Opinion ID: 1804825
Heading Depth: 1
Heading Rank: 6

Heading: board authorization

Text: Notwithstanding that shareholder approval was unnecessary, because the son is the only shareholder and director of Kissinger Farms holding an ownership interest in Kissinger Feed Lots, the entity which benefited from the Metropolitan loan, we must consider the extent of any conflicting financial interest that he had in the loan and that Kissinger Feed Lots had in executing the mortgage. In this regard several factors are worthy of note. First, Kissinger Farms had previously authorized an ongoing guarantee of Kissinger Feed Lots' debt with the PCA, which represented $770,504.15 of the debts refinanced by the Metropolitan loan. Second, the balance of the Metropolitan loan proceeds was used to refinance debts which were owed to the Federal Land Bank and Fairfield State Bank and secured by mortgages which were released as the result of the Metropolitan loan. Since the only mortgage on Kissinger Farms land prior to the Metropolitan loan was the SBA mortgage made in May 1978, it would seem that the prior Federal Land Bank and Fairfield State Bank mortgages had been secured by the Kissinger Feed Lots land, which was again pledged for the Metropolitan loan. As a result, it is apparent Kissinger Farms benefited from the mortgage. Since it was already liable for the PCA debt of over $770,000 as a guarantor and the other debts refinanced were already secured by Kissinger Farms land, the net result was to refinance the debt of Kissinger Feed Lots into one long-term loan. Whatever benefit Kissinger Farms may have achieved via the Metropolitan loan, it is clear that the son as a shareholder in Kissinger Feed Lots had a substantial direct benefit and personal motivation above and beyond any benefit reaped by Kissinger Farms. As a consequence, the son, in acting as a director of Kissinger Farms, had a conflicting financial interest. We thus turn our attention to Neb. Rev.Stat. § 21-2040.01 (Reissue 1991), which declares, in pertinent part: No contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association or entity in which one or more of its directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the board of directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose if: (1) The fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; (2) The fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent ...[.] .... Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or a committee thereof which authorizes, approves or ratifies such contract or transaction. Article IV, § 11, of the bylaws of Kissinger Farms implements those statutory provisions by providing that a contract or transaction shall not be invalidated or in any wise affected by the fact that such director or directors have or may have an interest therein which is or might be adverse to the interests of this corporation, so long as full disclosure of the adverse interest is made to the Board of Directors by the directors having such interest, and if the Board of Directors unanimously authorizes, affirms, ratifies, or approves such contract or transaction. It is apparent from the close family relationships between the directors of Kissinger Farms, and the lack of any claim to the contrary, that the son's interest in Kissinger Feed Lots was known to the other directors. Thus, the disclosure requirements of § 21-2040.01(1) and (2) and of article IV, § 11, of the bylaws of Kissinger Farms were met. However, since that provision of the bylaws requires unanimous director consent when any one director has a conflict, the action in writing of less than all the directors dated June 24, 1978, failed to authorize execution of the Metropolitan mortgage. But the holdout director, Jack DeWitt, did join in the board's September 15, 1978, action in writing purporting to ratify the action reflected in the June 24 document. Such a procedure is permitted by Neb.Rev. Stat. § 21-2042 (Reissue 1991), which provides, in relevant part: Unless otherwise provided by the articles of incorporation or bylaws, any action required by [law] to be taken at a meeting of the directors ... may be taken without a meeting, if a consent in writing setting forth the action so taken shall be signed by all of the directors.... Such consent shall have the same effect as a unanimous vote. In accordance with that statutory provision, article IV, § 7, of the bylaws of Kissinger Farms permits the board to act, without the holding of a meeting, through a unanimous consent in writing. Thus, the September 15, 1978, document effectively authorizes the transaction in question if it can be said that it refers to the action reflected in the June 24, 1978, action in writing. Article IV, § 3, of the bylaws of Kissinger Farms provides that the annual meeting of the board of directors shall be held immediately after the annual meeting of the shareholders, which, according to article III, § 1, is to occur at 9 a.m. on the last Monday in June of each year. Thus, even though the date of the June action is incomplete or unclear on the copy of the ratification contained in the record and the last Monday of that month occurred on the 26th day, it is nonetheless clear that the September document can only refer to the action in writing dated June 24, 1978. Nor is there any claim that the case is otherwise. In the absence of any evidence that Jack DeWitt himself had a conflict or otherwise violated his fiduciary duty to Kissinger Farms, the September 15, 1978, document effectively ratified the action taken on June 24, 1978, by making the board of directors' consent to the execution of the Metropolitan mortgage unanimous, as permitted by §§ 21-2040.01 and 21-2042 and required by article IV, § 11, of Kissinger Farms' bylaws.