MastonE. Martin, Jr.
Maston E. Martir4 Jr. graduated magna cum laude from Cumberland School of Law,
Samford University in 1979. As a judge advocate with the United States Air Force, he
served as a faculty member of the USAF ludge Advocate General School and as Editor
of the Air Force Law Review. He has also taught adjunct faculty member at fones School
of Law, Faulkner University, Montgomery, Alabama. Mr. Martin's legal career has been
concentratedin the area of civil litigatiorq including litigation relatlng specifically to
matters involving real estate for the past several years. fl" is "uo.ntly Field Service
Customer Representative for Stewart Title Guaranty Company in the Birmingham,
Alabama office.
REAL ESTATE TRANSACTIONS
WITH LEGAL ENTITIES
MastonE. Martin, Jr.
AlabamaClaimsCounsel
StewartTitle GuarantyCompany
TIPS SeminarOctober.2004
I.
Corporations
A.
Introduction. A corporation is an artificial entity, existing only pursuant to
the statutesby which it is created. A corporation has only those rights and powers
given by its articles of incorporation and bylaws, and by the statutes authorizing
its formation and governing its existence. It is treated as an entity distinct from its
shareholdersor members, with rights and liabilities of its own.
A corporation is
characterizedby centralized managementthrough a board of directors, exemption
of shareholders from individual liability, transferable shares, and continuity of
existence,regardlessofchanges in or deathofits shareholders.
B.
Types of Corporations. There are severaltypes of corporations which may
be created under Alabama law. Although this outline will focus on business
corporations created pursuant to Ala. Code $$ l0-2B-1.01, et. SeQ.,other
corporations authorized by statute include professional corporations, non-profit
corporations, banking corporations, insurance corporations, and public and quasipublic corporations. Also authorized by statute are religious organizations, which
function similar to corporations. When insuring transactions involving nonbusiness corporations, the requirements of the statutes under which the
corporation is organized must be followed.
C.
CorporatePowers. The powers of a businesscorporationare found in
Ala. Code $ l0-2B-3.02. This statuteprovidesthat a corporationhasthe "same
power as an individual to do all things necessaryor convenientto carry out its
list of fifteen
businessandaffairs...,"andthengoeson to providea non-exclusive
specificpowers.Includedin the list arethe followingspecificpowers:
F:ttt
(4)
To purchase, receive, lease, or otherwise acquire, and own, hold,
improve, use and otherwise deal wittq real or personal property, or any
legal or equitable interest in property, wherever located;
(5)
To sell, convey, mortgage, pledge, lease, exchange, and otherwise
dispose of all or any part of its property.
It is not necessary for the articles of incorporation to set forth these powers.
Further, a corporation has these powers unless specifically limited by its articles
of incorporation. See AJa.Code $ 10-28-3.02.
D.
Exercise of Corporate Powers. Management of a corporation is vested in
its board of directors consisting of one or more directors, except that a close
corporation may be managed by its shareholders. Ala. Code $ 10-24-308.
Generally, the directors must exercise their powers as a board, by resolution and
vote of a majority at a properly called meeting at which a quorum is present.
Unless an actual meeting is required by the articles of incorporation or by-laws,
however, any action which could be taken by the directors at a meeting can be
taken by written consentsignedby all of the directors. Ala. Code $ l0-2B-8.21.
E.
Conveyancesto and from Corporations. Since a corporation is a legal
entity, it may acquire and hold title to real property, except as restricted by the
statutesand its own articles.
l. Conveyances
to a corporationare madein essentiallythe samemanneras
conveyances
to other entities. It is importantthat the full, true and correctname
of a corporationbe usedin all real propertyrelateddocumentsandvery desirable
that the state under whose laws it is incorporatedbe recited immediately
following the nameof the corporation.
2. Conveyances
by a corporationare madein substantially
the sameform as
one madeby a private grantoror owner. The body of the instrumentmust show
that it was the act of the corporationand the corporateexecutionmust be by one
or more officers or by a duly authorizedagent or attorney-in-factwhosetitles
should be shown. Ala. Code $ 35-4-67 providesthat if the conveyanceis
executedby the president,a vice-president,or the secretaryof the corporation,
and properly attestedor acknowledgedin conformity with this statute,then the
recordeddocumentis admissiblein evidencein an Alabama court "without
furtherproof."
