In a cooperative with 15 board seats, a contract with a self-dealing director will be perfectly valid without member ratification in which scenario?

• A. The contract is ratified by the board in a meeting with the self-dealing director present
• B. The contract concerns a non-voting matter
• C. The contract is approved by a majority of the board excluding the self-dealing director
• D. The contract is approved by the members after the fact

Answer: (C)

The essential idea is that when a director has a financial stake in a contract, the decision must be made by directors who have no conflict, ensuring the board’s judgment is independent.

If the contract is approved by the majority of the board excluding the self-dealing director, the decision stands on the votes of disinterested directors. With 15 board seats, removing the conflicted director leaves 14 directors. A simple majority of those voting is 8, so once eight non-conflicted directors approve (and the conflicted one recuses or is excluded from voting), no member ratification is needed for the contract to be valid. This setup prevents the conflicted director from swaying the outcome and satisfies fiduciary duties.

The other scenarios don’t guarantee that independence. Having the self-dealing director present (even if not voting) can still cast doubt on the process or violate rules about participation. A non-voting matter isn’t the same as a binding contract vote. Relying on member ratification after the fact shifts the control away from the board and defeats the aim of avoiding a conflicted director’s influence.