September 2000

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

CORPORATIONS DEALING THROUGH ATTORNEY-IN-FACT

1. Introduction

Can a corporation sell and convey real property through a power of attorney? The issue is not whether an attorney-in-fact can properly execute, for example, a deed. The issues are, how is that done and can the corporation also delegate to the attorney-in-fact decision making responsibility regarding when to make a conveyance? Our conclusion is set out in 3 below with a background legal discussion of statutes set forth in 2 below. It should be noted that our comments pertain to the current transfer to be insured. Transfers in the back chain of title are usually assumed valid by the title insurer absent knowledge or notice to the contrary.

2. Discussion of statutes 

G.S. 55-3-02 sets out a corporation's general powers. G.S. 55-3- 02(a) provides that: 

Unless its articles of incorporation or this Chapter provide otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including without limitation power:...

(3)              To make and amend bylaws, not inconsistent with its articles of incorporation or with the laws of this State, for managing the business and regulating the affairs of the corporation;

(4)              To purchase, receive, lease, or otherwise acquire, and 

            own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;

(5)             To sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of an or any part of its property; ...

(7)       To make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;...

(11)     To elect or appoint directors, officers, employees, and agents of the corporation, define their duties, fix their compensation, and lend them money and credit;

G.S. 55-3-04 sets forth the statutory law of "ultra vires." G.S. 55-3-04(a) provides that, "Except as provided in subsection (b), the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act." G.S. 55-3-04(b) allows a shareholder to sue the corporation to enjoin an act and allows the corporation to sue former or incumbent directors, officers, employees or agents. It also allows proceedings by the Attorney General under G.S. 55-14-30. G.S. 55-3- 04(c) states that if the shareholders proceed as noted above, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss (other than anticipated profits) suffered by the corporation or another party because of enjoining the unauthorized act. 

The Official Comment states that: 

Under this section it is unnecessary for persons dealing with a corporation to inquire into limitations on its purposes or powers that may appear in its articles of incorporation. A person who is unaware of these limitations when dealing with the corporation is not bound by them…

The language of [G.S. 55-03-04] extends beyond contracts and conveyances of property; "corporate action" of any kind cannot be challenged on the ground of ultra vires. For this reason it makes no difference whether a limitation in articles of incorporation is considered to be a limitation on a purpose or a limitation on a power; both are equally subject to [G.S. 55-03- 04]... 

[G.S. 55-03-04], however, does not validate corporate conduct that is made illegal or unlawful by statute or common law decision...

[G.S. 55-03-04] also does not address the validity of essentially intra vires conduct that is not approved by appropriate corporate action. It does not deal, for example, with the enforceability of an executory contract to sell substantially all the assets of a corporation not in the ordinary course of business that was not approved by the shareholders as required by [G.S.55-12-02]. This type of transaction is not beyond the purposes or powers of the corporation; it simply has not been approved by the corporate authorities as required by law. Similarly, [G.S. 55-03-04] does not deal with whether a corporation is bound by the action of a corporate agent if the action requires, but has not received, approval by the board of directors. Whether or not the corporation is bound by this action depends on the law of agency, particularly the scope of apparent authority and whether the third person knew or should have known of the defect ill the corporate approval process. These actions may be ultra vires with respect to the agent's authority but they are not ultra vires with respect to the corporation and are not controlled by [G.S. 55-03-04].

In sum, notwithstanding G.S. 55-3-04, the reader must look elsewhere to see if a corporate action is properly authorized and executed. G.S. 55-12-01 and G.S. 55-12-02 are therefore relevant.

G.S. 55-12-01(a) provides that a mortgage of or other security interest in all or any part of the property of a corporation may be made by authority of the board of directors without approval of the shareholders, unless otherwise provided in the articles of incorporation or in bylaws adopted by the shareholders.

G.S. 55-12-01(b)(1) and (2) state that unless otherwise provided in the articles of incorporation or in bylaws adopted by the shareholders, a corporation may, on the terms and conditions and for the consideration determined by the board of directors, and without approval by the shareholders: (1) sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of business; or (2) transfer any or all of its property to a corporation all the shares of which are owned by the corporation.

The rule in G.S. 55-12-01(a) pertains to any mortgage or other security interest. G.S. 55-12-01 (b)(1) applies to sales of all or substantially all of the property in the regular course of business. If all or substantially all of the property is not involved, G.S. 55-12-01(b)(1) does not apply and G.S. 55-12-02, discussed below, does not apply. G.S. 55-12-01(b)(2) pertains to transfers to subsidiaries.

G.S. 55-12-02 pertains to a sale, lease or exchange of all or substantially all of the corporation's property "otherwise than in the usual and regular course of business." The transaction must be conducted on the terms and conditions and for the consideration determined by the corporation's board of directors, if the board of directors proposes and its shareholders approve the proposed transaction. G.S. 55-12-02(b) through (g) set out the procedure for such transfers.

