HERBERT MELROSE,
    Appellant (Cross-Claim Plaintiff below),

    v.

CAPITOL CITY MOTOR LODGE, INC.,
    Appellee (Cross-Claim Defendant below).

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)    Supreme Court No.
)    49S00-9708-CV-444
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    After a closely held corporation decided to liquidate, Smulyan, a director-shareholder, sought to purchase corporate-owned insurance policies on his life for their cash

surrender value. Melrose, another director-shareholder, objected on grounds that Smulyan's life expectancy made the policies far more valuable than their cash surrender value. The trial court held that Smulyan's purchase did not violate his statutory or fiduciary duties to the corporation. We agree and affirm.    

the purchase of the shares, the Buy-Sell Agreement required Capitol to purchase life insurance on its shareholders, namely Smulyan, Melrose and Rowley. Pursuant to this requirement, Capitol procured five life insurance policies on Smulyan's life. Three of these policies (the “Policies”) were issued by National Fidelity Life Insurance Company (“National”) and are the sole policies at issue in this appeal.

    After engaging in business for some years, a decision was made to liquidate Capitol. On June 15, 1994, the directors approved a Plan of Liquidation and Distribution of Assets (“Liquidation Plan”). The Liquidation Plan instructed the directors to sell all of Capitol's assets. Further direction provided by the plan included:
    After the effective date, the Board of Directors and the Officers of the Corporation shall sell all of the assets of the Corporation. Any sale shall be made on the terms and conditions and for consideration that the Board deems reasonable and in the best interest of the Corporation and of its shareholders. The Board of Directors and Officers of the Corporation may execute any instruments that are necessary to transfer title to the property and assets.
    
    Following adoption of the Liquidation Plan, steps were taken to wind up Capitol's business. On January 9, 1995, a board of directors meeting was held at which all directors were present.See footnote 3 At the meeting, Smulyan proposed the transaction that is at the heart of this

case with the following resolution:
    RESOLVED, Each shareholder is given the right to purchase the policies on that shareholder's life at net cash value from Capitol City Motor Lodge, Inc. and given the right to name his preferred beneficiary.

(the “Resolution”) (R. at 310.) After discussion of the proposal, Smulyan and Rowley voted in favor of the Resolution. Melrose voted against it. After the Resolution passed, Smulyan exercised his right to purchase the Policies for cash surrender value.See footnote 4 Capitol assigned all of its rights, title and interest in the Policies to Smulyan who in turn named his wife the primary beneficiary on each of the Policies.
    
    Shortly thereafter, National received conflicting claims concerning the validity of the Resolution and the assignment of the Policies from Capitol to Smulyan. As a result, on September 19, 1995, National filed a “Complaint for Interpleader,” requesting court direction as to its obligations with respect to the Policies.

    On November 21, 1995, Melrose filed his answer and cross-claim maintaining, among other counts, that Smulyan (1) violated the Liquidation Plan (Count I); (2) breached a fiduciary duty owed to the shareholders (Count II); and, (3) relied upon an invalid corpo

rate resolution when he acquired the Policies (Count III). Smulyan moved for partial summary judgment on these counts and on March 18, 1996, the trial court granted summary judgment in favor of Smulyan.See footnote 5

    Finding the Resolution valid, the court required National to honor the assignment of the Policies to Smulyan. The court further found that directors Smulyan and Rowley did not breach a fiduciary duty owed to either Melrose or Capitol by voting in favor of the Resolution nor, in so doing, had the board of directors breached the Liquidation Plan.

    After the trial court made its partial summary judgment final, Melrose promptly appealed to the Court of Appeals. This Court granted transfer pursuant to Ind. Appellate Rule 15(M).

value violates the corporate conflict of interest statute, Ind. Code § 23-1-35-2, or breaches a shareholder's fiduciary duty to fellow shareholders.
    

contends that the last paragraph of Ind. Code § 27-1-12-17 validates the Resolution and exempts him from any conflict of interest claims under the Indiana Business Corporation Law: “No person shall, by reason of interest in the subject matter, be disqualified from acting as a director, or as a member of the executive committee of such corporation on any corporate act touching such insurance.” Ind. Code § 27-1-12-17 (1993). Such a determination would necessarily rest on the premise that this provision of the Insurance Code trumps a director's corporate obligations under Indiana's Business Corporation Law.See footnote 7 We are not prepared to draw such a conclusion.

