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