Metropolitan Life Ins. Co. v. Kissinger Farms, Inc., S-90-521

• Decision Date: 03 December 1993
• Docket Number: No. S-90-521,S-90-521
• Citation: 508 N.W.2d 568,244 Neb. 620
• Parties: METROPOLITAN LIFE INSURANCE COMPANY, A New York Corporation, Appellee, v. KISSINGER FARMS, INC., a Nebraska Corporation, et al., Appellees, and DeWitt Farms, Inc., A Nebraska Corporation, Appellant.
• Court: Nebraska Supreme Court

Page 568

508 N.W.2d 568

244 Neb. 620

METROPOLITAN LIFE INSURANCE COMPANY, A New York Corporation, Appellee, v. KISSINGER FARMS, INC., a Nebraska Corporation, et al., Appellees and DeWitt Farms, Inc., A Nebraska Corporation, Appellant.

No. S-90-521.

Supreme Court of Nebraska.

Dec. 3, 1993.

Syllabus by the Court

1. Mortgages: Real Estate: Foreclosure: Equity. A proceeding to foreclose a real estate mortgage is an equitable action.

2. Equity: Appeal and Error. In an action in equity, an appellate court tries the factual issues de novo on the record and reaches a conclusion independent of the findings of the trial court.

3. Statutes: Appeal and Error. Statutory interpretation is a matter of law in connection with which an appellate court has an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below.

4. Statutes: Legislature: Intent. In settling upon the meaning of a statute, the components of a series or collection of statutes pertaining to a certain subject matter may be conjunctively considered and construed to determine the intent of the Legislature so that different provisions of the act are consistent, harmonious, and sensible.

5. Statutes. If there is a conflict, the special provisions of a statute prevail over the general provisions in the same or other statutes.

6. Corporations: Property: Mortgages. The provisions of Neb.Rev.Stat. § 21-2077 (Reissue 1991) exempt the mortgaging of all or substantially all of a corporation's property and assets, whether in the usual course of business or otherwise, from the operation of Neb.Rev.Stat. § 21-2078 (Reissue 1991).

Stephen H. Nelsen and Richard P. Garden, Jr., of Cline, Williams, Wright, Johnson & Oldfather, Lincoln, for appellant.

Arend R. Baack, of Luebs, Beltzer, Leininger, Smith & Busick, Grand Island, for appellee Metropolitan Life Ins. Co.

BOSLAUGH, WHITE, CAPORALE, FAHRNBRUCH, and LANPHIER, JJ., and RONIN, District Judge, Retired.

CAPORALE, Justice.

I. STATEMENT OF CASE

In order to secure a promissory note drawn by the defendants-appellees Kissinger Farms, Inc., Kissinger Feed Lots, Inc., and Ralph Kissinger, Jr., the two corporations executed a mortgage in favor of the plaintiff-appellee, Metropolitan Life Insurance Company, thereby encumbering the separate land owned by each of the aforenamed corporations. Following the borrowers' default on the underlying loan, Metropolitan instituted this foreclosure action, and the district court enforced the mortgage. The defendant-appellant DeWitt Farms, Inc., the successor owner of a portion of the land mortgaged by Kissinger Farms, asserts that the district court erred in decreeing foreclosure of the mortgage, claiming, in summary, that Kissinger Farms did not effectively authorize execution of the mortgage and that the mortgage is not enforceable on any other basis. We affirm.

II. SCOPE OF REVIEW

A proceeding to foreclose a real estate mortgage is an equitable action. McCook Nat. Bank v. Myers, 243 Neb. 853 503 N.W.2d 200 (1993). While in such an action an appellate court tries the factual issues de novo on the record and reaches a conclusion independent of the findings of the trial court, this case is controlled by statute. Statutory interpretation is a matter of law in connection with which an appellate court has an obligation to reach an independent, correct conclusion irrespective of the determination made by the court below. AMISUB v. Board of Cty. Comrs. of Douglas Cty., 244 Neb. 657, 508 N.W.2d 827 (1993); In re Application of City of Lincoln, 243 Neb. 458, 500 N.W.2d 183 (1993). See, also, Wilson v. Misko, 244 Neb. 526, 508 N.W.2d 238 (1993).

III. FACTS

Prior to the creation of Kissinger Farms, Ralph Kissinger, Jr., and his father had farmed together. In 1967, the aforementioned son and his wife incorporated Kissinger Feed Lots, and the son at all relevant times remained a shareholder of that corporation. After its incorporation, Kissinger Feed Lots rented land from Ralph Kissinger, Jr.'s father and mother.

The father and mother incorporated Kissinger Farms in March 1968 and later began making gifts of the corporate stock to their two children, the said son and their daughter, Miriam DeWitt. Upon the mother's death in 1977, the shares of stock remaining in her name were held for the benefit of the father and two children in a trust, for which the son served as sole trustee. All of the shares of stock apparently passed to the two children upon the father's death in 1981.

