Opinion ID: 1901284
Heading Depth: 1
Heading Rank: 7

Heading: 1. Board Approval Under Section 77-5-237(6)

Text: ¶ 42. The chancellor relied upon Miss. Code Ann. § 77-5-237(6) (2000) in finding that the promise made by 4-County in 1963 to sell unknown distribution facilities in the future was illegal. He explained, Four County could only sell at that future time if its members should vote to sell or its future board of directors in good faith should then find (1) the sale to be in the best interest of Four County and (2) the other facts necessary for the sale to be authorized by law.... The Four County promise was illegal. ¶ 43. Miss Code Ann. § 77-5-237(6) provides that non-profit electric power associations formed under § 77-5-205 may sell property. It states, [t]he board of directors may, without authorization by the members, sell, mortgage, lease or otherwise encumber or dispose of (a) any of its property which, in the judgment of the board, is neither necessary nor useful in operating and maintaining the corporation's system and which in any one (1) year shall not exceed ten percent (10%) in value of all of the property of the corporation.... ¶ 44. The City maintains that 4-County's board of directors as it existed in 1963 made the requisite findings mandated by Section 77-5-237. The City relies on the provision in the agreement which recites the parties' purpose in forming the agreement, alleging it constitutes a finding by 4-County's board of directors that continuing to maintain and operate its distribution system within the municipality would be neither necessary nor useful in operating the corporation's system. ¶ 45. 4-County responds that its 1963 board of directors could not make a contract to sell undetermined facilities and rights in undetermined areas at undetermined times in the future at undetermined prices. 4-County notes that it is impossible to determine the propriety of a sale if the facts surrounding it are unknown. ¶ 46. The only Mississippi case discussing Section 77-5-237 is inapplicable, as it discusses a director's breach of his fiduciary duty. McNair v. Capital Elec. Power Ass'n, 324 So.2d 234 (Miss.1975). However, in Humble Oil & Ref. Co. v. State, 206 Miss. 847, 41 So.2d 26 (1949), this Court held that where the terms of the county board of supervisors and the county superintendent of education expired on December 31, 1947, they could not renew existing oil and gas leases which expired on April 7, 1948. The Court explained, [h]ere the terms of office of the members of the board and of the county superintendent of education expired December 31, 1947, yet they attempted to make a contract to go into effect during the term of their successors, preempting the latter from their right and duty to attend to the matter themselves. ¶ 47. The chancellor relied upon Humble Oil in finding that: a board of supervisors may not bind itself or its successors by contract from their right and duty to exercise the power given by statute, whenever, in its judgment or discretion it is deemed necessary to exercise a clearly granted power. That principle is applicable to the exercise of power granted to both Starkville and Four County as regards their respective duties as fiduciaries providing electric power to their respective customers. Both public utilities are owned by their user members or their user citizens. Neither board could bind their successor boards with regard to future decisions on the subject matters of certificates of public convenience and necessity and of franchises. The City distinguishes Humble Oil, arguing that the rule is applicable only to a county board of supervisors, and not to 4-County's board of directors as 4-County is a private non-profit corporation, not a governmental body. See NLRB v. Natchez Trace Elec. Power Ass'n, 476 F.2d 1042 (5th Cir.1973). ¶ 48. Other courts have considered whether a board of directors' entry into a contract for an indefinite period of time unreasonably binds the hands of future directors. In Tuscon Fed. Sav. & Loan Ass'n v. Aetna Inv. Corp., 74 Ariz. 163, 245 P.2d 423, 428 (1952), the Arizona Supreme Court upheld a contract under which the defendant Savings and Loan Association agreed to buy exclusively from the plaintiff all insurance policies it required in connection with its business notwithstanding the fact that the contract bound the defendant corporation beyond the terms of its officers and directors who were acting when the contract was signed. ¶ 49. Some courts, however, have invalidated contracts which extend beyond the terms of the then-acting board of directors. Those cases involve employment contracts whereby the corporate officers have attempted to employ a person for a period extending beyond their terms. See Massman v. Louisiana Mfg. Cooperage Co., 177 La. 999, 149 So. 886 (1933); Clifford v. Firemen's Mut. Benev. Ass'n, 232 A.D. 260, 249 N.Y.S. 713, 714 (N.Y.App. Div.1931); Edwards v. Keller, 133 S.W.2d 823, 825-26 (Tex.Ct.App.1939); Kline v. Thompson, 206 Wis. 464, 240 N.W. 128, 131-32 (1932). ¶ 50. In Tuscon Fed., the Arizona Court explained, [i]t is the policy of the law as well as the courts to hold corporations to their contracts the same as natural persons.... This was not an employment contract, but an agreement to purchase a commodity, i.e., insurance. A natural person could have made such a long term contract and we see no reason why this corporation should not also be permitted to do so. Id. at 428. Notably, the Arizona Supreme Court later stated that its comments regarding employment contracts in Tuscon Fed. were dicta. Hernandez v. Banco De Las Americas, 116 Ariz. 552, 570 P.2d 494, 497 (1977). In that case, the court upheld a contract under which the board of directors of the defendant bank entered into a one-year contract with the plaintiff's predecessor that extended beyond the term of board. The court held that the contract operated as an informal modification or waiver of bylaws providing that officers would serve for a one year term and at the pleasure of the board of directors. Id. ¶ 51. We conclude that there are no statutory or other legal impediments to the 4-County board's approval of the contract in question.