    The Indiana Business Corporation Law applies to all domestic corporations _ closely held and public corporations alike. See Ind. Code Ann. §§ 23-1-17 (Introduction) & 23-1-17-3(a) (West 1989). Title 23 sets forth corporate director duties, responsibilities, and standard of conduct expected of corporate directors. See Ind. Code §§ 23-1-35-1 to 23- 1-35-4. Title 27, on the other hand, specifically applies to any organization operating, representing or attempting to do insurance business in Indiana. See Ind. Code § 27-1-2-2 (1993). Chapter 12 thereof addresses life insurance policy requirements and confers certain rights, powers and privileges on the life insurance company. Ind. Code § 27-1-12-1 (1993). Nevertheless, our ultimate determination as to which statute governs in this instance rests on principles of statutory construction. Our main objective in statutory construction is to

determine, effect and implement the intent of the legislature.  Sullivan v. Day, 681 N.E.2d 713, 717 (Ind. 1997); Freeman v. State, 658 N.E.2d 68, 70 (Ind. 1995); Matter of Lawrance, 579 N.E.2d 32, 38 (Ind. 1991); Superior Constr. Co. v. Carr, 564 N.E.2d 281, 284 (Ind. 1990). Where two statutes presumably relate to the same subject matter, we attempt to construe the statutes so that both can stand. Kramer v. Beebe, 186 Ind. 349, 355, 115 N.E. 83, 85 (1917).

    We find that the purpose of Ind.Code § 27-1-12-17 is to limit a life insurance company's duty of inquiry into the validity of corporate authority or the regularity of corporate proceedings in a transaction involving insurance on the life of a general business corporation's directors, officers, agents or employees. The life insurance company is entitled to good faith reliance on a proper corporate certificate.

     It is true that the language of Ind. Code § 27-1-12-17 authorizes general corporations to purchase insurance on the lives of directors, officers, agents and employees (including individuals who participate in the decision to purchase the insurance) and to maintain that insurance even after the insured's service to the corporation ceases. But in light of the overall purpose of this section, we believe this language simply makes clear that a life insurance company need not inquire as to whether a corporate customer is acting ultra vires in purchasing or maintaining life insurance in any of the circumstances specified. This simply reinforces the limited extent of an insurance company's duty of inquiry. We find no

justification to go beyond this point to hold that this language exempts such insurance transactions from the conflict of interest provisions of the Business Corporation Law and the fiduciary duty provisions of the common law. In fact, we find it highly unlikely that the legislature would have intended such an exemption without providing therefor in the Business Corporation Law.

    Indiana Business Corporation Law defines a conflict of interest transaction as follows:
    (a) A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the director's interest in the transaction if any one (1) of the following is true:

        (1) The material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved, or ratified the transaction.

    Melrose argues that the Resolution was not approved by a majority of disinterested directors nor by fully informed shareholders. Transactions between an interested director and the corporation are not automatically void or voidable merely because of a director's interest, as long as one of the conditions set forth in the subdivisions is met.See footnote 8 See Ind. Code.

23-1-35-2(a), (b) & (c). See also Hill v. Nisbet, 100 Ind. 341, 353-55 (1885); 3 William Meade Fletcher et. al., Cyclopedia of the Law of Private Corporations § 915.10 (1994 & Supp. 1998). Subdivisions (1) and (2) provide that either the board of directors or shareholders entitled to vote may authorize a transaction where all material facts and the director's interest are disclosed. Ind. Code § 23-1-35-2(a)(1) & (2). Subdivision (3) provides that a conflict of interest transaction may stand if the transaction is fair to the corporation. Ind. Code § 23-1-35-2(a)(3).

    We have defined a close corporation as one that typically has relatively few shareholders and whose shares are not generally traded in the securities market. See Barth v. Barth, 659 N.E.2d 559, 561 n.5 (Ind. 1995). At the time of the questioned transaction,

Capitol had three shareholders who were also Capitol's directors.See footnote 9 Capitol's shares were not traded in the securities market.  Given these characteristics, we agree with Melrose that Capitol operated as a closely-held corporation.

    Courts have traditionally interpreted fiduciary duties differently for closely-held corporations as opposed to publicly held corporations for which most of the statutory norms were established. See Cressy v. Shannon Continental Corp., 177 Ind. App. 224, 228-29, 378 N.E.2d 941, 945 (1978)(citations omitted). See also Helms v. Duckworth, 249 F.2d 482, 486-87 (D.C. Cir. 1957);See footnote 10 1 O'Neal, supra note 2, § 1.20. Indiana courts have characterized closely-held corporations as “incorporated partnerships” and as such have imposed a fiduciary duty upon shareholding “partners” to deal fairly not only with the corporation but with fellow shareholders as well. See Krukemeier v. Krukemeier Mach. & Tool, Co., 551 N.E.2d 885, 888 (Ind. Ct. App. 1990); Ross v. Tavel, 418 N.E.2d 297, 304 (Ind. Ct. App. 1981); Motor Dispatch, Inc. v. Buggie, 177 Ind. App. 347, 353-54, 379

N.E.2d 543, 547 (1978); Cressy, 177 Ind. App. at 228, 378 N.E.2d at 945; Hartung v. Architects Hartung/Odle/Burke, Inc., 157 Ind. App. 546, 552, 301 N.E.2d 240, 243 (1973). As a result, we have held that “shareholders in a close corporation stand in a fiduciary relationship to each other, and as such, must deal fairly, honestly, and openly with the corporation and with their fellow shareholders.” Barth, 659 N.E.2d at 561. Accord Fleming v. Int'l Pizza Supply, 676 N.E.2d 1051, 1056 (Ind. 1997)(citations omitted); Krukemeier, 551 N.E.2d at 888; Dotlich v. Dotlich, 475 N.E.2d 331, 341 (Ind. Ct. App. 1985); Hartung, 157 Ind. App. at 552, 301 N.E.2d at 243.
    
