Atwood, Haiman & Westerberg

Legal Topics September, 2000

Update: Get The Signatures Of Two Officers When Obtaining A Note, Deed, Contract Or Other Written Instrument From A Corporation
By Eric S. Haiman
Last year, you may have read on this site about the interpretation of Corporations section Code 311 in Snukal v. Flightways Manufacturing (1998) 64 Cal.App. 4th 816 (February 1999 post ). This article updates that report based upon the California Supreme Court's decision in Snukal v. Flightways Manufacturing (2000) 23 Cal.4th 754.
Essentially, Corporations Code section 311 provides that where an instrument is executed by certain officers of a corporation and the party doing business with the corporation does not actually know that these officers lack ability to act on behalf of the corporation, the instrument is binding on the corporation, even if the officers did not have actual authority from the corporation to execute the agreement. The purpose of Corporations Code section 311 is to give parties transacting business with a corporation a "safe harbor" basis for ensuring the validity of the transaction without having to investigate the internal workings of the corporation to determine whether the officers acting on the corporation's behalf have actual authority from the corporation to enter into the transaction. In order for Section 313 to apply, the document must be signed by two officers. 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. In Snukal v. Flightways Manufacturing (1998) 64 Cal.App. 4th 816, a California Court of Appeal had interpreted this provision to mean that two different people had to sign the document. The California Supreme Court's decision in Snukal v. Flightways Manufacturing (2000) 23 Cal.4th 754 overturned this ruling, holding that the signature of one person is sufficient if he/she in fact occupies a position from both lists. In other words, if the person signing the document is the Chairman of the Board, President or Vice President of the corporation, and he/she is also the Secretary, Assistant Secretary or Chief Financial Officer, the instrument will be binding on the corporation so long as the other party does not have actual knowledge that the person lacks authority to act on behalf of the corporation. Finally, under the Supreme Court's decision, the officer does not have to identify his/her qualifying positions on the document itself. It is sufficient that he/she actually holds those positions.
When dealing with a corporation, a third party may not know whether the people claiming to act on behalf of the corporation have been authorized by 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 signature requirement, the document is binding on the corporation even if the people who signed the document have not been authorized 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. The best practice is to require that the document be signed by the chief executive officer and either the secretary or chief financial officer of the corporation. Corporations Code section 1502(a) makes the identity of these officers a matter of public record. Therefore, the fact that the person(s) actually occupies these positions can be readily verified.