Corporation Law


Corporate Officers



   The BOD does not meet enough for day-to-day affairs Õ work of officers.
Authority of the corporate officers to bind the corporation (fiduciary obligation to the corporation).

An officer = an agent of the corporation whose authority is governed by principles of law of agency.

    How to receive authority from the principal :

•   Granted actual authority :
•   certain amount of express authority by the principal (corporation) = articles of incorporation, resolution of the BOD, by-laws …
•   every agent receiving it receives a certain amount of implied authority = power to perform any act reasonably necessary to accomplish his express authority.

Ex : by-laws of X corporation expressly states that the president has authority to manage a grocery store + rent services, hire clerk … = implied authority.

•   Even if nothing grants expressly power, the officer has implied authority. The president has a certain amount of implied authority but it is limited.

Can the corporation bind in the usual course of business?     Depends on the facts. The court makes a difference between ordinary & extraordinary transactions.
Ex : purchasing inventory & equipment = necessary but the amount is not extraordinary.

    Normally the president has authority to hire employees but limited to employment contracts (not a lifetime one) if it does not exceed the term of office.

   The vice-president : has no implied authority = fill-in job. Has the same implied authority as the president when he is gone.
In larger corporations, the number of vice-presidents are given specific tasks in the corporation = implied authority.

    Two other important officers :

•   the secretary = custodian of the corporate seal, maintains corporate records, certifies corporate documents (ex : registry of shareholders). A document with a seal is considered prima facie true until proved otherwise. He has no authority to make contracts.

•   the treasurer = has no implied authority to make contracts. Has authority to maintain corporate bank accounts, receive & deposit funds, provide receipts …

The issue that tends to come up =
Was the contract made on behalf of the corporation by an officer that has no implied authority?

Õ equitable doctrines are therefore used to see if equities justify binding the corporation.
3 doctrines :
•   apparent authority ¬
•   estoppel ­
•   ratification ®

¬ the corporation can be bound despite the fact that the officer has no apparent authority if the ¯ party can prove the apparent authority.
How can ¯ parties know of limitation on the president's authority?    The court can hold that the corporation is bound.

Actual notice : the corporation prints that checks require the signature of 2 officers.

Õ a corporate officer has a certain amount of implied authority.

    ­ one key different with apparent authority.

Case : Lee v. Jenkins Bros, 1959
                If representing Lee what would you want to argue? Did he have the actual authority to do this?
Yardley did not have that apparent authority (grant of express authority + all implied authority to carry out all the express authority).
Lee tries to prove that Yardley had apparent authority. We have to look if in the law there is a matter of law that since Yardley was a shareholder & has market shares therefore he had power : no, there is  no matter of fact.
A contract is at issue. A relation exists between the parties & the contract : place where the contract is to be performed = Connecticut.
Since there is diversity of jurisdiction federal law applies.
The federal court has to apply Connecticut law : but no precedent. Looks for general state law on the matter. If none, how would the Supreme Court decide this issue?
Õ by virtue of fact if that was the president, then the corporation is bound, but ordinary or extraordinary transaction?
Compared to a lifetime employment contract = extraordinary. Would be up to the BOD to take such a decision. Subjects the corporation to a certain amount of liability, grants for long & indefinite period of time.
    Is the corporation bound or not?     Gives a general rule but the court is saying that it is not an apparent authority of the president Õ end of case.
The court of appeal reverses & sends back to the trial court to look at the facts.

Õ apparent authority is a question of fact. Look at the corporation & at an other corporation & look what authority the president of such a corporation would have.
(it is an oral contract & all the witnesses are dead)


    The doctrine of estoppel is sometimes blended with apparent authority because parties tend to prove the same facts.
In the interest of justice, the court must find that the corporation is going to be estopped from saying that the agent had authority.

Conditions for estoppel :
•   misrepresentation of the facts (here = lack of authority)
•   reliance by a ¯ party (prove that relied on this appearance of authority)
•   reasonable reliance
•   loss or damage

   Reliance comes from some past action. In the past, I entered into contracts like this & no problem (course of conduct), or colleague made contracts like this & no problem for his corporation.
Difference = need to prove a past action of the corporation where there was some appearance of authority.

Case : Drive-in Development Corp., 1966
                    A Bank claims it has a guarantee from Drive-in. The claim is filed to a referee (arises in the context of a bankruptcy case = all creditors are asked to file a claim).
The Bank files a claim against Drive-in.
The president of the corporation had granted a loan that is an extraordinary transaction. Who has the authority to do this?     The BOD. Apparent authority is not arguable.
There is also no question of estoppel.
The Bank asked for a copy of the resolution of the BOD & obtained it with the corporate seal.
Drive-in : there was no record of the resolution therefore the document was fake.

Court : National Bank relied on the documents Õ reasonable reliance. But had knowledge of the resolution & therefore reliance is not reasonable. Not sufficient to prove reasonable reliance.
The court estoppes the corporation from estopping Õ Drive-in has authority.


    ® approval of the transaction made without authority after the fact. Approval after the fact by someone who has the authority to have approved the transaction in the 1st place. Ratification must be made with knowledge of all the material terms of the transaction.
If the corporation learns of an unauthorized contract & refuses the benefits of the contract, no ratification. On the other hand, if the materiel is accepted the corporation is considered accepting the benefits of the contract Õ implied ratification. However, needs to prove that somebody with authority to authorize the transaction is aware of the transaction = have to show knowledge. If a ¯ party informs the corporation of the contract, then the corporation has knowledge & refuses to repudiate it in a timely manner = implied ratification.

    When an officer makes a contract on behalf of the corporation, he is making an implied warranty to ¯ parties = has authority to make the contract. If it turns out that he doesn't have that power & the ¯ party cannot use equitable remedies, then it suffers a loss. The ¯ party can sue the corporate officer for breach for implied warranty.
If no doctrine works, an action for damages is possible.