Corporate Resolutions

Corporate Resolutions

There are some challenges for us when underwriting transactions in which either the buyer or the seller is a corporate entity.  As we know, a Corporation acts through its officers.  Who is an officer depends on how the company is organized.  Typically, Corporations have Officers, like Presidents, Vice-Presidents, Secretaries and Treasurers.  Limited Liability Companies have Managers, or in some cases, Members (with no Managers).  If you get a President to sign the Deed, with no other documentation, you’re good, right?  Right?!?!?!  Let me answer that with a hypothetical (and by hypothetical, I mean this happened to me when I was practicing law. ):

President signs the contract to sell property owned by a neighborhood association.  When asked for governance documents, she claims there are none.  Despite repeated attempts to understand the corporate structure and oversight of the Association, she insists that she is the sole authority for the Association.  She signs the Deed.  The flipping President of the Association signed the Deed. Were good, right? Right?!?!?!?  Well, that depends on your definition of the word “good”.  Two years after this transaction was recorded, I was sued by the Board of Directors of the neighborhood Association who claimed that I failed to obtain their permission before recording the conveyance.  Does that answer the question?

If we are doing our jobs as closing attorneys and paralegals, we are going to make every attempt to prevent this from occurring. Arguably, what happened in the case described above was an extreme instance.  However, you don’t have to change the facts very much to get a much more realistic scenario.  Central to the analysis is obtaining the governance documents and requiring the party to comply with them.  Corporations typically are ruled by by-laws.  While corporations typically act through their officers, they are generally governed by a larger body, such as a Board of Directors.  Typically, what we like to see is a Resolution indicating that the Board has approved the sale or purchase that also identifies the person or persons authorized to carry out the transaction on behalf of the corporation.  The Resolution does not have to be recorded, but often times they will be when they authorize someone we would not traditionally recognize as an officer to execute the Deed or Deed of Trust.  How many times have you seen a Deed signed by a “Banking Official” or an “Account Manager”.  Are those people officers of the corporation?  Beats me.  That’s where a Resolution becomes inherently useful.

Limited Liability Companies (hereinafter “LLC’s”) act through their Managers if they are Manager-managed, or their Members when they are Member-managed.  We do like to see Resolutions or Authorizations when there is more than one Member.  Similar to my example above, if all of the Members sign a Resolution then we don’t have to worry about one of them alleging that the property was conveyed without authority at some later point. That’s especially true when the LLC is Member-managed. Again, if someone other than a Manager is executing the Deed or Deed of Trust, there has to be prior and proper approval from the Members.

Something we have seen fairly often recently is the “Resolution” being signed solely by the person who is to execute the instrument.  So, for example, Mickey Mouse signs the Resolution and indicates that he is authorized to sign the Deed.  Well. . .that doesn’t help us in the least.  That’s a self-serving statement.  We need the Resolution signed by those empowered to govern the company.  In the case of a Corporation, that is typically the Board of Directors.  In an LLC, that’s the Members.  A person, even if it is a Board Member or one Member of a multi-Member LLC, authorizing himself to complete a transaction is not helpful for reasons that I hope are obvious given my example above.

Now. . .having said all of that. We understand that you are not going to get a Resolution from the Board of Directors of Bank of America.   If an officer (President, Vice-President, Asst-VP, Secretary, etc. . .) of a large banking institution signs a Deed, we are going to accept that.  If the Deed is signed by a “Credit Officer” you should be asking yourself, “Why?”.

Those that I have had the pleasure of speaking to one-on-one have heard me say, don’t be destined to repeat the same mistakes that I have.  Is some of this guidance being presented to reduce our risk? Well. . .yes. . .absolutely.  But, take it from me, getting sued, being deposed and having to sit through a court-ordered mediation when you are being accused essentially at sucking at your job is no fun.  No fun at all.

sb