Atwood, Haiman & Westerberg

Legal Topics February, 1999

Get The Signatures Of Two Officers When Obtaining A Note, Deed, Contract Or Other Written Instrument From A Corporation.
By Stanford H. Atwood, Jr. and Eric S. Haiman
When dealing with a corporation, obtaining the signatures of two corporate officers will help ensure the validity of the document, whether it is a conveyance, note, mortgage, contract or other written instrument.
California Corporations Code section 313 provides a means for third parties to rely on written instruments executed by corporations, even when the person signing for the corporation has not been authorized to sign on the corporation's behalf. In order for Section 313 to apply, the document must be signed by two different people. The first signature must be that of a person who holds one of the following positions: Chairman of the Board, President or Vice President. The second signature must be that of a person who holds one of the following positions: Secretary, Assistant Secretary, Chief Financial Officer or Assistant Treasurer.
When dealing with a corporation, a third party may not know whether the people claiming to act on behalf of the corporation have actually been granted authority from the corporation to enter into a particular transaction. Unless the third party actually knows that the corporate representatives do not have authority from the corporation to conduct the transaction, section 313 provides that the instrument is binding on the corporation if it is signed by the requisite two corporate officers. If the document complies with section 313's two signatures requirement, the document is binding on the corporation even if the people who signed the document have not been granted authority by the corporation to enter into the specific transaction.
Because conforming with the requirements of section 313 will increase the reliability of the transaction, it is always good practice to secure this compliance. Before May 1998, there was some uncertainty as to whether section 313 required the signatures of two different people who hold the required positions. A third party could argue that an instrument was binding on a corporation under section 313 even if it was only signed by one person if that person occupied two of the required positions. For example, if the person signing the document was both the president and the chief financial officer, the third party could argue that the instrument was binding on the corporation even if the signatory was not actually authorized to bind the corporation. Such arguments, which have always been questionable, will be legally invalid if the California Supreme Court upholds a California Court of Appeal decision made earlier this year.
In Snukal v. Flightways Manufacturing (1998) 64 Cal.App.4th 816, 74 Cal. Rptr. 2d. 571, the Court of Appeal held that for section 313 to apply and bind the corporation, the document must bear two different signatures, one from the chairman of the board, the president or any vice-president and the second from the secretary, any assistant secretary, the chief financial officer or any assistant treasurer.
In Snukal, the plaintiff was a landlord who sought to enforce a lease against a corporation. The lease was signed by an individual who was the president, secretary and chief financial officer of the corporation. The Court of Appeal held that this was insufficient to bind the corporation to the lease under section 313. Without the requisite two signatures, the landlord could not hold the corporation liable.
The decision in Snukal is on appeal to the California Supreme Court. If the Supreme Court upholds the Court of Appeal's decision, arguments like those made by the landlord in Snukal will be legally invalid. Until the Supreme Court decides the case, Snukal cannot be cited in court as a binding legal authority. However, the practical lesson that it teaches, i.e., get those two corporate signatures, is good practice and will become critical to the enforceability of many transactions if Snukal is upheld.
Under section 313, getting the signatures of the two requisite officers will help ensure the validity of any written instrument executed on behalf of a corporation whether it is a note, a deed, a contract or any other written instrument. Section 313 is not a substitute for other conventional means of ensuring that the people signing for a corporation actually have the authority to do so, which include such things as warranties of capacity recited in the document, corporate resolutions specifically setting forth the signatories' authority and examination of articles of incorporation and bylaws. However, it is always good practice to obtain the two signatures required for section 313 to apply as it will increase the reliability of the transaction.