Legal Question in Business Law in California

Yes. The legal area called "agency" or "the law of agency" - a very broad topic - has a lot to say about the power of an employee to bind the employer to a contract. Sometimes they can, other times they cannot. Even if the employee lacks specific or actual authority, there is also implied authority and ostensible authority. There are a few statutes covering agent authority, and loads of case law, going back centuries, that guide judges in ruling on agency questions such as whether an employee had sufficient authority to bind his corporate employer.

The California statutes are mostly found in Civil Code sections 2295 through 2357, with 2304 to 2326 covering the matter of an agent's authority to bind the principal. The statutes are mostly short and easy to read, but applying them accrurately is probably going to take a lawyer's education and experience.

Nevertheless, if the "rogue employee" was in a private office, sitting behind a massive oak desk with a sign reading "vice president of purchasing," the employee doubtless had ostensible authority and the employer will be bound. At the other extreme, if the employee was in overalls, emptying wastebaskets at 7 p.m., no vendor would be entitled to allege the employee had ostensible authority to commit the employer to a large contract.

Other issues would arise at trial as well as the agency issue. These include whether your firm failed to stop the delivery of the services immediately upon learning of the unauthorized contract, or continued to accept the benefits. In the latter case, there are legal principles that could oblige you to pay the fair value of the services rendered, despite the absence of an enforceable contract - research the legal Latin phrase "quantum valebat" for information.

Your lack of knowledge that the company was receiving this service certainly has value as a defense, but whether it is effective to avoid liability would depend upon whether the delivery of the service was sneaky and hidden, or whether you should have noticed its delivery if you had been reasonably diligent.

I cannot predict the outcome of a lawsuit without more information, but the above discussion should give you at least some clue as to the validity of the suit. As you may gather, agency cases are quite fact-sensitive, and a lawyer could give you a much better analysis in a face to face discussion than on a bulletin board. I'm not too far away and I would be pleased to give you a representation proposal if you are sued.

They have arguments they can make under "apparent authority" - I need to know your facts to know if they might apply.

Best,

Daniel Bakondi, Esq.

[email protected]

415-450-0424

The Law Office of Daniel Bakondi, APLC

870 Market Street, Suite 1161

San Francisco CA 94102

http://www.danielbakondi.com

IMPORTANT NOTICE: This communication may contain confidential information, privileged information, or attorney work product. If you are not the intended recipient or received this message in error, any use or distribution of this message is strictly prohibited and unlawful. Please notify the sender immediately, and delete this message. No attorney-client nor confidential relationship is created through this communication. Nothing communicated or provided constitutes legal advice nor a legal opinion unless it so specifies and written agreement for attorney services has been entered into. Attorney licensed in California only. Your issue may be time sensitive and may result in loss of rights if you do not act in time. Thank you.