F. Checklistfor ExaminingCorporateConveyances.
The following itemsshould
be consideredwhen insuringtransactionsinvolving corporations:
o That the corporation has been duly organized in accordancewith
applicablestatutes.(Typically, the secretaryof statemaintainsa website
for searchingcorporateinformation,similar to that of Alabama'sSecretary
of State).
o The exactcorporatename.
tr The dateof incorporation.
u That the corporatedurationhasnot expired,if otherthanperpetual.
o That the documentsunderwhich it operatesdo not containany provision
affecting the corporation'spower to acquire,hold, convey,mortgage,or
otherwisedealin real property.
o
That there are no statutory limitations to the power of the corporation to
act or operate in real estatetransactions.
tr
That, at the presenttime, the corporation is in good standing in the state of
its incorporation. (Consider obtaining a Certificate of Existence in
accordancewith Ala. Code $ l0-2B-1.28 if an Alabama corporation or
similar documentfrom other states.).
o
That the consent or approval of a regulatory agency is not necessary.
o
That, if a foreign corporation, it has been duly authorized to do businessin
the State of Alabama. (You may obtain a Certificate of Authorization
pursuantto Ala. Code $ 10-28-1.28).
tr
That there is a resolution of the board of directors of the corporatiorq duly
certified by its secretary, authorizing the transaction and execution of the
pertinent real estate documents, or if any officer is empowered by the
articles of incorporation, by-laws, or any other corporate document, that
there is a certificate issued by the secretary of the corporation stating the
name of the person acting in this capacity and certifying that this person's
authority to executetransactionson behalfofthe corporation has not been
amended,modified,orrevoked. See AJ'a.Code $ 10-28-12.01.
o
That approval or consent of the shareholders when involving all or
substantially all ofthe assetsofthe corporatiorq other than in the regular
course of business, has been obtained and that all shareholders were
properly notified of the shareholdersmeeting at which a vote was take.
See /Ja. Code $ 10-28-12.02.
tr
That the transaction does not prejudice the rights of the creditors of the
corporation(conveyanceto an insider,etc.).
B That the seal of the corporation has been properly affixed, if used. Ala.
Code $ 10-28-3.02 grants the corporation power "[t]o have a corporate
seal." Flowever, "[a] seal is not necessaryto convey the legal title to land .
. ." Ala. Code $ 35-4-21. Moreover, Ala. Code g 35-4-67 does not
require use ofthe corporate seal.
o
That the corporate instrument has been properly acknowledged.
G. Documentsto be Reviewed. The following documentswill provide most or
all of the information neededto confirm the items in the above checklist:
o
Articles of Incorporation
o
Certificate of Existence/Good Standing
o
By-laws
o
Applicable corporate minutes/resolutionsauthorizing transaction
tr IncumbencyCertificate
H. Acknowledgment
Form:
The
appropriate acknowledgment form
for
corporationsis set forth in Ala. Code g 35-4-29:
Stateof
Countv of
the undersigned,a Notary Public in and for
said County in said State,herebycertify that
name as presidenVvice president, etc. of WZ,
whose
fnc., a corporation
organized and existing under Alabama law, is signed to the foregoing
conveyance, and who is known to me, acknowledged before me on this
day that, being informed of the contents of said conveyance, he, as such
o{Iicer, and with full authority, executed the same voluntarily for and as
the act of said corporation on the day the same bears date.
Given under my hand and offrcial seal this the
20
Notary Public
My Commissionexpires:
(Aflix oflicial seal,if applicable)
day of
tr.
Limited Liability Companies
A.
Introduction. Limited Liability Companies are created pursuant to the
Alabama Limited Liability company Act, Ala. code g$ l0-12-1, et seq. An LLC
combines certain corporation and partnership characteristics that result in limited
liability and special tax considerationsfor its investor-members.See, e.g., y',Jla.
Code S l0-12-8 regardingclassificationas a partnershipfor tax purposesin 1998
amendment.
B.
Formation. Under Alabama law, a limited liability company is formed by
filing Articles of Organization with the probate judge in the county of the initial
registeredoffice where the company is located.Ala. Code $ 10-12-9. A copy of
the Articles of Organization stamped "filed" and marked with the filing date and
issued by the probatejudge is conclusive evidence of the formation of a limited
liability company and prima facie evidenceof its existence.Ala. Code $ 10-1214. Managementof a limited liability company is vested in its members,unless
the Articles of Organizationprovides for managementby a manager or managers.
AIa. code S 10-12-22. The members may elect to enter into an operating
agreement.Ala. Code S 10-12-24.
C.
Powers of an LLC. An LLC has the power to carry on any lawful business
purpose or activity unless limited by its Articles of Organization. In particular,
Section l-12-4 providesthat an LLC has*thefollowing powers:
(b) To purchase, take, receive, lease, or otherwise acquire, own, hold,
improve, use, and otherwise deal in and with real or personal property, and
a legal or equitable interest in it, wherever situated;
(c) To sell, convey, mortgage, encumber,pledge, lease,exchange,transfer,
and otherwise disposeof all or any part of its property and assets;. . .
