Opinion ID: 2034219
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Heading: Powers of Delegation Under Organic Corporate Law Affecting Chapter 491 Corporations.

Text: Plaintiff begins his argument on this point by recognizing that directors of Iowa corporations organized and existing under Iowa Code chapter 496A have broad powers to delegate decision making to special committees. He attempts to avoid any adverse effect which this concession might have on his own case by urging that a significant distinction exists between modernized corporate legislation under which most of today's corporations are organized and the 1847 version which is embodied in Iowa Code chapter 491 under which the defendant corporation in the present case is organized. [1] Plaintiff points out that a significant example of the distinction to be observed between the old and the new in the field of corporate enabling legislation is that while the modern statutes almost universally contain express authorization for broad delegation of corporate powers, Iowa Code chapter 491 is silent with regard to the existence of any such authority. This circumstance, it is urged, militates against a decision upholding a broad delegation of corporate powers by the board of directors of a corporation organized and existing under chapter 491. Plaintiff notes that present Iowa Code section 496A.39, enacted as part of the 1959 Iowa Business Corporation Act, is an example of modern corporate legislation authorizing broad delegation of powers. He further notes that although the section in chapter 491 dealing with corporate powers was amended in 1970 (1970 Iowa Acts ch. 1235, § 1) so as to include by reference some powers expressly granted chapter 496A corporations, the powers of delegation embraced by section 496A.39 were not among those included in this amendment. As case authority for his argument, plaintiff cites and relies on Hearth Corporation v. C-B-R Development Co., 210 N.W.2d 632 (Iowa 1973). In that case, we refused to apply a section in chapter 491 which limits the defense of ultra vires with respect to corporate contracts to those contracts entered into by a corporation organized under chapter 496A. We stated in Hearth: Iowa currently has two chapters under which corporations may incorporate; the provisions of the chapter under which a particular corporation is incorporated govern the actions and affairs of that corporation. Since plaintiff was incorporated under chapter 496A, The Code, only its provisions govern litigation involving plaintiff. Section 491.65 has no application to the case before us. 210 N.W.2d at 635. In response to plaintiff's arguments and in support of their own position with respect to the certified question the defendant directors urge that unless expressly prohibited Iowa law grants chapter 491 corporations broad authority to delegate corporate powers to agents, officers, and executive committees. They quote at length in their brief the following portion of our decision in Schulte v. Ideal Food Products Co., 208 Iowa 767, 771, 226 N.W. 174, 176 (1929): It is a well established rule that the directors of a corporation are charged with the general management of the business affairs of said corporation. In a very broad and general way, it is a generally recognized rule that the board of directors of a corporation may delegate to agents of their own appointment the performance of acts which they themselves, as directors, can legally perform. This is especially true where the delegated acts are ministerial in character. The duties of the board of directors are often, if not usually, fixed by the articles of incorporation and the by-laws of the corporation. The articles of incorporation and by-laws of the appellant corporation are not of record in this case. It is not uncommon for a board of directors to delegate certain powers to an agent or officer of the corporation, such as an executive committee or a general manager; and such powers, when not restricted by the articles of incorporation or by-laws, and when they do not involve the exercise of the discretionary powers of the board of directors themselves, are generally held to be properly delegated, and the acts of such delegated agent are binding on the corporation. Such is the general rule. In decisions prior to the adoption of the Iowa Business Corporation Act, we approved a pattern of delegation of corporate authority whereby the power of corporate agents could come directly from the articles or by delegation by corporate directors of those powers which the articles grant to them. Schulte, 208 Iowa at 771, 226 N.W. at 176; Ney v. Eastern Iowa Telephone Co., 162 Iowa 525, 530-31, 144 N.W. 383, 385 (1913). See also Iowa Federation of Women's Clubs v. Dilley, 234 Iowa 417, 418, 12 N.W.2d 815, 816-17 (1944); Marshalltown Stone Co. v. Des Moines Brick Mfg. Co., 149 Iowa 141, 146, 126 N.W. 190, 193 (1910). In applying this pattern of authority to our answer to the certified question, we believe that if the articles of incorporation and by-laws adopted in conformity with the articles of incorporation so provide, a corporation organized under chapter 491 may, acting through independent directors, [2] appoint a special litigation committee and confer upon such committee the power to investigate the merits of a derivative action brought by minority shareholders on behalf of the corporation, and determine in good faith whether, in the business judgment of the committee the best interest of the corporation would be served by the prosecution, dismissal or settlement of the derivative action. In reaching this conclusion, we necessarily reject plaintiff's suggestion that the failure of the legislature to expressly confer such power of delegation upon chapter 491 corporations, either in the original enactment of chapter 491 or by amendment following enactment of chapter 496A, indicates an intent by the legislature to deny such power. Our review of our corporation law indicates that chapter 491 corporations had such powers of delegation prior to the adoption of chapter 496A, which, in the absence of express curtailment by the legislature, continue unabated. One feature of chapter 491 which tends to buttress this conclusion is the absence of any formal recognition of a board of directors as an institution of corporate management. This feature of chapter 491 is discussed in Cosson, The Iowa Business Corporation Act, 45 Iowa L.Rev. 12, 20-21 (1959). A consequence of such omission is that a board of directors is not even a statutory necessity for a chapter 491 corporation. Id. at 21. This circumstance militates in favor of inferring broad powers of delegation to corporate agencies other than a board of directors.