diligence the securing of an SBA Loan and to cooperate with Frontier, Inc. and SBA in securing said loan'. On September 17, 1973, at a regularly scheduled meeting, the board of directors passed a resolution which read in pertinent part 'That this Resolution confirms and ratifies all action taken by Community Development Corporation of Wahpeton, at that special meeting of September 4, 1973.'

The application for an SBA loan was not authorized by the board of directors of CDC until its regular board meeting held on October 29, 1973.

In a verified complaint filed on September 18, 1973, Mrs. Johnson alleged that the meetings of July 5, 1973, and September 4, 1973, were illegal, null, and void for lack of proper notice and that any actions taken by the board of directors of CDC at said meetings were illegal, null, and void; and were invalid and of no binding effect on the corporation. Mrs. Johnson further alleged that the actions of the board of directors concerning the Frontier, Inc. project constituted lack of due care, breach of good faith, negligence, and carelessness. Mrs. Johnson filed an amended verified complaint on October 17, 1973, which was substantially the same as the original verified complaint. It should be noted that Mrs. Johnson has conceded before this court that CDC ratified the action taken at the September 4, 1973, meeting by the resolution adopted at the meeting of September 17, 1973.

On November 30, 1973, CDC filed a motion for summary judgment on the ground that no genuine issue as to any material fact existed and that CDC was entitled to judgment as a matter of law. At the hearing on the motion on December 10, 1973, the Honorable Wallace E. Warner granted summary judgment in favor of CDC. In reaching this decision, the district court stated:

'The Board of Directors ratified and confirmed past irregularities in their meetings by their meeting of September 17. This Court is not going to substitute its judgment for the judgment of the Board of Directors. The Board of Directors are chosen in whatever manner they're chosen, and this Court is not going to substitute its judgment as the wiseness and unwiseness of loans for the actions of a board of directors.'

During the course of the hearing on the motion for summary judgment, Mrs. Johnson moved to amend her affidavit in opposition to such motion. The trial court denied the motion to amend the affidavit.

The sole question on this appeal is whether on the pleadings, affidavits, and showing made before the district court the appellee is entitled to a summary judgment.

In the case before us, Mrs. Johnson raises two factual issues: (1) Is there a genuine issue of material fact as to the ratification by the actions taken by the board of directors at the meeting of July 5, 1973; and, (2) Is there a genuine issue of material fact as to the allegations that the actions by the board of directors constituted lack of due care and breach of good faith?

There is no genuine issue of material fact as to the ratification of the action of the board of directors at the meeting of July 5, 1973. Although Mrs. Johnson argues that the meeting was illegal and that all subsequent actions taken by the board of directors in reliance thereon are null and void, we do not agree. It is the position of this court that CDC ratified the actions taken at the July 5, 1973, meeting both by an express vote to that effect on September 17, 1973, and impliedly by actions of the board of directors leading to final approval of the loan application at a regular board meeting held on October 29, 1973. In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm.Ed.) § 429, at page 290, it is stated:

'Thus, acts of directors at a meeting which was illegal because of want of...