For many years, the board of directors of Kissinger Farms included the father, mother, and son. Jack DeWitt, the daughter's child, became a member of the board in 1975. However, the board held no annual or special meetings; rather, its standard practice was to affirm and ratify the actions taken by the corporation's officers and directors by documents designated as "actions in writing." The corporation also used such documents rather than holding regular meetings of its shareholders.

At times, Kissinger Feed Lots and Kissinger Farms transferred funds from one to the other. On one occasion, when Kissinger Farms needed money to pay salaries to the father, mother, and daughter, Kissinger Feed Lots funds were transferred to Kissinger Farms. At other times, when Kissinger Feed Lots loans from Fairfield State Bank were at the lending limit, funds were borrowed from the bank in the name of Kissinger Farms for the use of Kissinger Feed Lots.

As a shareholder of Kissinger Farms, the daughter knew of its lack of compliance with corporate formalities and, until her father's death, never sought to influence its operations, permitting the father and son to conduct business as they saw fit.

In 1968, Kissinger Feed Lots leased all of the 1,123 acres of land owned by Kissinger Farms. Later, Kissinger Feed Lots began to experience financial difficulties. Its short-term debt had increased and exceeded the corporation's current assets. Fairfield State Bank loaned Kissinger Feed Lots operating funds up to the bank's lending limit, and additional funds were lent by the Production Credit Association (PCA).

As reflected by an action in writing dated June 27, 1977, all the directors of Kissinger Farms consented to a resolution authorizing the corporate president or treasurer to "sign a continuing guarantee to the [PCA] for the payment at maturity of any or all indebtedness ... of Kissinger Feed Lots Inc. ... in connection with the loan or loans hereafter to be made."

At some point the PCA notified Kissinger Feed Lots that it would no longer continue financing the operation because of the excessive amount of short-term debt. Kissinger Feed Lots was thus faced with liquidating its operation to satisfy the debt or finding suitable long-term financing.

On May 30, 1978, Kissinger Feed Lots and Kissinger Farms executed a promissory note payable to the U.S. Small Business Administration (SBA) for $163,600, secured by a mortgage on approximately 351 acres of land owned by Kissinger Farms. Kissinger Farms held no formal meeting to approve this loan, but a directors' action in writing dated May 30, 1978, executed by the father and son as directors authorizes the loan and recites that it was to be made by Kissinger Feed Lots, which was to be responsible for repayment of the loan. Jack DeWitt did not sign this document.

Nonetheless, the father as president and the son as secretary-treasurer executed an SBA directors' resolution form, authorizing the loan on behalf of Kissinger Farms. According to the son, $25,000 of the SBA loan funds were utilized by Kissinger Farms; the balance of the loan proceeds were used by Kissinger Feed Lots. The daughter did not recall signing a shareholder consent for this loan, but does remember acting as a guarantor to the extent of $15,000.

In January 1978, the son traveled to California and told the daughter that he would probably have to mortgage the real estate of both Kissinger Feed Lots and Kissinger Farms. The daughter vehemently objected to mortgaging Kissinger Farms' land, which was then unencumbered. Nonetheless, in May 1978, the son applied for a $1,100,000 loan from Metropolitan to refinance Kissinger Feed Lots' short-term debt, utilizing as mortgage security all of the land owned by Kissinger Feed Lots and Kissinger Farms.

The father and son, as directors of Kissinger Farms, executed an action in writing dated June 24, 1978, reading, in relevant part:

The undersigned, constituting all the Directors of the Corporation entitled to vote at the annual meeting, have waived notice of said meeting, have dispensed with holding of said meeting, and have ... taken the following action by this writing:

....

3. Authorize and approve the proposed action of the President [the father] to grant a security interest in the property of Kissinger Farms, Inc. to [Metropolitan] as collateral for a mortgage loan by that company to Kissinger Feed Lots Inc., for the sum of [$1,100,000]. All costs, fees, interest and repayments on said loan are to be borne by Kissinger Feed Lots, Inc.

Jack DeWitt, the other Kissinger Farms director, did not execute that document; however, he later executed an action in writing of the board of directors of Kissinger Farms dated September 15, 1978, by which the board at a special meeting decided to: "1. Ratify and approve the action in writing of the annual meeting of the Board of Directors on 2[unreadable] June, 1978."

In the meantime, Metropolitan had, on August 31, 1978, made its loan. The promissory note was executed by the son as president and attested to by his daughter-in-law as secretary on behalf of Kissinger Feed Lots and executed by the father as president and attested to by the son as secretary on behalf of Kissinger Farms. The son also signed the note in his individual capacity. Having no interest in the land, the son did not execute the mortgage securing the note in his individual capacity, but the same...