Monday, April 11, 2011
There are two types of authority express or implied. Express means the corporation has granted that individual with authority to bind the Corporation. The Board of Directors of the Corporation will make a resolution to grant authority. For example, the Corporation may grant the Vice President of Procurement the authority to bind the corporation and be able to delegate signing authority within the procurement organization. Express authority only applies to the specific company that granted the authority. For example, the Vice President of Procurement would not have authority to sign contracts on behalf of a Subsidiary. The Subsidiary would need to grant that authority.
Implied authority may exist by the position of the signer or by previous dealings. An example of previous dealings would be if a corporation consistently performed on contracts that were signed by someone that didn’t have the authority thereby ratifying the authority, that type of behavior could estop or prevent them from arguing that the
Party didn’t have the authority and try to void the agreement. If an officer of the company is signing the contract they will have implied authority to bind the Supplier because of their position as an officer of the Corporation.
If a non-officer is signing the contract, including the words “duly authorized” as part of the signature block may show authority. If they represent that they have authority and do not, they can be personally liable.
The reason why you would want to verify authority is lack of capacity to sign an agreement such as not having the authority is a legal defense that can be used to void the agreement.
To make sure a party is authorized to sign a contract you may also ask for what is called a “Secretary’s Certificate”. The Corporate Secretary provides a certificate that an individual is authorized or they may provide a copy of a resolution from the Board of Directors granting authority as proof that the individual has the authority.