Here’s a usage I haven’t written about before: placing under the contract signature block of an corporation, below the signature line, the notation I have authority to bind the corporation.
Some wrinkles: When a signature block provides for two signatures, the notation is in the plural: We have authority to bind the corporation. Sometimes corporation is given a capital C, but that would seem inappropriate, as in the contracts in question corporation isn’t used as a defined term. And I’ve seen the variant I have authority to bind the organization used when the signature block is for a limited liability company.
This usage isn’t common in contracts drafted by U.S.-based lawyers: the singular form occurs in around thirty contracts filed in the past year on the U.S. Securities and Exchange Commission’s EDGAR system. Roughly half of those contracts involved a Canadian company, so this would appear to be another instance of a usage that’s particularly popular in Canada. (See this April 2008 blog post regarding another such usage, dated for reference.)
This usage addresses a standard concern of contract parties—that whoever signs on behalf of an entity on the other side of a deal be authorized to do so. Most often you see this issue addressed in a representation by the entity, but that’s rather paradoxical: if a contract cannot be enforced against an entity because the person who signed on behalf of that entity wasn’t authorized, then the representation as to authorization will be unenforceable too. The same goes for addressing authorization in the concluding clause (see MSCD 4.20).
Is the notation I have authority to bind the corporation a useful way of addressing authorization? I don’t think so. It might give you some sort of cause of action—albeit a murky one—against an individual who turns out not to have been authorized, but it’s very unlikely that would constitute a worthwhile remedy. If you have any concerns regarding authorization, you should instead insist on having the entity provide you with evidence establishing authorization, namely a consent by the board of directors or other appropriate governing body.
19 thoughts on ““I Have Authority to Bind the Corporation””
If the contract is one that will be recorded in countries other than the U.S., there is an advantage. I recently had a client project that involved recording an assignment agreement in a number of countries. In several instances, we had to create a separate document and get it signed by both parties, because the local laws would not accept the original signatures which did not have a statement that the signer had authority to sign.
Sometimes, when I feel that a deal is being done by someone on the other side who might not have authority, I’ll drop in something like that, especially if it is a letter agreement. I’ll use a block above their counter-signature that reads something like: “Accepted for [whoever], whom I have express authority to bind:”
I know it’s not going to get me a cause of action. But it might prompt them to get the agreement signed by someone with real authority.
In his comment, Richard mentions laws that require a statement that the person signing had authority. Can anyone provide any information about any such laws? Ken
Ken, in my most recent project, these were trademark assignments being recorded in countries worldwide. So these were the statutes regarding recording those assignments. For example, in India, in addition to a Deed of Assignment, our client had to sign a separate affidavit which included a statement that “I have been associated with my Company for many years now and by virtue of my position as aforesaid I have full access to all the records and books of my Company and am competent and authorized to make this Affidavit on behalf of my Company.”
I think that, in agreement with Chris, this is most valuable as a mind-focusing exercise, though if there is any doubt it seems a poor substitute for just asking the question.
I agree that any recourse against a rogue signer is unlikely to be of much practical use. If they don’t have the authority, they probably aren’t important enough to sue. ;)
This reminds me of a frquently-seen warranty in a consumer contract, a statement that the party is old enough to enter into an enforceable contract. If the person is of age, the representation is moot. If the person has not reached majority, the breached representation, along with the rest of the contract, is enenforceable (or, more correctly, voidable by the minor). So, what end was served by that exercise? (Certainly not education of the minor, since she’s not punished by her willingness to breach.)
Ken, in response to your questions about laws, in the UK execution of English law deeds by foreign companies is governed by the “Foreign Companies (Execution of Documents) Regulations”. One form of approved execution provides for a signatory to assert that they are acting under the authority of that company. As I recall this then legally allows the counterparty to make certain assumptions about validity, under the UK Companies Act. Just a guess, but I would suspect in various common law countries (incl Canada) most statements regarding signing authority are based on a relevant statute.
Ken, what about the issue of apparent authority? If my contract contains a rep that my counterparty has authorized the agreement and another that confirms that the party executing it has the authority to do so, surely I am entitled to rely on those reps such that the counterparty cannot later argue that it has no duties under the contract because it was never authorized. Right? And, of course, this issue is one where in-house counsel earns its money, for we have to ensure due authorization and we are often asked to confirm it in writing via an in-house opinion.
