FIRST YEAR LAW SCHOOL CONTRACTS 101
"DULY AUTHORIZED, EXECUTED AND DELIVERED"
To lawyers, those words are about as iconic as "do not bend, fold or mutilate" or "control alt delete." Unfortunately, they are a mantra more often recited than understood. In order for a lease, equipment finance agreement or contract to be enforceable it must, among other things be duly authorized, executed and delivered. Many contracts used in equipment finance contain representations by a lessee, borrower, broker, vendor or originator to that effect.
A document or action to be taken by a corporation or other business entity (we will say generically, a "company") is authorized when the appropriate company representative(s) grant their approval. In the case of transactions in the "ordinary course of business", the senior officers of a corporation, limited liability company or partnership (the general partner in a limited partnership) are generally assumed to have that authority. For example, the president or a vice president of a bakery corporation would have authority to purchase flour and hire bakers. Even within transactions in the ordinary course, a review of the lessee's or borrower's charter documents should be done. Remember that the risk is on the lender or lessor to ensure proper authority exists.
The officers' authority does not extend to transactions outside the ordinary course of business. These require additional approval, which may be specifically stated in the charter documents (such as Articles of Incorporation or By-Laws for a corporation, Articles of Organization or Operating Agreement for a LLC, or Certificate of Limited Partnership or Partnership Agreement for a limited partnership and the Partnership Agreement,(and in some states, a Certificate of Partnership, for general partnerships) or by specific approval from the company's governing body. In the case of a corporation, this governing body is usually the Board of Directors. In the case of a Limited Liability Company it may either be a manager or a group of members, depending on the terms of the Articles of Organization and the Operating Agreement. For limited partnerships, the general partner is generally vested with this power.
Sometimes the charter documents provided that specific actions, such as borrowing money or leasing equipment are specifically subject to authorization by shareholders, members or limited partnerships, or by a supermajority of members or partners.
If an officer exceeds his or her authority in signing a document or taking other action, company owners or creditors may be able to establish that the action is outside the scope of authority, aka ultra vires, and therefore void. Consider the example of the vice president of a bakery who, in addition to buying flour and hiring bakers, leases a pink Mercedes Benz for his secretary on the bakery's dime. You get the idea.
A duly executed document is one that has been signed within the authority of the signatory. This obviously overlaps with authorization but due execution also covers forgery and, more commonly, execution by a person claiming to be an officer he or she is not. Evidence of the officer's authority may be obtained by an Incumbency Certificate. This Certificate requires another corporate officer (presumably a secretary or assistant secretary) to verify that the person signing is (1) the person he or she claims to be and (2) the duly elected officer he or she claims to be.
Where a separate officer cannot be found to sign an Incumbency Certificate, we generally recommend a Notary furnish a Certificate that the signor has furnished evidence of his or her identity and sworn that he or she holds the appropriate office.
Delivery is a legal requirement for the enforceability of any lease or other agreement, just like due authorization and execution. More recent case law has held, however, that delivery can be constructive and can even be superseded by the manifest intent of the parties. In fact, many lawyers have come to ignore this requirement. We take a somewhat conservative view, however, and recommend that our clients always send an executed copy or facsimile of the lease to the lessee as soon as it fully executed. The requirement of due delivery may take on new life in the age of electronic signatures about which much has and will be written. For present purposes, suffice it to say that if the lessor intends to rely on a fax or electronically executed document, it should include appropriate language in the body of the lease.
