Contracting Authority, Corporate Seals, and Ultra Vires

• Author: Christopher C. Nicholls
• Pages: 161-184

161

CHAPTER SIX

Contracting Authority,

Corporate Seals, and Ultra Vires

INTRODUCTION

It is one of the most fundamental of corporate attributes, and traditionally one of its

principal advantages: a corporation can enter into contracts in the corporate name. His-

torically, when contracts were in writing, the corporation’s “signature” was represented

by a seal. The seal was a raised impression that set out the corporation’s name and

perhaps the year in which it had been incorporated. It was pressed with a metal “seal

maker” into a dab of sealing wax that had been strategically melted onto the document

page at the appropriate spot. When a seal was affixed to a document in this way, it was

clear that the corporation itself had become a party to the contract, not the individual

corporate representative who had melted the wax and pressed the seal maker to the page.

The formal requirement that corporate documents be executed under corporate seal

has now been dispensed with in most modern jurisdictions,1 although most corporations

today are still encouraged by their legal counsel to (and do in fact) adopt a form of

corporate seal so that they may seal documents if they wish. This is not a major expense.

For a cost of perhaps $60 or so, one can purchase a metal or plastic “seal-maker” from a

legal stationer. (The use of sealing wax is no longer necessary or desirable.)

For most ordinary business contracts, the affixing of the corporate seal is of no legal

significance whatsoever. It is sufficient for a corporation’s duly authorized officers or

agents simply to sign their names beneath the corporation’s name in the contract signing

block, conventionally noting beneath their signatures the offices or titles they hold in the

corporation. Thus, when a corporation signs a document, a typical signature block might

look like this:

ABC Corporation Limited

Per [or by]: I.M. Thepres

President

1See, e.g., CBCA, s. 23. Business Corporations Act (Alta.), s. 25; The Business Corporations Act (Sask.),

s. 23; The Corporations Act (Man.), s. 23; Business Corporations Act (Ont.), s. 13; Business Corpora-

tions Act (NB), s. 21; and Business Corporations Act (NL), s. 32.

Copyright © 2005 Emond Montgomery Publications. All Rights Reserved.

162 Chapter 6 Contracting Authority, Corporate Seals, and Ultra Vires

Much of the law relating to contracts entered into by or on behalf of a corporation is

not, strictly speaking, corporate law. It is contract law and is more properly dealt with in

the context of the study of the law of contracts. Nevertheless, there are several particular

topics in respect of which contract and corporate law principles have become inextric-

ably linked. In chapter 5 we considered two of those topics—promoters’ contracts and

pre-incorporation contracts, which relate especially to events that occur before a corpora-

tion has even been created. In this chapter we explore three issues that concern the “post-

incorporation” contracting activities of the corporation:

•the actual and ostensible authority of corporate signing officers;

•sealed documents and the corporate seal; and

•the historically significant, if increasingly unimportant, doctrine of ultra vires.

ACTUAL AND OSTENSIBLE AUTHORITY OF

CORPORATE SIGNING OFFICERS

Framing the Issue

Corporations, as courts and textbook writers never tire of reminding us, are artificial

legal persons that can act only through natural persons—that is, human beings. Accord-

ingly, it is often a matter of considerable importance to determine whether the actions of

an individual who purports to act on behalf of a corporation will, in fact, operate to bind

the corporation. When, for example, a corporate officer negotiates with a third party for

the provision of goods or services by that third party to the corporation, both the third-

party contractor and the corporation itself will be understandably concerned to know

whether or not the contract is enforceable as a matter of law against the corporation.

Where the corporate signing officer has been expressly authorized by the corporation

to enter into the contract in the corporate name—for example, by way of an explicit

authorizing directors’ resolution—the matter is free from difficulty. The officer is said in

such cases to enjoy “actual authority” to act for the corporation, and the corporation will

be bound by the contract signed by the officer.

But where the officer purporting to act on behalf of the corporation had not, in fact,

been expressly authorized to do so, the legal position of the parties becomes thornier.

Should the corporation always be bound by any contract purportedly entered into on its

behalf by one of its employees? Or should third-party contractors be obliged to verify

that a corporate employee who claims to speak for the corporation does indeed have

actual authority to conclude a contract on the corporation’s behalf, and, if they fail to do so,

accept the risk that they may not be able to enforce the contract against the corporation?

In the case of major transactions, it is standard practice for solicitors to require, at the

closing of the transaction, that various documents be delivered confirming the actual

authority of a corporation’s signing officers. These documents might include: certified2

copies of the corporation’s so-called constating documents (namely, its articles of incor-

2That is, certified by a corporate officer—usually the corporate secretary—as true copies of the originals,

together with all amendments as of the date on which the certificate is signed.

Copyright © 2005 Emond Montgomery Publications. All Rights Reserved.