Scott: Imagine Sally Swindler convinces someone that she’s an employee of Acme, and she signs a contract on behalf of Acme that includes the provisions you mention. Absent any conduct by Acme that a reasonable person would understand as conferring authority on Sally, why should Acme be bound by that contract? Ken
Ken, I think that if your counterparty is a known corporation, and the person with whom you are negotiating is known to be that company’s agent for purposes of negotiation, and that person tells you he has the authority to bind the company, then I think you can rely on that. Your hypothectical assumes fraud where the defrauded party has done nothing to confirm the agency relationship. In other words, if my employer (a corporation) knowingly allows me to negotiate contracts on its behalf, it cannot later deny obligations under a contract I signed on its behalf – that’s more an estoppel argument than an apparent authority argument but I think the point is the same. We can’t operate efficiently if we have to vet every act of every corporate agent.
Richard Schafer, could the same end be achieved by a notarial acknowledgement?
Scott W. may be correct, though, assuming he is, if there is enough to establish the apparent authority of the person signing the document through the conduct of the company, is there anything further added by the representation that the signer has that authority?
Similarly, if the agreement has not been approved but the counterparty can rely on the apparent authority of the person signing it to conclude that it has been, do they get anything extra by the representation that the agreement has been authorised by the company?
I think the answer is no, but I am far from sure – there may be (useful) technical differences.
I can’t speak for every country, but we’ve certainly been told by some associates that if the notarial statement clearly sets out the authority of the person, that’s acceptable, even if the body of the agreement doesn’t. But it may depend on the wording of the notarial certificate. E.g., if the certificate says “X is known to be the Y of ABC Corporation, and states that he has authority to sign this agreement” that will probably work. But if the statement leaves out X’s title, it might not.
In Mexico, the law requieres that legal entities grant powers of attorney to the people that will represent them in agreements and before third parties… this is different in the US but, nevertheless, the Mexican way also has its flaws… lets imagine a POA that was granted 5 years ago… how can I know that the POA was not revoked prior to the execution of the agreement??? If the revoking of the POA was registered before the Public Registry of Commerce you may notice but, honestly it is not customary for a counterpart to go check the Public Registry…
I guess, to some extend we must rely in the representations of the parties…
Richard, the most common form of acknowledgement in Ohio is the statutory short form: “[County, state] The foregoing instrument was acknowledged before me the _____ day of ________________, 200__, by [name of individual] the [title] of [name of entity] a [type of entity, including the jurisdiction where it was formed], on behalf of the [type of entity]. [signature, title, printed name and seal of person taking acknowledgment, and expiration date of person’s commission]
Jorge, in a state that has adopted the Uniform Recognition of Acknowledgments Act, an acknowledgment by the attorney in fact would give you at least some assurance that the POA had not been revoked. See e.g. Ohio Rev. Code 147.541 : “The words “acknowledged before me” means that:
(A) The person acknowledging appeared before the person taking the acknowledgment;
(B) He acknowledged he executed the instrument;
(C) In the case of:
(2) A corporation, the officer or agent acknowledged he held the position or title set forth in the instrument and certificate, he signed the instrument on behalf of the corporation by proper authority, and the instrument was the act of the corporation for the purpose therein stated;
(4) A person acknowledging as principal by an attorney in fact, he executed the instrument by proper authority as the act of the principal for the purposes therein stated;
(D) The person taking the acknowledgment either knew or had satisfactory evidence that the person acknowledging was the person named in the instrument or certificate.”
Note Section 107 of the New York Business Corporations Law:
§ 107. Corporate seal as evidence.
The presence of the corporate seal on a written instrument purporting to be executed by authority of a domestic or foreign corporation shall be prima facie evidence that the instrument was so executed.
So basically (assuming New York law governs) it shifts the burden of proof onto whoever would argue the signer’s lack of authority.
Corporations are fictitious entities and since they have no reasoning minds they can’t lawfully contract.
I have the authority to bind the corporation ( first time use)
Our firm, Leo Alarie and Sons Limited was involved in a lawsuit brought on by McIntyre and Associates in 1986 over claims for additional costs related to a blasting contract. We came up with an agreement to pay out some $300 k to the plaintiff immediately but in turn we wanted to limit our liability to certain issues. Rather than wait for a “Corporate Seal ” to come down from Kirkland Lake to Thunder Bay, I came up with the wording “I have the authority to bind the corporation” figuring that if such was not the case we could sue the signer for misrepresentation and all costs flowing from that. Our firm’s lawyers accepted the wording and thought it was a good idea. The plaintiff representative and his lawyer agreed to to sign off on it.
As far as I know this was the first time the useage occurred in Canada. Once we got the signed agreement, we transferred the funds and the plaintiff lifted their lien. Our Client Lac Minerals was then in a position fo keep paying us for the execution of our ongoing miniing contract
At the time I was manager of our Marathon office and had been charged to get this lien removed.