Why Affixing A Secretary's Certificate Might Protect The Innocent

Transactional lawyers are used to obtaining officers' certificates to back up their opinions or to deliver to the other party pursuant to a purchase or sale agreement.  I wonder, however, how many buyers or secured lenders think about asking the corporate seller or borrower to affix a secretary's certificate to the deed, bill of sale, or security agreement.  If they aren't asking, they may want to consider Section 1002 of the California Corporations Code.

Section 1002 provides that a secretary's or assistant secretary's certificate may be affixed to any deed or instrument conveying or otherwise transferring any assets of a corporation.  The statute provides that the certificate may set forth that the transaction has been approved by the board of directors and either:

  • The property described in the deed or instrument is less than substantially all of the corporation's assets or that the transfer is in the usual and regular course of the corporation's business; or
  • The transfer has been approved by the outstanding shares pursuant to Chapter 10 or Chapter 12 of the General Corporation Law or that such approval is not required (if the property constitutes all or substantially all of the assets of the corporation and the transfer is not in the corporation's usual and regular course of business.

Note that Section 1002 applies to any corporation assets, not just real property.  To those readers not familiar with the difference between a sale of assets under Chapter 10 and a sale-of-assets reorganization under Chapter 12 of the General Corporation Law, I commend this post from 2010: When a Sale of Assets is not a “Sale-of-Assets Reorganization”.

Why bother with obtaining a such a certificate?  Section 1002 provides that the certificate is prima facie evidence of the existence of the facts authorizing the conveyance or other transfer of assets and is conclusive evidence in favor of any "innocent" purchaser or encumbrancer.  The phrase prima facie is of course Latin, meaning at first appearance.  But what exactly is "prima facie evidence"?  The California Evidence Code provides the following answer:

A statute providing that a fact or group of facts is prima facie evidence of another fact establishes a rebuttable presumption.

Cal. Evid. Code § 602.  A "presumption" is not evidence, but an assumption of fact that the law requires to be made from another fact or group of facts found or otherwise established in an action.  Cal. Evid. Code § 600(a).  Rebuttable presumptions affect either the burden of producing evidence or the burden of proof.  Cal. Evid. Code § 601.  Arguably, Section 1002 establishes a rebuttable presumption affecting the burden of proof because it facilitates a public policy with respect to the stability of titles.  Cal. Evid. Code §§ 604 & 605.  If that is the case, then the effect of Section 1002 is to impose the party challenging a conveyance or transfer the burden of establishing the nonexistence of the facts in the secretarial certificate.  Cal. Evid. Code § 606.

"Be innocent of the knowledge, dearest chuck [sweetheart], Till thou applaud the deed."

Finally, I find the reference in Section 1002 to an "innocent" purchaser or encumbrancer to be obscure at best.  The term is not defined in the General Corporation Law nor is it found anywhere else in the Corporations Code.  Presumably, "innocence" in this context is tantamount to good faith ignorance of contrary facts.