Legal Question in Business Law in California

Re: Authorized To Sign Contracts

You should have legal counsel in this matter.

An agent can be an authorized agent or an apparent (sometimes called ostensible) agent. You may succeed in proving that your employee had no actual authority to sign a new agreement on your company's behalf. But, if you clothed him with apparent authority and the vendor reasonably relied on this apparent authority you may nevertheless be stuck with the contract. Skillful handling of this case is required to chip away at any pretense of justification for relying on the signature of this former employee.

It has also been my experience with these types of companies that they are not always on the up and up. Your former employee may have been duped into signing the document. Obviously he should be found and questioned.

If you wish further consultation and assistance, feel free to contact us. We would be happy to help you through this unfortunate situation.

Re: Authorized To Sign Contracts

I know you probably don't want to hear this, but you should have an attorney review both agreements and take a look at the agency law issues. Even if you continue to represent yourself, it's probably worth paying for a couple of hours of attorney time to figure out exactly where you stand.

The short answer is no -- an employee generally cannot bind you to a contract without your authorization. However, this area of the law has nuances that need to be carefully analyzed by an attorney with experience in business and contract litigation.

Re: Authorized To Sign Contracts

Without contradicting anything in the earlier reply, I would like to add a couple of thoughts.

First, courts will recognize apparent authority as well as express authority and implied authority. Express authority flows from your giving the employee authority in writing, or telling the supplier that he has authority, etc.

Implied authority is what flows from position, e.g. a vice-president of purchasing would have implied authority flowing from that office.

Apparent authority flows from all other causes from which a supplier could REASONABLY deduce that the person was authorized, including the owner's subsequent ratification of the employee's conduct in prior transactions, or, for example, the person collecting tickets at the gate to the football stadium has apparent authority to admit ticketholders.

In court, the decision will probably depend upon whether it was reasonable under the circumstances for the vendor to believe the employee had authority to sign a long-term contract. You may win if the employee was a rank-and-file person like a receptionist or stockroom clerk. On the other hand, if the person was, or appeared to be, some kind of manager, it's a much tougher call.

In any event, even if the contract is upheld, the vendor may not get everything they're asking for in terms of relief. Small-claims courts are unpredictable, but generally the vendor would only recover lost profits and you would not be forced to take their services and pay the full amount of the contract for the remaining term.