D.
conveyances to and from LLCs.
Section r0-12-23(c) provides that any
member may transfer the property of the LLC. If the LLC is manager-managed,
then any transfer may be properly executed by any manager or managers on
behalf of the LLC. Ala. Code $ 10-12-23(d).If the Articles of Organizationand
the Operating Agreement are silent or there is some doubt as to who should
execute the conveyance, then the better practice would be to have all members
execute on behalf of the LLC.
Ala. Code $ t0-12-23(c). Secrion lo-t2-23(f)
provides that property transferred may be recovered if the transfer did not bind the
Company under Section lO-L2-21, which provides rules of agency applicable to
member-managed and manager-managed LLCs.
when
in doubt, have all
members or managersjoin in the conveyance, obtain a resolution of the LLC
authorizing the transaction, or an opinion of the LLC's counsel regarding the
validity of the transaction.The principal issuesare: (1) does the executionof the
deed bind the LLC, and (2) does the execution of the mortgage bind the LLc?
E.
Documents to be Reviewed.
The following documents should be
obtained and reviewed prior to insuring a conveyanceby anLLC:
tr
Articles of Organization (and any amendmentsor restatedarticles)
tr
Operating Agreement
tr
Certified current member list
o
Any resolutions
tr IncumbencyCertificate
The Articles of Organization will show whether the LLC is member-managedor
manager-managed. Further, the Articles of Organization and the Operating
Agreementshouldbe examinedto determineif there are any limitations on the
LLC's ability to own or transferreal propertyand whether more than one person
is requiredto signdocuments.
F.
AcknowledgmentForm. No specialstatutoryform is given for use by a
limited liability company. The customarypracticeis to usethe following form,
which is a modifiedversionof the corporateform:
State of
Countv of
a Notary Public, in and for said County in
said State, hereby certify that
whose name as
member/managerof Y{2, L.L.C., a limited liability company organized
and existing under the laws of Alabama, is signed to the foregoing
conveyance, and who is known to me, acknowledged before me on this
day, that being informed of the contents of said conveyance, he, as such
member/manager,and with full authority, executed the same voluntarily
for and as the act of said limited liability company.
Given under my hand this the
day of
20
Notarv Public
My Commissionexpires:
(Affix official seal,if applicable)
III.
General Partnerships
A.
Introduction.
General Partnerships are controlled by the Alabama
Uniform Partnership Act, Ala. Code $ 10-8A-10I, et seq. This Act defines a
partnership as "an association of two or more persons to carry on as co-owners a
businessfor profit... ." Ala. Code $ 10-8A-101(5).
B.
Partnership Property. Any property brought into the partnership, acquired
with partnership funds, or on account of the partnership becomes partnership
property. Ala. Code Ann. $ 10-8A-204.
C.
Conveyancesto a Partnership. Section l0-8A-204 specifically recognizes
that a partnership may acquire any interest in real property and that title may be
held in the partnership name. Some variations on the way partnership title may be
held are as follows:
Smith and Jones,an Alabama Partnership
Smith and Jones, an Alabama Partnership composed of John Smith
and Richard Jones
.
D.
John Smith and Richard Jones, partners of Smith and Jones, an
AlabamaPartnership
Conveyancesfrom a Partnership.Wheretitle to the real property is held
in the partnershipname, it can be conveyed only in the partnershipname,
"[s]ubject to the effect of a statementof authorityunder Section10-8A-303."
may be executedby anypartner
Ala. Code$ l0-8A-302(a)(3).Suchconveyances
in the partnership name. Ala. Code $ 10-8A-302(a)(Z) But the partnership may
recover such property unless the partner's act binds the partnership under Section
10-8A-301(1) or unless the purchaser is a bona fide purchaser for value and
without knowledge that the partner exceededhis authority. Ala. Code $ l0-8A302(b). Section 10-8A-301(1) provides that the partner is an agent for the
partnership and his acts bind the partnership, unless he has no authority and the
person with whom he is dealing knows that he has no authority. If title to the
partnershipproperty is held in the individual names of one or more partners,any
conveyancesmust be executedby the record title holders. Ala. Code $ 10-8A302(a)(3).It is also recommendedthat the partnershipbe a namedgranteeeven if
title is held in the partners'individual names.
E.
Checklist for Examining PartnershipConveyances. The following items
should be consideredwhen insuring transactionsinvolving generalpartnerships:
o
Verification that property is owned by a general partnership (not by a
limitedpartnership)
tr Review of general partnership agreement, if one exists, and
amendments
Certified list of partnersof generalpartnership
Certificateby partnershipthat it has not been dissolvedor terminated
Is there a necessityto list the terms of the partnershipagreementas an
exception?
