The Boss's Deed and a Bonus Tied to Profits
A Hawaii notary public works as the office manager for a small real estate investment LLC. Her annual bonus is calculated from the LLC's net profits. The LLC's managing member asks her to notarize a warranty deed transferring a rental property from the LLC to himself personally. The managing member signs in front of her and presents a valid Hawaii driver's license. The notary has her seal and journal at her desk. He says, "You're only verifying my signature, so there's no conflict." The notary also prepared the closing packet and knows the transfer will reduce the LLC's taxable income. She wonders whether she may perform the notarial act and what she should record.
1. May the notary perform this acknowledgment? Analyze the conflict-of-interest issue and the effect of her employment and bonus arrangement.
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No. A notary may not perform a notarial act when the notary has a direct or indirect beneficial interest in the transaction or is a party to the document. Here, the notary is not a member of the LLC, but her bonus is tied to the LLC's net profits and she prepared the closing packet. That gives her an indirect financial stake in how the deed is structured and recorded. The managing member's assurance does not cure the conflict. Even if she personally gains nothing from the specific transfer, the appearance of impropriety and her subordinate relationship to the signer impair her impartiality. She should decline and refer the managing member to a disinterested notary. Performing the act could expose her to commission discipline and undermine the deed's evidentiary value.
2. If the notary declines, what practical steps should she take, and what should she tell the managing member?
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She should explain briefly that she cannot notarize a document in which she has an indirect financial interest, without disclosing confidential details. She should return the unsigned deed and suggest that the managing member use a disinterested notary, such as a bank notary, a title company officer, or another commissioned notary unaffiliated with the LLC. She should not keep the original document or pressure the signer to proceed. If the LLC routinely needs notarizations, she should recommend that the company designate someone else or use an outside notary. She should document nothing in her journal because no notarial act was performed.
3. Suppose she ignores the conflict and notarizes anyway. What records should she make, and what risks follow?
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If she proceeds despite the conflict, she must still complete a proper acknowledgment certificate, affix her compliant seal, and record the act in her journal: date, type of act, signer's name and address, identification presented, and fee charged. But recording the act does not cure the conflict. Risks include an administrative complaint leading to suspension or revocation, civil liability to persons harmed, and a challenge to the deed's validity or recording. The journal entry may also become evidence against her. The better course is to decline before any certificate or journal entry is made.