    The interrelationship between the conflict of interest statute and the common law of fiduciary duty in close corporations has not been the subject of judicial attention in Indiana. And given the analysis to follow, extensive treatment is not required here. We believe that if (1) the material facts of the transaction and Smulyan's interest were disclosed or known to Melrose, (2) the requisite corporate formalities necessary to authorize, approve or ratify the transaction were followed, and (3) the transaction was fair to the corporation, the requirements of the Business Corporation Law and the common law of fiduciary duty were satisfied and summary judgment in favor of Smulyan was properly granted.

approved Smulyan's proposal by a vote of 2-1.

    Melrose argues that the director-shareholders were not fully informed of all material facts because there was no “effort to determine the fair market value” of the Policies.See footnote 13 Appellant Br. at 24. This contention that the Policies carried a greater value than what Smulyan tendered does not create a genuine issue of material fact as to whether the shareholders were not fully informed. There is no question but that the director-shareholders were aware that the value of the Policies to Smulyan was greater than the cash surrender value. But a majority of director-shareholders authorized a valuation of all life insurance policies at cash surrender value. And valuing the policy at cash surrender value has been held to be an equitable method of division of corporate-owned life insurance. See Miller v. Hall, 150 P.2d 287, 290 (Cal. Ct. App. 1944) (court awarded each partner the previously partnership-owned life insurance policy on his life for cash surrender value). We decline to mandate that the director-shareholders had an obligation to obtain precise actuarial valua

tions of the Policies when they were under no obligation to so value the Policies. See Krukemeier, 551 N.E.2d at 890 & n.7 (pursuant to a repurchase agreement, the court ordered the repurchase of stock at book value concluding that “it is for the parties, not the court, to establish a valuation method. . . . ”).

    We find as a matter of law that the material facts of the transaction and Smulyan's interest therein were disclosed or known to Melrose and that the requisite corporate formalities necessary to authorize, approve or ratify the transaction were followed.See footnote 14

nally purchased to fund a “buy-sell” agreement, (2) the corporation has decided to liquidate or dissolve, and (3) the same opportunity is available to all shareholders.

    Capitol was dissolving. It is clear from the Buy-Sell Agreement that the purpose of the Policies was to fund the purchase of a deceased shareholder's interest in Capitol.See footnote 15 Unfortunately, neither the Buy-Sell Agreement nor the Liquidation Plan described the disposition of the Policies in case of corporate dissolution.

    The literature suggests that where parties enter into buy-sell agreements, they routinely fail to include a contingency for the disposition of life insurance policies in the event of a dissolution or sale of a shareholder's stock during the shareholder's lifetime. See 1 O'Neal, supra note 2, § 7.44, at 194. O'Neal proposes that “[a] well drafted agreement would provide for such contingencies, typically by giving the shareholders the right to acquire any policy on his or her own life.” Id. (citing Mitzner v. Lights 18, Inc., 660 A.2d 512 (N.J. Super. Ct. App. Div. 1994), aff'd 660 A.2d 480 (N.J. 1995) (Stein, J., dissenting)). A few cases have, in some form, addressed the disposition of life insurance policies upon dissolution of a partnership or corporation. See Elliot v. Metropolitan Life Ins., 116 Ind.

App. 404, 64 N.E.2d 911 (1946); Mitzner, 660 A.2d at 480 (Stein, J., dissenting); Miller, 150 P.2d at 287; Cheeves v. Anders, 28 S.W. 274 (Tex. 1894).

    The Indiana Court of Appeals held that “two partners had the clear legal right to make an oral agreement to the effect that, upon the dissolution of the partnership, each partner should take and keep as his own personal property the policy of insurance issued upon his own life.” Elliott, 116 Ind. App. at 420-21, 64 N.E.2d at 917. In Elliott, the partners executed a written agreement outlining the terms of the dissolution. The policies of insurance on each partners' life were not mentioned in the agreement. Because the partners previously discussed maintaining control of their own life insurance policy, and subsequently had possession of the policies, the court concluded that each partner was entitled to keep the policy issued upon his own life as his own personal property. Id. at 418- 21, 64 N.E.2d at 916-17.