Have all the general partners been searched and have judgments and
liens againstthem been considered?
t0
Whattypesof entitiescomprisethe partnership?Do they all qualifyas
partners?
o Are all the non-individualpartnersin good legal standing?
a Have all necessaryrequirementsbeenmet for any corporationor other
non-individualgeneralpartner?
o
F.
Was the conveyanceout of the general partnership properly executed?
Acknowledgment Form. There is not a specific statutory form prescribed
for partnerships. The better practice is to use a revised form which contains the
critical elements of both the corporate and representativeforms:
Stateof
County of
a Notary Public, in and for said County in
[,
said State,herebycerti$rthat
whose name as general
partner(s) of XYZ Partnership, a general partnership organized and
existing under Alabama law, is signed to the foregoing conveyance, and
who is known to me, acknowledged before me on this day that, being
informed ofthe contentsofsaid conveyance,he, as such general partner,
and with full authority, executed the same voluntarily as the act of said
partnership.
Given under my hand and oflicial seal this the
20
Notarv Public
1l
day of
My Commissionexpires:
(A{hx oflicial seal,if applicable)
NOTE: When the deed is signed by the individual partners, it should also have an
individual acknowledgment in representativecapacity for each signing partner as
shown at Ala. Code $ 35-4-29.
TV,
Limited Partnerships
A.
Introduction. A limited partnershipis defined as a partnershipformed by
two or more personshaving one or more limited partners and one or more general
partners. Ala. Code $ 10-98-101(9). A limited partner is one who has been
admitted to the partnership as a limited partner in accordancewith the applicable
laws and the partnershipagreement.Ala. Code $ 10-98-101(8). A generalpartner
is one who is named as a general partner in the Certificate of Limited Partnership
and who has been admitted as a general partner in accordancewith the applicable
laws and the partnershipagreement.Ala. Code g 10-98-101(6).
B.
Formation.
Limited Partnerships are formed by complying with the
statutory requirements and by filing a Certificate of Limited Partnership in
accordancewith the AlabamaLimited PartnershipAct of L997,Ala. Code $$ 1098-101(9), et seq. Although there are no filing requirements for a general
partnership, the existence of a limited partnership hinges on the filing of a
Certificate of Limited Partnership. Ala. Code $ l0-9B-201. Further, a limited
partnershipmust contain the abbreviation"Ltd." or "L.P." or "LP." Ala. Code $
l0-eB-102(l).
T2
C.
Powersof a LimitedPartnership.A limited partnershipmay carry on any
businessthat a partnershipwithout limited partnersmay carry on. Ala. code
$
l0-9B-403(a).Further,the generalpartnershiplaws apply to limited partnerships
exceptto the extentinconsistentwith the limited partnershiplaws. 5eq e.g., Ala.
code $$ l0-9B-101(9); l0-98-106; l0-98-403(a). Accordingly, a limited
partnershiphasthe powerto hold andconveyreal property.
D.
iL
Title to limited partnership
propertyshouldbe held andconveyedin the partnershipname. The Certificateof
Limited PartnershipAgreementandthe partnershipagreementshouldbe carefully
examinedto veriff that thereare no limitationson ownershipand conveyanceof
real propertyand to determinewho hasthe right to conveyreal property. Limited
partnersshouldnot sign a conveyanceunlessspecificallyrequiredto do so by the
certificateor the partnershipagreementasthis might be construedasparticipation
in management
andgive riseto personalliability.
E.
The
following items should be consideredwhen insuring transactionsinvolving
limited partnerships:
o Hasthe Certificateoflimited Partnership
beenproperlyexecutedandfiled?
o Is the Limited Partnershipstill in existence?
tr If the partnershipagreementis neither recorded nor furnished, does the
commitmentshowthe pertinentrequirement?
a Havethe generalpartnersbeensearchedin thejudgmentand lien books?
o what typesof entitiesarethe generalpartners?Do they all qualify?
t3
o
Are the non-individual partners in good legal standing?
o
Have the pertinent requirements been made for any corporate and other nonindividual general partners?
o
Who may execute conveyanceson behalf of the Limited Partnership?
o
Was the conveyanceproperly executed?
F.
Documentsto be Examined. The following documentsshould be obtained
and reviewed prior to insuring a conveyanceby a limited partnership:
o
Certificate of Limited Partnership and any amendments
tr
Certificate ofExistence/Good Standing
o
Limited Partnership Agreement
G.
