Corporate Powers. Soda Dispensing Systems, Inc, was owned by two shareholders, each of whom owned half of the stock. One shareholder was president of the corporation, and the other was vice president. Their shareholder agreement stated that neither

Question

shareholder could "encumber any corporate property . . . without the written consent of the other." When Soda Dispensing went out of business, the two shareholders agreed to sell the assets, split the proceeds, and pay $9,900 to their accountants, Cooper, Selvin & Strassberg. Later, the president committed Soda Dispensing to pay Cooper, Selvin more than $24,000, claiming that he had the authority, as president, to make that commitment. When the accountants tried to collect, the vice president objected, asserting that the president had exceeded his authority. Will the court order Soda Dispensing to pay? Explain.

Answer 1

Corporate powers
What the president of Soda Dispensing signed was a confession of judgment—that is, he agreed to the entry of a judgment in a court against Soda Dispensing without the institution of legal proceedings. When Cooper, Selvin entered the judgment, the vice-president filed a motion to vacate it, which the court granted. On Cooper, Selvin's appeal, this order was af-firmed. The appellate court held that, "[c]ontrary to [Cooper, Selvin's] contention, the president of a corporation has no power, merely by virtue of his or her office, to confess judgment against the corporation, especially in a case such as this, where the corporation has ceased to do business." The court reasoned that "the provisions of the shareholders' agreement * * * indicate that [Soda Dispensing's] president could not act without the assent of the other shareholder." The court stated that Cooper, Selvin, as Soda Dispensing's accountant, "should have been aware of the limits of the president's authority."