    Similarly, a California court awarded each partner the insurance policy on his own life for the cash surrender value of the policy. Miller, 150 P.2d at 290. In Miller, a partnership paid the premiums on insurance policies for the partners. When Miller suffered a stroke, his partner, Hall, purchased the business from Miller and continued the business in his own name. Miller contended that each partner should receive the policies on his own life while Hall, anticipating that Miller's policy would mature first, argued that the policies should be equally divided, with each partner owning not only an interest in the policy on his

own life, but an interest in the other partner's life insurance policy. Id. at 290. The trial court concluded, and the appellate court agreed, that
    it was the intent and purpose of the parties that said policies should be carried for the mutual protection of the partners and their families; that it was not intended that either partner should retain insurance upon the life of the other, but that ultimately the proceeds of said policies should go to the family of each insured, respectively; that said policies are and in equity should be the property in each instance of the partner upon whose life they are written. . . .

Id. at 288 (emphasis added). The court further found that the buy and sell agreement “was designed to apply in the event of an interruption of the partnership business due to the death of one of the partners. Its provisions are inapplicable now since the partnership has been dissolved.” Id. at 290.

    The New Jersey Supreme Court, however, concluded that the sale of corporate assets included the transfer of life insurance policies to the purchaser. Mitzner, 660 A.2d at 481. In Mitzner, two brothers owned and operated a retail lighting business as a closely-held corporation. The company purchased and paid premiums on life insurance policies held on the life of each brother to fund a buy-out upon the death of either brother. After a family dispute, one brother filed for involuntary dissolution which led to a settlement permitting one of the brothers to purchase the other's share of the corporation. However, the purchaser insisted that the settlement included the acquisition of all life insurance policies.See footnote 16 Id. at

481. The Court held that since there was no misunderstanding that the corporation owned the insurance policies, the policies were corporate assets. As such, the sale of corporate assets included the transfer of the insurance policy to the purchaser. Id.

    In a lengthy dissenting opinion, Justice Stein argued:
    In my view, that reimbursement would be manifestly inconsistent with the original purpose of the buy-sell agreement between the two brothers. When the corporation purchased the policies, neither brother contemplated that the corporation would retain ownership of the policies if the corporation were sold or dissolved, or if either stockholder were to acquire the other's shares. In those circumstances, the purpose for which the policies were taken out no longer would exist, and the brothers would doubtless have assumed that each would receive his own policy.

Id. at 483 (emphasis added).

    We find it unnecessary to agree with Justice Stein as to whether such policies would be held to be corporate assets in a corporate asset sale in Indiana. But his analysis has particular force in the dissolution context. And each of these cases makes clear that corporate-owned insurance on shareholders' lives purchased to fund buy-sell agreements has a character distinct from normal capital or operating assets. It exists for the dual purpose of protecting the corporation and the shareholders' respective estates. And when the corporation's need for the insurance ceases, making it available to the shareholders for its cash surrender value, at least where there is full information and adherence to corporate formalities, is imminently fair and reasonable.

SHEPARD, C.J., and DICKSON, and SELBY, J.J., concur. BOEHM, J. not participating.

Shareholders if such transferees received such Shares pursuant to subparagraphs (a), (b), or (c) of Paragraph 1 of the Buy and Sell Agreement, to sell all of such Shares to Corporation. . . .
(R. at 348-49, Agreement for Purchase of Shares on Death, ¶1.)

stock (1.3 ), and Rowley owned one-sixth ( 1.6) of the stock at the time of the meeting.

            Any corporation organized under the laws of this state may, when authorized by its board of directors, or its executive committee, cause to be insured, for its benefit, the life of any of its directors, officers, agents or employees, and to pay the premiums for such insurance; and may continue to pay such premiums after the insured shall cease to be such a director, officer, agent or employee of such corporation.

            Due authority for such corporation to effect, assign, release, convert, surrender, or take any other action with reference to such insurance, shall be sufficiently evidenced to the insurance company by a certificate to that effect by the secretary, or other corresponding officer of such corporation under its corporate seal. Any such certificate shall protect the insurance company for any act done or suffered by it upon the faith thereof, without further inquiry into the validity of the corporate authority or the regularity of the corporate proceedings. The beneficiary in such a policy shall not be changed except with the consent of such corporation, beneficiary, effecting such insurance.
    
            No person shall, by reason of interest in the subject matter, be disqualified from acting as a director, or as a member of the executive committee of such corporation on any corporate act touching such insurance.

Ind. Code § 27-1-12-17 (1993).

otherwise be valid under the common, equitable, or statutory law applicable thereto.

(R. at 240-41.)

and distribute the proceeds.
(R. at 199.) We presume that “cashing in” the policies means recovering their cash surrender value. The same language was used by Fran Jacoby, a life insurance agent in Indiana, in her affidavit.

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