The Indoor Management Rule And Security Grant In A Signed Purchase Order Upheld

A question that we are often asked as finance lawyers is what level of support is needed to confirm that a document was properly executed, such that it would be binding on, and enforceable against, the corporate signatory. Our general advice is to obtain a certificate of incumbency, together with an authorizing resolution, and in many cases a legal opinion, from the signatory's legal counsel. However, depending on the nature of the transaction, many of our clients (borrower and lender clients alike) have stated that it is not feasible to obtain these documents given the size of the transaction or other circumstances. In these circumstances, we suggest to our client that they may be able to rely on the "indoor management rule," a longstanding legal principle that counterparties transacting with companies may assume that internal company policies are complied with and that the documents and contracts signed by a signatory on behalf of a corporation are enforceable in