The Official Comment to G.S. 55-12-01 states that most transfers of "all or substantially all" of the corporate property are, "almost by definition, not in the usual and regular course of business." The comment goes on to state that such sales by real estate corporations can be in the usual and regular course. 

When the board must act, G.S. 55-8-21 states that unless the articles of incorporation or bylaws provide otherwise, the board may take action without a meeting if the action is taken by all members of the board.

G.S. 55-8-01(b) states that all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, except as otherwise provided in the articles of incorporation or in a shareholder agreement valid under G.S. 55-7-31(b). G.S. 55-8-01 (c) provides that a corporation may dispense with or limit the authority of a board of directors by describing in its articles of incorporation or in an agreement valid under G.S. 55-7-31(b) who will perform some or all of the duties of a board of directors; but no such limitation upon the authority which the board of directors would otherwise have shall be effective against other persons without actual knowledge of such limitation. When authority is delegated as set out above, the party delegated authority is deemed to be acting as the board for all purposes of Chapter 55. G.S.55-8-01(d).

G.S. 47-18.3(e) was amended in 1999. It now provides that any corporation may convey an interest in real property which is transferable by instrument which is duly executed by either an officer, manager, or agent of said corporation and has attached thereto a signed and attested resolution of the board of directors of said corporation authorizing the said officer, manager, or agent to execute, sign, seal, and attest deeds, conveyances, or other instruments. G.S. 47-18.3(e) shall be deemed to have been complied with if an attested resolution is recorded separately in the office of the register of deeds in the county where the land lies, which said resolution shall be applicable to all deeds executed subsequently thereto and pursuant to its authority. All deeds, conveyances, or other instruments which have been heretofore or shall be hereafter so executed shall, if otherwise sufficient, be valid and shall have the effect to pass the title to the real property described therein.

G.S. 47-18.3(b) provides that any instrument registered in the office of the register of deeds, appearing on its face to be executed by a corporation, foreign or domestic, and bearing a seal which purports to be the corporate seal, setting forth the name of the corporation engraved, lithographed, printed, stamped, impressed upon, or otherwise affixed to the instrument, is prima facie evidence that the seal is the duly adopted corporate seal of the corporation, that it has been affixed as such by a person duly authorized to do so, that the instrument was duly executed and signed by persons who were officers or agents of the corporation acting by authority duly given by the board of directors, and that any such instrument is the act of the corporation, and shall be admissible in evidence without further proof of execution.

G.S. 47-18.3(b) and (e) do not refer to or expressly deal with shareholder approval under G.S. 55-12-02.

3. Summary and Conclusion

(a) Situations where G.S. 55-12-02 does not apply

If the board of directors' resolution authorizes a party (1) to decide to sell and convey and (2) to execute a conveyance of the corporation's real property pursuant to a power of attorney recorded, or to be recorded, in the register of deeds' office of the county where the real property is located and the resolution is recorded pursuant to G.S. 47-18.3(e) along with the power of attorney it seems as though the attorney-in-fact can act if the resolution and power of attorney are recorded before the deed is recorded, at least where G.S. 55-12-01 governs or where neither G.S. 55-12-01 nor G.S. 55-12-02 applies to restrict corporate activity. Pursuant to G.S. 55-8-01(c), the articles of incorporation or a shareholder agreement under G.S. 55-7-31(b) can authorize the above acts by an attorney-in-fact. It is helpful for the power of attorney to state that all required approvals have been obtained, not inconsistent with the articles of incorporation or bylaws. It is helpful for the board's resolution to state that shareholder approval is not required. In a situation where G.S. 55-12-02 might apply (see discussion above and below), the procedure advocated in this paragraph should be used, as modified in the next paragraph. Note concerns about G.S. 55-12-02 issues discussed below.

(b) Situations where G.S. 55-12-02 applies

If a sale and conveyance is governed by G.S. 55-12-02, board and shareholder approval is required. G.S. 47-18.3(e) and G.S. 47- 18.3(b) do not refer to shareholder approval under G.S. 55-12-02. G.S. 55-12-02 does not specify what happens if shareholder approval is not obtained and the attorney-in-fact executes the deed and delivers it. It can be argued that, since G.8. 55-12-02 applies in lieu of G.8. 55-12-01 when the sale, which would otherwise be governed by G.8. 55-12-01, is otherwise than in the usual and regular course of business - an element that might be unknown to a prospective grantee - and since G.S. 47-18.3(c) recognizes the fact that a corporation can be bound by express, implied, inherent or apparent authority, and also "ratification, estoppel, or otherwise," a purchaser for value without actual knowledge or record notice (in the register of deeds' office, for example) of a need for shareholder approval under G.S. 55-12-02 would take free of any objection to lack of such approval. It would be helpful if the board's resolution had attached to it evidence of shareholder approval required by G.S. 55-12-02.

