Case Title: Contract Materials v. Oahe Land and Cattle

Citation: 374 N.W.2d 102

Docket Number: 

State: south-dakota

Court: South Dakota Supreme Court

Date: 1985-09-06T00:00:00Z

Document:
374 N.W.2d 102 (1985) CONTRACT MATERIALS COMPANY, Plaintiff and Appellant, v. OAHE LAND AND CATTLE CO., INC., a Corporation; Elwin Pearey; and G.E. Kelso, Defendants, and Morris Irrigation, Inc., A Corporation; and Dave Gustafson and Company, Inc., a Corporation, Defendants and Appellees. No. 14692. Supreme Court of South Dakota. Considered on Briefs April 12, 1985. Decided September 6, 1985. James E. Carlon of Gors, Braun & Carlon, Pierre, for plaintiff and appellant. John S. Lovald of Duncan, Olinger, Srstka, Lovald & Robbennolt, P.C., Pierre, for defendants and appellees. WOLLMAN, Justice. This is an appeal taken by plaintiff, Contract Materials Construction Company (Contract Materials), from a final judgment and order of the trial court that denied *103 Contract Materials' request for injunctive and declaratory relief and vacated a temporary restraining order entered against defendants, Morris Irrigation, Inc. and Dave Gustafson and Company, Inc. We affirm. Contract Materials is a sole proprietorship owned by one Howard Sipe. In September of 1983, Sipe entered into an agreement with Elwin Pearey, president and secretary of defendant Oahe Land & Cattle Co., Inc. (Oahe Land), purporting to give Contract Materials a "grant option" to develop, explore, and remove gravel over a five year period from property owned by Oahe Land. Sipes executed a check in the amount of $1,000 made payable to "Elwin Pearey." Pearey did not tender the $1,000 to Oahe Land but rather applied it to set off a debt that he claimed against Oahe Land. On September 29, 1983, a notice of disclaimer of option was executed by G.E. Kelso, secretary and minority shareholder of Oahe Land. The notice of disclaimer declared that Pearey had failed to obtain director approval as required by the corporate bylaws for the execution of the grant option. On November 7, 1983, Oahe Land, with board of director approval, entered into a lease agreement with Morris Irrigation, giving Morris Irrigation gravel rights in the same property covered by the grant option. Upon learning of the agreement between Oahe Land and Morris Irrigation, Contract Materials obtained a temporary restraining order against Morris Irrigation and its sub-leasee, Dave Gustafson & Co. The trial court later denied Contract Materials' request for injunctive and declaratory relief and vacated the temporary restraining order, concluding, inter alia, that Pearey did not have corporate authority to enter into the agreement with Contract Materials inasmuch as the agreement was not ratified by the board of directors as required by the corporate bylaws and SDCL ch. 47-5. SDCL 47-5-25 provides: Article IV, § 5, of Oahe Land's bylaws states: Contract Materials argues that Pearey had both actual and apparent authority to lease property owned by Oahe Land notwithstanding the absence of board of director approval as required by the bylaws, citing Aimonetto v. Rapid Gas, Inc., 80 S.D. 453, 458, 126 N.W.2d 116, 119 (1964), where this court held in part: In Aimonetto, suit was brought against defendant corporation on an insufficient funds check that had been issued by the *104 corporation's president and which named the corporation as drawer. We held that the president had implied authority to issue the check inasmuch as he had purchased materials (oil well pipe) for a project which the minutes of a directors' meeting revealed had been approved by the board of directors. 80 S.D. at 459-60, 126 N.W.2d at 119-20. In reaching this result we observed that: 80 S.D. at 459, 126 N.W.2d at 120. In contrast to Aimonetto, there is no question here but that Pearey was acting outside the scope of his authority in leasing the gravel rights to Oahe Land property without board of director approval. The presumption of authority to conduct the business of the corporation will not act to validate a voidable act where it is clear the corporation neither acquiesced in nor ratified the action in question. Contract Materials also cites First Nat'l Bank of Beresford v. Nelson, 323 N.W.2d 879 (S.D.1982). In First Nat'l Bank, the board of directors of defendant corporation adopted a corporate resolution authorizing its president to execute a certain guaranty to First National Bank guaranteeing payment of a loan made to its president. The guaranty expressly permitted the bank to authorize renewal of the note without notice to the corporation. The note was later renewed by the defendant corporation's president. The corporation denied liability under the guaranty, claiming that it had not expressly authorized renewal of the note by corporate resolution. We rejected this claim, holding: 323 N.W.2d at 884-85. As in Aimonetto, our decision in First Nat'l Bank was based on evidence that the corporation had implicitly authorized the conduct it subsequently sought to disavow. Moreover, our holding that Oahe Land cannot be bound by the unauthorized action of its president is in accord with the rule that Engler v. Ipswich Printing Co., 63 S.D. 1, 6, 256 N.W. 132, 134 (1934) (quoting from Union Motor Co. v. Taylor, 206 Ky. 398, 401, 267 S.W. 170, 171 (1924) (emphasis added). The judgment is affirmed. FOSHEIM, C.J., MORGAN, J., and WUEST, Acting J., concur. HENDERSON, J., concurs specially. HENDERSON, Justice (concurring specially). In addition to the fact that the "grant option" was void and unenforceable as not being properly executed by the corporation for the reason that it was contrary to the bylaws of the corporation and SDCL 47-5-25, the "grant option" Thus, I would affirm the judgment of the trial court and in doing so, note that there were extensive findings of fact and conclusions of law which are not clearly erroneous. In re Estate of Hobelsberger, 85 S.D. 282, 181 N.W.2d 455 (1970).