Law Review: Great minds think alike
A few years ago I criticized a Court of Appeal decision that allowed a corporation to get out of a lease because of a technicality: only one person signed the lease on behalf of the corporation.
Form over substance, I opined.
The California Supreme Court agrees. The case Snukal v. Flightways Manufacturing, Inc. has been overturned.
Kirt Lyle was corporate president, secretary, chief financial officer and head bottle washer of a corporation known as Flightways. Lyle signed a two-year lease for a beach house in Malibu on behalf of the corporation as tenant. He signed the lease in his capacity as President of Flightways.
Lyle/Flightways paid rent for awhile, then stopped and was evicted. A judgment was recovered against Flightways for $22,300 plus attorneys’ fees.
Flightways appealed the judgment claiming the lease was null and void because the lease did not have the required two corporate signatures.
Calling a statute boring is like calling a fire hot, but Corporations Code section 313, which governs corporate signatures, is straightforward, albeit poorly drafted.
Section 313 provides that any contract or other legal document which is signed by two specified corporate officers – the chairman of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant treasurer – is binding on the corporation in the absence of actual knowledge on the part of the other person to the contract that the signing officers had no authority to sign the document.
In other words, a corporate obligation is only binding when it is signed by either the chairman, the president or any vice president and one other corporate officer, specifically the secretary, any assistant secretary, the chief financial officer or any assistant treasurer. Two signatures. This statute’s intent is to have the signature of a corporate officer from the operations side and from the finance side, so it is not sufficient to have the president and vice president sign, which is bizarre, but California law.
The purpose of section 313 is to enable third parties to rely upon the signatures of multiple executive officers of the corporation.
It is advisable for a corporation to have at least two different officers even if the corporation’s stock is owned by one individual. It is common practice for banks and other institutions to require two different corporate signatures.
The Supreme Court bound Flightways to the lease because Lyle was not only the president but was also the chief financial officer, so he held an operations position and a finance position even though he only signed once.
When you are contracting or accepting a deed or entering into a contract with a corporation, make certain you obtain two signatures. One must be the secretary, assistant secretary, CFO, treasurer or assistant treasurer. The most common corporate signature format is the president and secretary.
Jim Porter is an attorney with Porter/Simon, with offices in Truckee and Reno. He is a mediator and was the Governor’s appointee to the Bipartisan McPherson Commission and the California Fair Political Practices Commission. He may be reached at email@example.com or at the firm’s Web site http://www.portersimon.com
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