Acknowledgment. The acknowledgment forrn for conveyancesby general
partnerships can also be used for conveyances by limited partnerships by
changingthe word "general" to "limited" where applicable.
V.
Trusts
A.
Introduction. A trust is essentiallya legal relationshipbetweenone person
having equitable ownership of property and another person owning legal title to
the same property, with the holder of the legal title having the obligation to
perform certain duties and exercisecertain powers forthe benefit of the equitable
owner.
The parties to a trust include the trustor/settlor, the trustee, and the
beneficiary.
The trustor creates the trust by granting legal title to the trust
property to the trustee for the benefit of another party who is the beneficiary and
who holds equitable title to the trust property. There are both expressand implied
trusts, although implied trusts presentspecific problems beyond the scopeof this
t4
outline. Trusts may also be either revocable or irrevocable, charitable or
spendthrift,public or private and inter vivos or testamentary.Trusteesmay be
individual or corporateor otherbusinessentities,suchasa bankinginstitution.
B.
Creationof Trusts. Any trust involvingland mustbe in writing and must
be signedby the personcreatingthe trust. It may be eitheraninter yiyostrust or a
testamentarytrust. If it is not in writing, however, it is absolutelyvoid. Ala.
Code $ 35-4-255. Further, the trust agreementshould be filed in the probate
o{Iice in the countywhere the propertyis located,which "is equivalentto actual
notice to every personclaimingunder a conveyancemade or lien vestedafter
suchrecording.Ala. CodeS 35-4-257.
C.
Powers of a Trustee. The powers set forth in the trust determinethe
authorityof the trusteeto convey,owrl sell, mortgageor hold or otherwisedeal
with real estate. General Alabama statutesregarding trust administrationare
codifiedin the uniform FiduciariesAct, Ala. code $$ 19-1-1,et seq.,and the
AlabamaPrincipalandIncomeAct, Ala. Code$$ 19-3A-101,et seq.Unlike some
otherstates,Alabamahasnot enacteda statutespecifyingpowersof a trustee.,See,
e.9.,Miss. code Ann. $ 9l-9-107. Section9l-9-107 of the Mississippistatute
grant trustee'sthe right to own, sell, lease,and mortgageproperty,subjectto the
trustee's duty to ast reasonablyand in a fiduciary capacity, unless the trust
specificallyrestrictsthesepowers.
D.
Conveyances
to a Trust. A trust differs from the other legal entities
discussed
abovein that it may not hold title in its own name. Title mustbe held
in the nameof the trustee. Ala. Code $ 35-4-251.With respectto conveyances
t5
from a trust, the trust agreementshouldbe examinedto veri$, that there are no
limitationson the trustee'spowerto conveythe property.
E.
Checklist for Examining Trust Conveyances. The matters to be
consideredbeforeinsuring a trust conveyancevary basedupon whetherthe trust
is an inter vivos trust or a testamentarytrust. For an inter vivos trust, the
following shouldbe considered:
tr Hasthe trust agreement
beenproperlyexecuted?
cr Doesit grantthe trusteethe powerto convey(or lease,mortgage,etc.)
the property?
tr Does the trust agreementrestrict or in any way limit the trustee's
powerto convey?
tr Has the trust agreementbeen recorded in the probate office of the
countywherethe propertyis located?
o Doesthe trusteeproperlyhold title?
o Is the proposeddeedin the properform?
For testamentary
trusts,the followingitemsneedto be considered:
cr Date of deathof testator
B Hasthewill beenadmittedto probate?
o Are the probateproceedingsstill pending? If so, considerwhether
court approvalis requiredfor conveyanceandwhetherthereare issues
relatingto claimsof creditors
tr Hasthe will beenproperlyrecordedin the probatecourt?
l6
o Has a certified copy of the will beenrecordedin the countywherethe
propertyis located?
o Doesthe will grantthe trusteethe power to conveythe property?
o Does the will restrict or limit the trustee's power to convey the
property?
o Is the proposeddeedin properform?
F.
Acknowledgment
Forms. Thetrustee'ssignatureshouldbe acknowledged
usingthe followingmodifiedform setforth in Ala. Codeg 35-4-29:
Stateof
County of
a NotaryPublic, in and for saidCountyin
said State,herebycertify that
whose name as trustee
of Y{Z Children's Trust is signed to the foregoing conveyance, and who
is known to me, acknowledgedbefore me on this day, that being informed
of the contents of said conveyance, he, as such trustee, and with full
authority, executedthe samevoluntarily for and as the act of said trust.
Given under my hand and official seal this the
20
Notary Public
My Commission
expires:
(Affrx offrcial seal,if applicable)
L7
day of