It is widely assumed that if a contract, note or other instrument is signed by a corporation’s president and its secretary, it will not be invalidated as to the corporation by any lack of authority of the signing officers. After all, Section 313 of the California Corporations Code provides:
Subject to the provisions of subdivision (a) of Section 208, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by 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 of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
Aye, there’s the rub . . .
That seems reasonably clear – get the right combination of signatures and you’re done. The rub is that the statute is simply inapplicable to a great number of corporations even though they are located right here in California.
The reason is that Section 313 applies to “corporations” only and when the General Corporation Law talks about corporations, it isn’t talking about every firm that happens to be organized as a corporation. “Corporations” under the GCL are limited to those corporations organized under the GCL or subject to the GCL pursuant to Section 102(a). Cal. Corp. Code § 162. Notably absent are “foreign corporations” which are corporations not formed under the laws of California. Cal. Corp. Code §§ 167 & 171. The statute also would apply to other forms of business entities that use officer titles but aren’t corporations.