(c) Other comments

Since G.S. 55-3-02 (powers of a corporation), G.S. 55-12-01 (sale, lease, exchange of all or substantially all property in the usual and regular course of business and mortgaging all or any part of the corporate property by authority of the board) and G.S. 55-8-01(b) (powers exercised by board) are limited to the extent the articles of incorporation (and, with respect to G.S. 55-12-01, the bylaws) may provide different, it is advisable to check the articles' and bylaws. However, if the above suggested board resolution and power of attorney are utilized and a statement therein is included that the actions authorized are not inconsistent with the articles of incorporation or bylaws, a purchaser for value without knowledge, or record notice, to the contrary should be protected without that purchaser having to examine the articles or bylaws, whether the transfer is subject to G.S. 55-12-01 or G.S. 55-12-02.

The above analysis of applicable statutes shows existent statutes do not perfectly resolve the issues and that G.S. 47-18.3 should be further amended to add another subsection making it clear that, notwithstanding any other provision of the General Statutes to the contrary, if a power of attorney and corporate resolution is recorded authorizing any attorney-in-fact to act for the corporation (and such documents are not forged), a purchaser, lender or lessee for value without actual knowledge of lack of authority for the power of attorney may rely upon the power of attorney unless notice of its revocation is recorded in the register of deeds' office. 

Of course, if a power of attorney only authorizes the attorney-in-fact to execute and acknowledge documents and does not authorize him to make the corporate decision to sell, proper authorization for the transfer will have to be investigated. 

Chapter 55A, pertaining to non-profit corporations, contains similar provisions.

How a power of attorney is executed and acknowledged is discussed below.

4. How power of attorney is executed and acknowledged by a corporation

The act of execution and acknowledgment of a corporate power of attorney is as a deed is executed and acknowledged.

The amended acknowledgment form in G.S. 47-41.01(b) makes it clear that an "official of the corporation" (defined in G.S. 47- 41.01(d)(4) to include the chairman, president, chief executive officer, a vice-president or an assistant vice-president, treasurer, or chief financial officer, or any other agent authorized by a G.S. 47-18.3(e) resolution) may execute the power of attorney for the corporation and that the execution may be attested by another person who is an "attesting official of the corporation" (defined in G.S. 47-41.01(d)(5) to include the secretary or assistant secretary, trust officer, assistant trust officer, associate trust officer or in the case of a bank, its secretary, assistant secretary or assistant cashier), with the common or corporate seal being attached. Of course, due to G.S. 39-6.5, the seal is not required except for "prima facie evidence" of validity pursuant to G.S. 47-18.3(b). If the seal is omitted from execution, it can be omitted from the acknowledgment. G.S.47-41.01(d)(6). Also, due to the addition of the new acknowledgment form in G.S. 47-41.01(c), it is clear that the power of attorney can be executed and acknowledged by one "official of the corporation" for the corporation without a seal for the reasons noted above, unless the "prima facie evidence" benefit noted above is desired. 

Regardless of what form of execution and acknowledgment discussed above is used, it would be helpful if the acknowledgment went on to add that the power of attorney was authorized by an attached resolution of the board without the necessity of shareholder approval (if that is the case) or made reference to such a resolution recorded separately pursuant to G.S. 47-18.3(e). If shareholder approval is required and obtained under G.S. 55-12- 02, it would be helpful for this to be recited as well. 

While G.S. 47-28 allows a power of attorney to be recorded it does not expressly require recordation. Nevertheless, it is wise to record the power in the county where the real property is located prior to the recordation of the instrument executed by the attorney-in-fact for the corporation. The power of attorney will be indexed in the name of the principal and the attorney-in-fact. See G.S. 161-22(a).

5. How a deed or other instrument must be executed and acknowledged by the attorney-in-fact  

G.S. 47-43.1 pertains to execution and acknowledgment by an attorney-in-fact and should be consulted. G.S. 47-43 sets out a non-exclusive form acknowledgment. It is interesting to note that G.S. 47-43.1 still provides that for an instrument, such as a deed, to be executed under seal, the power of attorney must be under seal.

The form acknowledgment in G.S. 47-43 can be used for an individual. Obviously, it will need modification if the attorney-in-fact is an entity such as a corporation. 

Pursuant to G.S. 47-18 and G.S. 47-20, the instrument must be recorded in the county where the land lies in order to be valid against lien creditors and purchasers for value. G.S. 47-115 provides that the deed or other instrument executed by the attorney- in-fact for the principal shall be indexed under the name of the principal (in this case, the corporation) and the name of the attorney-in-fact. 

Please feel free to contact any of The Title Company's attorneys for assistance in this area of the law. We can be helpful in assuming certain underwriting risks when there is uncertainty in a given case in this area.  

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