Posting for

Wednesday, October 28, 1998

by: Doug Heumann

dheumann@firstam.com

and: Wayne Condict

wcondict@firstam.com

CORPORATE AUTHORITY/POWER OF ATTORNEY/TRUSTS

Doug Heumann (San Diego) writes:

After reading Bert's e-mail on power of attorneys (posting for Friday, 10/23/98), I was reminded of a dispute I have with Skip Santy, our chief title officer. We have been discussing the ability of a corporate officer or trustee to assign their ability to sign on behalf of the company or trust via a power of attorney. A recent example is a Japanese company's president and secretary gave their real estate agent a power of attorney to sell and buy property in San Diego. For each transaction, the company issues a resolution stating that this individual has the ability sign on behalf of the company. The resolution is signed by the president and secretary. The agent stated that the reason for this arrangement is due to the fact that all of the principals for the company are in Japan.

I have serious reservations relying on the power of attorney because the position of president of a company or trustee of a trust is a personal enpowerment. The powers, fiduciary duties and obligations are personal to that person and the ability to bind cannot be separated from the duties owed to the organization. However, we have several files where the principals have asked that we accept a power of attorney (executed by a) president or a trustee. When we questioned this practice, the customers told us other First American offices have accepted this arrangement.

Is there a case law or statute that allows for a power of attorney for an officer of a corporation? If so where and do we have any underwriting guidelines?

Reply by Wayne Condict (Santa Ana):

As to delegations of authority to bind a corporation or other legal entity made by an officer,partner or member thereof in the form of a power of attorney, it seems the first question must be "has the entity empowered the delegator/principal to cede his authority to another?" A power of attorney from the president of a corporation must be supported by a corporate resolution authorizing the president to execute it. That is, unless such authority is conferred upon the president in the corporate articles (doubtful) or by-laws (I doubt anyone has ever seen this).

California Corporations Code section 313 protects persons dealing with specified officers unless they had actual knowledge that the signer had no authority. Attorney-in-fact of an officer is not listed. The same problem occurs when trustees attempt to delegate authority. The first question is " does the trust instrument give the trustee power to delegate his authority?"

I've never seen this either. The decision making authority which a corporation, partnership, LLC or settlor of a trust confers upon others is personal to that individual. To allow that person to transfer it to somebody else had better be addressed in the organizational documents. This subject is addressed only indirectly in materials such as the CLTA (California Land Title Assn.) manual in the sense that persons having the authority to bind legal entities and trusts are identified therein. A person purporting to do so who is not identified raises the question of how he got his authority and from whom. If he did not get that authority directly from the entity (such as by a valid corporate resolution), we may have an improper delegation of authority issue.

Questions, comment, argument? Just press the "reply" button and send your thoughts to LandSakes.

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Following Wednesday's posting Dave Westcott (Sacramento) writes:

I believe it is much easier and more correct for a corporation to appoint an authorized agent via corporate resolution to sign on its behalf than to try to have officers give powers of attorney with all the attendant problems highlighted by Wayne Condict.

Lillian Eyrich (New Orleans) writes:

We have accepted powers of attorney only if the resolution grants the named officer the power to delegate to someone else the authority conferred upon the officer.

Ben Knittel (Houston) writes:

I am in Wayne's camp on this question. Below is an article I wrote for our agent's newsletter some years ago:

In various situations, the persons involved in a real estate transaction do not act on their own behalf, but serve as the representative of other parties not present at the closing table. The law recognizes that such persons occupy a special position of trust and responsibility to the parties for whom they act. This special relationship is referred to as a fiduciary relationship. Fiduciaries are persons who have earned confidence, trust and respect from another person or group, so they are entrusted with handling significant business or personal matters for the persons represented. In return, the fiduciary is held to the highest standards of good faith, care and honesty in any dealings with or on behalf of the persons he or she represents.

We regularly have transactions with people who are acting in a fiduciary capacity, including the following: trustees; personal representatives such as guardians, conservators, executors and administrators; attorneys-in-fact; corporate officers and directors; and partners or joint venturers.

Under established doctrines of the law of agency, agents may not delegate to another person the performance of acts to be taken on behalf of the principal which may involve the exercise of discretion. This is particularly true for agents who are fiduciaries - the fiduciary was given authority to act for the principal based upon the principal's confidence and trust in the fiduciary's character, judgment and abilities. For the fiduciary to pass his duties off onto another person who has not earned such trust and confidence is impermissible, and the acts of the sub-agent will not be binding on the principal.

