Apparent Authority of Corporate Agents Created by Shareholders (If Any): Part 2

Under US law

In yesterday’s post, I discussed Peter Watt’s case note on Ciban Management Corp v Citco (BVI) Ltd [2020] UKPC 21. His article was an interesting discussion of whether under UK law shareholders can create apparent authority and thus allow an agent to bind the company vis-à-vis third parties, provided creditor interests are not endangered and the company is solvent. It turns out the answer was yes. But how would such a case come out under US law?

Apparent Authority of Corporate Agents Created by Shareholders (If Any): Part 1

Recall the basic facts: Ciban was a British Virgin Islands corporation, whose main asset was several parcels of land in Brazil. The company’s shares of stock had been issued as bearer shares (i.e., shares that are unregistered and ownership of which belongs to whoever physically holds the certificate; they are now illegal in the UK, but were lawful when the facts of Ciban arose). The shares were held by one Stollman, a Florida lawyer, who functioned as a “bare trustee.” Under UK law, a bare trustee holds legal title to assets but has no powers or duties other than to pass the assets and their income to the beneficiary upon request. In matters of corporate governance, the bare trustee acts as a nominee, following the beneficiary's instructions.

The transaction giving rise to the case at bar ultimately involved a 5-level chain:

• Mr Stollman held the bearer shares as bare trustee.

• Mr Byington was sole beneficial owner but remained intentionally concealed. He passed instructions on to the next link in the chain.

• Mr Costa, Byington’s associate, served as conduit for instructions from Byington to others.

• Citco (BVI) Ltd (registered agent) and Tortola Corp Co Ltd (corporate director) acted on Costa’s directives.

• Brazilians holding powers of attorney to act on behalf of the company.

Costa and Byington fell into a dispute over moneys the latter owed the former. Costa thereupon forwarded instructions through the chain to the Brazilian agents to sell the property. He then informed Byington that he would use the proceeds to settle their debt.

Byington and the company claimed the sale was unauthorized and sued the registered agent and director for negligence.