Who Can Sign Your Business Contracts? It Could be Anybody if You’re Not Careful
In a larger business, contracts are signed all the time. But with multiple employees, including corporate officers, who in the company can actually sign a contract for and on behalf of the company, binding the company?
It isn’t unusual for an owner or CEO or some other higher level executive, to learn that a contract was signed, binding the company, but that it was signed by a corporate officer or employee who had no authority to bind the company.
Apparent Authority
Whether your company has to honor the contract depends on a doctrine called apparent authority.
Outsiders—that is, people who sign contracts with your company—can, in some cases, rely upon the authority of the person signing a contract on behalf of your company, to be able to bind your company to the contract. This can happen when the person signing the contract for your company has apparent authority to act for and on behalf of your business.
The question is how it looks to the other side of the contract (the person or business not associated with your business). Did your business make it look like the employee had the ability to bind your company to a contract? Was it reasonable for the other side to the contract to believe that this person had the authority or legal ability to bind your company to the contract?
Your Actions Count
To get out of a contract you can say no, that the person signing was never actually given authority or permission by your company to sign an agreement. But the law will look at whether the circumstances make it look like he or she had the authority—even if the person had implied authority.
It doesn’t matter what the employee (the one actually signing the contract) did or said; what matters is what you, as the owner, president or CEO (or other high level position) of the company—did or did not do, that lead others to believe that a given employee had or has the ability to bind the company.
You, as the owner or high level executive of your company, can create apparent authority in many ways. For example, you may give employees titles that the outside world may see as someone who can bind the company to contracts.
You may tell others to “negotiate with my vice president,” or other employees, thus giving the impression that the person you’ve designated can bind the company.
Doing Nothing
Inaction can also create apparent authority. If you know that some employee is negotiating contracts, or helping craft and negotiate contractual language with outsiders, and you do nothing to stop or curtail that, you may be giving the other side of the contract the impression that the employee is authorized to sign the contract.
Craft corporate policies that keep your business safe. Call the West Palm Beach business litigation lawyers at Pike & Lustig today to help you draft business contracts.