Thus, for example, if you are dealing with a trust, you should not proceed with closing based upon a power of attorney given by the trustee to a third party. The beneficiaries of the trust have the right to expect that nobody but the properly appointed trustees will take actions affecting the assets of the trust. Similarly, executors and administrators may not delegate authority to third parties to act on behalf of the estate.

The directors and officers of a corporation are the agents of the corporation as a legal entity, but they also have a fiduciary relationship with the shareholders, and act in the capacity of trustees for the shareholders. Therefore, if the corporation has given its president authority to consummate a transaction for the corporation, the president may not give a power of attorney to a third person to act on his behalf in the transaction. If the president cannot attend the closing, the corporation may, by a board of directors' resolution, appoint an agent or attorney-in-fact to handle the matter, but the president should not simply delegate to someone else the power to act in his stead. The same principle applies to partnerships and joint ventures - a partner may not appoint an agent to act for the partner with respect to partnership transactions, but the partnership may appoint a third party as its agent by a power of attorney signed by all partners.

In rare instances, the documents which evidence the authority of the fiduciary may expressly allow the fiduciary to further delegate certain acts. Since sub-delegations present special risks, if you believe that such a provision applies to your transaction, please check with underwriting counsel before proceeding with closing or passing on an instrument executed by the sub-agent.

Charlie Hedgepath (Columbia, SC) writes:

I have refused to insure transactions where a partner, corporate officer or an individual partner had presented a power of attorney. I have had the occasion to have a corporation give a resolution to appoint an attorney in fact. Some trust agreements here have granted the power to appoint, but that power to appoint is not specifically set out in our powers statute. This past week I was sent a copy of an old deed and one of the trustees signature was by a POA and recited the recording data for the POA. I asked the agent about it and got confirmation of the recording and the fact that the trust agreement did provide for the appointment.

Meanwhile, Keith Pearson (Glendale/L.A.) writes:

Wayne brings up a good point but even if there was a corporate resolution that allowed assignment of the execution powers of the party authorized to sign for the corporation, I would still not insure the deal with the power being assigned to the real estate broker who has a conflict of interest in that they get paid if the deal closes and do not get paid if it does not.

Additionally, I must point out the recent holding of the Court of Appeal for the Second District in California in Snukal v. Flightways Manufacturing, 60 Cal. App. 4th 193, which held that you need two authorized officers from specific groups of officers to bind the corporation. The first group being the Chairman of the Board, President, and any Vice President. The second group being the secretary, any assistant secretary, the chief financial officer or any assistant treasurer. Obviously a trap for the unwary since many states require the signature of the President or Vice President only to bind a corporation.

Of course a well written resolution that is followed trumps ….all of the above.

Reply: Snukal was discussed here on LandSakes some months back. Snukal surprised lots of folks here who had fallen into the practice of relying on the signature of a corporate president or vice president, without more, to bind a corporation. Of course, this practice had evolved from earlier practice of relying on only one of these signatures when expressly authorized by a corporate resolution. But with the recession, turnover, new high volumes of business--coupled with a lack of training--many simply forgot about the need to obtain the corporate resolution when relying on one signature.

I'm not aware of any claims which seem to have been fomented by Snukal--but continue to wonder what might come with another downturn wherein numerous properties owned by corporations face foreclosure. Time now to make sure we're getting it right.

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Following up on Wednesday's posting, Jim Dondero (Grand Rapids, MI) writes:

I have spoken on this topic several times over the past 12 years. The crux of the matter (as pointed out by Ben Knittel) is whether an attorney-in-fact is appointed under an [unlawful] delegation of authority from an individual acting in some fiduciary capacity, OR directly by the "principal" (by corporate resolution or by-laws, provision in a partnership agreement, trust instrument, will of a decedent, court order, etc.) having the [lawful] authority to make the appointment.

It is a fine distinction, and the difference is sometimes difficult to discern. Nevertheless, ANY attempted use of a power of attorney carries inherent risks, and therefor the circumstances surrounding its use should be thoroughly scrutinized (in some cases, even to the point of obtaining written confirmation or ratification from the principal).