Lee v. Shor ( 1970 )

178 S.E.2d 101 (1970) 10 N.C. App. 231

Ira D. LEE, d/b/a Lee Electrical Service
v.
Harry SHOR, Robert B. Broughton, Trustee, Englewood Development Corporation, Formerly Citizens Mortgage Corporation, and Bessie L. Shor, Wife of Harry Shor.

No. 7010SC561.

Court of Appeals of North Carolina.

December 30, 1970.

Harris & Harris by Jane P. Harris, Wake Forest, for plaintiff appellant.

W. G. Parker, Raleigh, for defendant appellee Harry Shor.

Jack P. Gulley, Raleigh, for defendant appellee Englewood Development Corporation.

VAUGHN, Judge.

Summary judgment is proper only when 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 the moving party is entitled to judgment as a matter of law. Rule 56 North Carolina Rules of Civil Procedure. It is an extreme remedy and should be awarded only where the truth is quite clear. American Insurance Company v. Gentile Brothers Company, 109 F.2d 732 (5th Cir. 1940). "Upon a motion for summary judgment it is no part of the court's function to decide issues of fact but solely to determine whether there is an issue of fact to be tried." Toebelman v. Missouri-Kansas Pipe Line Co., 130 F.2d 1016 (3rd Cir. 1942). We hold that there are issues of fact to be tried in the present case and that summary judgment was improperly entered.

Transactions in the nature of the one under attack here are generally considered as follows:

"It is said that secured loan transactions between a corporation and its officers or directors are fundamentally suspect, and will be closely scrutinized by the courts; and that they must be open and free from fraud or impropriety. The officer or director making the loan must act in good faith, must be free from all suspicion, and may seek no unfair advantage or undue benefit—in short there must be no conflict in interest between the lender and the borrower. The terms of the loan must be fair and reasonable, and the loan itself must be for the corporation's benefit; a real need for the loan must have existed, and the funds obtained by the loan must be for use in the business of the corporation.

"In establishing the validity of a secured loan transaction between a corporate officer or director making the loan and the corporation furnishing the security therefor, the burden of proof of the lender's good faith and of the justice of the transaction rests upon the officer or director. * * *" [Emphasis Ours] 19 Am.Jur.2d, Corporations, § 1302, p. 709.

This has long been the law of this State:

"* * * [T]here would be nothing to hinder a director from loaning money and taking liens upon the corporate property as security for its repayment, and in enforcing his lien, provided it was an open and entirely fair transaction; but even then it would be looked upon with suspicion, and strict proof of its bona fides would be required. [Emphasis Ours]

* * * * * *

"* * * [W]here a corporation is insolvent, its capital is a trust fund for the payment of its debts. A director creditor upon a debt theretofore existing cannot take advantage of his superior means of information to secure his debt as against other creditors." Hill v. Pioneer Lumber Co., 113 N.C. 173, 174, 18 S.E. 107.

Upon a motion for summary judgment both the opposing and moving parties are entitled to any presumption that is applicable to the facts before the Court. Moore's Federal Practice, 2d Vol. 6, § 56.15(3), p. 2343.

With the exception of affidavits tending to show that on 3 December 1968 Harry Shor withdrew $30,000.00 from his personal account and that on the same date the funds were deposited in the bank account of the Corporation, all of defendants' affidavits were from the defendants and Gerald T. Shor. The fact that the witness is interested in the result of the suit has been held to be sufficient to require the credibility of his testimony to be submitted to the jury. Sonnentheil v. Christian Moerlein Brewing Co., 172 U.S. 401, 408, 19 S.Ct. 233, 236, 43 L.Ed. 492, 495. It is well established that the court should not resolve an issue of credibility or conduct a "trial by affidavits" at a hearing on a motion for summary judgment, especially in cases where, as here, knowledge of the fact is largely under the control of the movants. Some of the reasons for this sound rule have been expressed as follows:

"For the affidavits do not supply all the needed proof. The statements in defendants' affidavits certainly do not suffice, because their acceptance as proof depends on credibility; and—absent an unequivocal waiver of a trial on oral testimony—credibility ought not, when witnesses are available, be determined by mere paper affirmations or denials that inherently lack the important element of witness' demeanor. As we observed in Arnstein v. Porter, 2 Cir., 154 F.2d 464, 471: `It will not do, in such a case, to say that, since the plaintiff, in the matter presented by his affidavits, has offered nothing which discredits the honesty of the defendant, the latter's deposition must be accepted as true.' For the credibility of the persons who here made the affidavits is to be tested when they testify at a trial. Particularly where, as here, the facts are peculiarly in the knowledge of defendants on their witnesses, should the plaintiff have the opportunity to impeach them at a trial; and their demeanor may be the most effective impeachment. Indeed, it has been said that a witness' demeanor is a kind of `real evidence'; obviously such `real evidence' cannot be included in affidavits. In Sartor v. Arkansas Natural Gas Corp., Kansas Group, 321 U.S. 620, 628, 64 S.Ct. 724, 729, 88 L.Ed. 967, the Court said that a summary judgment may not be used to `withdraw these witnesses from cross-examination, the best method yet devised for testing trustworthiness of testimony'; the Court, in that connection, quoted with approval from Aetna Life Insurance Co. v. Ward, 140 U.S. 76, 88, 11 S.Ct. 720, 724, 35 L.Ed. 371; `There are many things sometimes in the conduct of a witness upon the stand, and sometimes in the mode in which his answers are drawn from him through the questioning of counsel, by which a jury are to be guided in determining the weight and credibility of his testimony.'" Colby v. Klune, 178 F.2d 872 (2d Cir. 1949).

A careful examination of defendants' affidavits discloses that, even when the affidavit of the defendant Harry Shor and officers of the Corporation are considered, they do not cover all of the facts which would be material to a determination of the controversy and thus would not adequately support the motion. Finally we observe that although unanswered interrogatories will not, in every case, bar the trial court from acting on motion for summary judgment (Washington v. Cameron, 133 U.S.App.D.C. 391, 411 F.2d 705 (1969)), doing so prior to the filing of objections or answer to the interrogatories in the present case was improper.

For the reasons discussed, the entry of summary judgment dismissing the action constituted error and the same is reversed.

Reversed.

CAMPBELL and BRITT, JJ., concur.