The concluding clause often says that the people signing the contract have been “duly authorized.” This is what MSCD says about that:
The body of the contract is a more sensible place than the concluding clause for statements of fact regarding authorization. But more generally, if you’re concerned whether the individual signing for the other party is authorized, having the contract state that they’re authorized should provide no reassurance. Instead, ask for confirmation, for example a board resolution.
In most commercial contexts, a board resolution would seem like overkill. I’ve asked around for other ways to address this issue, with little success. Until now. Here’s what André Zielke, a procurement specialist with the Government of Nova Scotia, said in an email to me after the recent “Drafting Clearer Contracts” seminar I did for them:
During the seminar, we chatted about how to make sure that whoever is signing a contract for the other party is authorized to sign.
As I mentioned, when I worked in a previous position in Germany, it was our practice that as soon as we began negotiations with a major supplier, we would ask them to provide us with a list of authorized employees, including specimen signatures and a statement of the scope of each person’s authority. We would subsequently use the list provided by a supplier to quickly determine whether a given contract with that supplier had been signed by an appropriate person.
I never encountered a supplier that was unwilling to provide such a list.
That seems like a great way to deal with this issue. What do you think?
I recently saw the issue addressed more assertively than usual. In a contract between a government agency and a vendor, the vendor’s signature block had this under it text that, among other things, said that anyone “who makes a false representation of authority may be subject to criminal prosecution” under a specified statute.
That might well make someone think twice about blithely signing a contract without checking on authorization, but I see two shortcomings. First, I suspect that when authorization is a problem, usually it’s not because the person signing intended to deceive the other party, but because the person signing wasn’t aware what authorization was required. And second, a remedy against the mook who signed the contract presumably wouldn’t be much of a remedy.
So an ounce of prevention is better than a threat of criminal prosecution.
If deception is involved, none of these strategies do a thing. And if there is no deception, why does the counterparty care? Is there a case where a company successfully disclaimed (after negotiation, clear intent, and perhaps reliance) on the basis of lack of formal signing authority? Canada has something called the indoor management rule to prevent such nonsense. Is this novel to Canada?
There’s a small mountain of caselaw on apparent authority. But I haven’t looked at it, and I’d rather not have to.
I guess there would have to be, and someone must have been successful in disclaiming. Dumb question. In respect of the list, that makes sense in a repeating relationship involving a lot of different signatories/departments. In a one-off transaction, my solution was always to request/require signature by an officer or someone otherwise comfortably up the hierarchy.
From a reader’s email to me:
The suggestion to request a list of authorized signatories sounds like a good one, but it would be particularly important for a German company (which is where the example originated). As you probably know, Germany maintains a couple “Handelsregisters” listing duly formed companies, corporations, and charitable/non-profit entities, known as HRA and HRB. The official entries include information on who is authorized to sign contracts for that entity, and no one except those listed on the official registers can sign. So the issue has particular importance in Germany, but the suggestion to request a list of authorized signatories from the other party sounds like an approach that could work well in many other contexts.
I can envision some pushback about providing proof of authorization like a board resolution. Having not delved into the mountain of apparent authority case law in quite some time, I advise my clients to be clear with their vendors who has authority to negotiate and sign deals. Tasks often get delegated, but be clear who can do what. It is after all the most transparent way of conducting business.
I have run into this problem of apparent authority more often in the context of non-profits, particularly those non-profits who have a working board, but no staff. I have advised my clients who work with non-profit boards to have the non-profit designate a single point of contact who is authorized to speak for and bind the non-profit. This addition to my clients’ contract template was more to prevent getting 10 different bits of (often conflicting) feedback and avoid my clients having to mediate a board disagreement.
So, by having my clients request a single point of contact from their customers we have at least some modicum of comfort that the person my client is dealing with has some authority to act and bind the customer. It may not be actual authority as the case law might suggest, but at least my clients have the comfort of knowing that if the designated agent makes a mistake that my clients have to correct, my clients will get paid for their time.
For limited liability companies, I suggest a simple check. Many states require the organizer to state in the articles of organization whether the company is manager manged or member managed. This is a public document and easy to check. Many (if not all) state statutes provide that a member has no apparent authority to bind the company if it is manager managed. Similarly, state statutes typically provide that only members have apparent authority when the company is member managed (and thus officers/managers will have authority to bind the company only if given actual authority). So, I advise my clients to first affirm whether the company is member managed or manager managed, since this determines apparent authority by statute. In large transactions, I trust only actual authority. My clients are apparently smaller than yours since we routinely require a “resolution.” States seem to be eliminating a manager/member statement in the Articles (e.g. Delaware) in which case the manager vs. member management is determined in the operating agreement. This is where the challenge begins.
I have always thought that contract language stating that the signatory has authority is laughable. Bob signs the document stating that Bob has authority ? (apologies to all Bobs)
Thank you for this! And I’m glad you share my views about Bob.