Inside Management rule

The Inside Management rule is not directly mentioned in Nathan's Company Meetings but this is a very good place to raise this very important topic.

The manual mentions it indirectly by saying directors can conduct business only at duly convened meetings of the board. Meetings provide the opportunity for all directors to voice their opinions before coming to a collective decision.

What is the rule
The Inside Management rule states that an outside supplier or contractor can rely on a representative of a corporation, who claims to have the authority to bind the corporation, to be authorized to sign contracts on the corporation's behalf.

The courts have ruled that the Inside Management Rule does not apply to condo corporations.

What does this mean?
It means that the president acting on his own, or even the majority of the directors cannot bind the corporation to a contract with a supplier if the contract has not been passed by a resolution at a properly called board meeting.

It also means that contractors and suppliers need to verify that the authorization to pass contracts have been passed by a resolution passed at a properly called board meeting.

The following is an article from a condo lawyer in New Hampshire on a very similar issue.

Following the law
By Robert Ducharme  
03 June 2016

Condo law is contract law. Owners, tenants, guests, children, pretty much anyone who steps foot on condo property is bound by the terms of the declaration and bylaws. As such it’s really, really important to abide by the language in them. No one expects an owner to know them by heart, and certainly the courts here and around the nation are filled with cases the revolve around vague phrases, ill-defined terms and conflicts between different provisions. But not all are vague.

the clock had never started ticking

Recently, a court in Virginia held that amendments to the documents made eight years earlier were invalid because only the president signed the amendments when the Virginia statute required three officers to sign them. The association made the argument that the time frame during which someone could challenge the amendments had long since expired. But the court noted that since the amendments were never filed properly because of improper signatures, the clock had never started ticking. Image the chaos. New Hampshire has similar language, so be careful.

What am I doing citing a Virginia case as an example? Comparatively speaking, New Hampshire does not have very much condo law. If the New Hampshire Supreme Court faces an issue it has not yet encountered, then it can, and frequently does, look to other states for guidance. Also, I don’t really have hobbies. I don’t play an instrument, do woodworking, collect stamps, or restore old Mustangs. I run, read books, and read condo law from around the nation and index them according to subject. And write columns.

So make sure you follow the language of the documents. If you are not sure what it means or what the legal requirements are find a good lawyer or a good management company or both. It’s worth the time and expense. Imagine the problems the Virginia board of directors is going through right now trying to enforce things that were passed with good intentions, but with bad results. But don’t follow the law too much.

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