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December 12, 2014 Mario D. Deo

Thou Shalt Not Resolve by Email

We all love email.  It is convenient.  It is in writing.  It is instant.  However, “decisions” made by board members via email, are not legally effective, and accordingly cannot be characterized as official decisions of the corporation.  Only decisions made at duly convened board meetings are valid, binding, and official decisions of the board.

If the board intends to make “decisions” via email, then those decisions will not have any legal effect until confirmed by resolution at a valid board meeting.  If all directors in the future of condominiums would never change their minds after writing an email and would always attend every board meeting, then there would never be a problem with email decisions.  The problem arises on two fronts, firstly a director that changes his or her mind before the valid board meeting, and secondly a director that does not attend the valid board meeting after he or she has approved the decision by email.  For example, if a substantial contract or expense is approved by 3 out of 5 directors via email, and one or more directors approving by email are absent, it is possible that the email approval for this substantial contract can be reversed by a tie or even losing vote of directors at the meeting.  If this occurs, liability would definitely be a concern. 

Some boards ask, can we use the email vote at a meeting if the director is not present.  This is not permitted.

Is there a solution?  It is imperfect, but every email purporting to approve a corporation’s action, should contain the following undertaking:

The sender of this email hereby irrevocably undertakes to attend at the next scheduled board meeting and to confirm the above-noted action/approval/resolution at said meeting.”

There are some legal issues with the above undertaking, which are beyond the scope of this blog, but notably, a director that gave the undertaking, incurs liability if he fails to attend the next meeting and the decision/action does not proceed as a result.  This is one reason why the solution is not perfect.  On the positive side, if 5 out of 5 board members sign such an undertaking, the action is virtually guaranteed to be successfully approved at the next board meeting.  Really, the bottom line is that doing business by email always carries a risk, but if the above undertaking is contained in the email and you obtain all of the directors’ approval, the risks are minimized, but not eliminated.

The liability of the manager who accepts an email approval of board members is totally another topic, however, a manager who takes action based upon an email approval of directors which subsequently fails at a board meeting often becomes the legal scapegoat of the directors that did not approve the action.

Mario D. Deo

Mario D. Deo Partner

B.A., LL.B.

mdeo@finedeo.com
905.760.1800 x225
905.760.0050

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