ATOT Armchair lawyers... enter here.

[SunnyD]

Quick legalish question regarding business contract validity:

Is a contract involving a business enforceable if it was executed by an individual who was:

A) Never a principal of said business

and

B) Never authorized to make or execute such decisions by said business's principal

and

C) Said individual's name is the signatory executing the contract in the name of the business

and

D) Technically never even an employee of said business

I'm guessing the answer here is fairly obvious. Just want to get the official unofficial ATOT Armchair Legal Team's opinion before we suggest to get said business's lawyers to tell their lawyers to go pound sand.

 

[IronWing]

Did the business for whom the the signatory purported to represent on the contract (god, I can't believe I wrote that) ever give any indication to the other party that the signatory could execute a contract on their behalf?

IMHO, if a reasonable person, in viewing the actions or inaction of the company, could infer that the signatory represented the company, then the company might be on the hook wrt the contract. If the company was damaged, it might seek recourse from the signatory.

 

[SunnyD]

Did the business for whom the the signatory purported to represent on the contract (god, I can't believe I wrote that) ever give any indication to the other party that the signatory could execute a contract on their behalf?

At best the conversation would have been phrased something similar to "You can handle day to day operations, but any business decisions would still need to be approved by <owner>." (Retail small business)

Those approvals generally would have never happened, or requests would purposefully been hidden from the principal. This individual truly did believe they themself to be the principle of the company during their tenure. After the fact the owner made it clear that this was most definitely not the case and most of these actions would not have been authorized.

Going through some of the contracts the company is burdened with now, they are very burdensome for the company and we are now trying to figure out exactly how to dig out from this mess, preferably to avoid what would appear to be a likely bankruptcy situation in the near future if no action is taken in the meantime.

 

[IronWing]

At best the conversation would have been phrased something similar to "You can handle day to day operations, but any business decisions would still need to be approved by <owner>." (Retail small business)

Those approvals generally would have never happened, or requests would purposefully been hidden from the principal.

Going through some of the contracts the company is burdened with now, they are very burdensome for the company and we are now trying to figure out exactly how to dig out from this mess, preferably to avoid what would appear to be a likely bankruptcy situation in the near future if no action is taken in the meantime.

In my mind, the validity of the contracts doesn't turn so much on what the owner told the signatory but what impression the owner gave to the counter parties to the contracts. Seeking damages from the signatory for going beyond his/her delegated authority is a separate issue.

Edit: With your edits, it sounds to me like the contracts are likely valid and the path forward would be to sit down with the counter parties and try to re-negotiate the contracts to terms that allow the business to survive. The counter parties may decide that having a viable business to conduct future business with is worth whatever they might have to leave on the table.

 

[tynopik]

i cannot get stress this enough, get real legal advice

 

[IronWing]

i cannot get stress this enough, get real legal advice

This too. But he did ask for armchair lawyering so I try to accommodate.

 

[LevelSea]

Did the glove fit?

 

[Bird222]

In my mind, the validity of the contracts doesn't turn so much on what the owner told the signatory but what impression the owner gave to the counter parties to the contracts. Seeking damages from the signatory for going beyond his/her delegated authority is a separate issue.

Edit: With your edits, it sounds to me like the contracts are likely valid and the path forward would be to sit down with the counter parties and try to re-negotiate the contracts to terms that allow the business to survive. The counter parties may decide that having a viable business to conduct future business with is worth whatever they might have to leave on the table.

IANAL. However I agree with this. I think the business is on the hook for the contracts. The counter parties were reasonably assured that the employee was an agent of the company.

 

[SunnyD]

In my mind, the validity of the contracts doesn't turn so much on what the owner told the signatory but what impression the owner gave to the counter parties to the contracts. Seeking damages from the signatory for going beyond his/her delegated authority is a separate issue.

Edit: With your edits, it sounds to me like the contracts are likely valid and the path forward would be to sit down with the counter parties and try to re-negotiate the contracts to terms that allow the business to survive. The counter parties may decide that having a viable business to conduct future business with is worth whatever they might have to leave on the table.

Fair enough. Legally common sense usually doesn't mean much. From a lay perspective, I look at it as if the owner/principal had no idea this contract was going to happen and the owner/principal never endorsed the contract and the contract was ratified by the (non)employee in the name of the company, then the contract should technically fraudulent or at the very least void.

But then again from a legal standpoint I could see a lot of companies ducking behind this by having employees set up contracts and signing off on them and then they themselves backing out of the contracts saying "Nope, we didn't authorize them and that employee had no right to enter the company into a contract..."

But the situation here is a bit more definitive in that this individual definitely did not have authorization to negotiate or enter into contractual agreements on behalf of the company without authorization of the owner. The problem becomes now how to remedy this.

Yeah, it's a mess.

 

[Bird222]

Fair enough. Legally common sense usually doesn't mean much. From a lay perspective, I look at it as if the owner/principal had no idea this contract was going to happen and the owner/principal never endorsed the contract and the contract was ratified by the (non)employee in the name of the company, then the contract should technically fraudulent or at the very least void.

But then again from a legal standpoint I could see a lot of companies ducking behind this by having employees set up contracts and signing off on them and then they themselves backing out of the contracts saying "Nope, we didn't authorize them and that employee had no right to enter the company into a contract..."

But the situation here is a bit more definitive in that this individual definitely did not have authorization to negotiate or enter into contractual agreements on behalf of the company without authorization of the owner. The problem becomes now how to remedy this.

Yeah, it's a mess.

You also have to think that outside parties don't know who exactly is allowed to enter into agreements for the company. Like was said above, you need to try to renegotiate the contracts and then possibly sue the former employee (I have a feeling that probably won't do you much good).

 

[Jeeebus]

Google "apparent authority" + whatever state this contract was entered into.

 

[wabbitslayer]

thread devoid of any properly written IRAC answers.

You all fail.

 

[IronWing]

thread devoid of any properly written IRAC answers.

You all fail.

Is IRAC code for pancakes?

 

[ImpulsE69]

If it isn't signed in blood, it won't hold up in court.

 

[SunnyD]

If it isn't signed in blood, it won't hold up in court.

All female owned/run business. Trust me... it's signed in blood.