Legal Question in Business Law in California

Re: Contract still valid?

Contracts do not lose their validity due to a subsequent change in the status of the person signing. All three answers are correct. Another example of the principle is that a lease remains valid even if the tenant passes away before the lease runs out, and the dead tenant's estate is liable for the balance of the payments.

You didn't say what kind of company this is: a corporation, partnership, LLC, sole proprietorship, or something else. This may determine whether the company alone is liable on the contract, or whether the departed individual is also personally liable along with the company. However, in no case does the contract become unenforceable.

Re: Contract still valid?

Nice try. Assuming that the manager was authorized to enter contracts on the company's behalf, her signature bound the company, not her. The company remains a party to the contract regardless of her subsequent employment status.

Imagine if things worked the way you suggest. Every time such an employee resigned, all of the contracts he or she ever signed would suddenly become invalid -- and the other parties to those contracts likely wouldn't even know. The company would then have to renegotiate hundreds or even thousands of contracts simultaneously, losing many clients in the process and getting less favorable terms with many others. The problems such a resignation might cause would be so severe that these employees could essentially blackmail their employers by threatening to resign unless they got huge raises, bonuses, etc.

At the same time, a company that didn't like the terms it had previously accepted could get out of them by simply firing the person who signed those contracts. If you got a good deal on health insurance, for example, would you want to see that deal disappear just because the employee who signed off on it is fired, quits, retires, dies, etc.?

The reason we have contracts is so each party knows what he/she/it can expect from the others in the future. The system you envision would offer no such certainty. It would thus defeat much of the purpose contracts are designed to serve.

Re: Contract still valid?

There may be other basis.

Best,

Daniel Bakondi, Esq.

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Re: Contract still valid?

This is unlikely to work.

A manager/office of the company usually has either actual or apparent authority to enter into contracts on behalf of the company. It would lead to absurd results of the company wasn't bound by contracts just because a certain employee who executed the agreement on behalf of the company isn't around any longer.

So, the bottom line is - if the person had authority by the virtue of his position or by expressing vested with the authority to enter into that contract, the parties are bound.

Thanks,

Arkady Itkin

http://www.arkadylaw.com