This issue comes up here and there.
Authorization to sign contracts is addressed in the corporation’s bylaws and / or in resolutions of the board of directors.
If specific authorizations are set forth in the bylaws, changing those authorizations can cause some problems, because the bylaws must be amended. Thus, it would be better to have specific authorization to sign contracts established by the board, with the board’s powers being established by the bylaws. Here is a typical such bylaws provision:
Executing Corporate Contracts. Except as otherwise provided in the articles or in these bylaws, the board of directors by resolution may authorize any officer, officers, agent, or agents to enter into any contract or to execute any instrument in the name of and on behalf of the corporation. This authority may be general or it may be confined to one or more specific matters. No officer, agent, employee, or other person purporting to act on behalf of the corporation shall have any power or authority to bind the corporation in any way, to pledge the corporation’s credit, or to render the corporation liable for any purpose or in any amount, unless that person was acting with authority duly granted by the board of directors as provided in these bylaws, or unless an unauthorized act was later ratified by the corporation.
Here is an example of a board resolution that is specific to signing checks and other debt instruments:
RESOLVED that any officer of the corporation is authorized to endorse checks, drafts, or other evidences of indebtedness made payable to the corporation, but only for the purpose of deposit, and all checks, drafts, and other instruments obligating the corporation to pay money, including instruments payable to officers or other persons authorized to sign them, shall be signed on the corporation’s behalf by the president or the chief financial officer.
Note, however, that under certain circumstances designed to protect innocent third parties, it is possible for a corporation to be bound even if officers are not authorized to sign contracts if (a) any officer apparently had authority to sign (California Corporations Code Section 208(b)) or (b) the contract is signed by certain combinations of two officers specified in Corporations Code Section 313.
This blog does not constitute legal advice and does not establish an attorney-client relationship. If you need legal advice, please contact a lawyer directly.