Contract law question

[HappyMidget]

One from the wife for anyone in the know:

If a company contract is signed by an employee without power of attorney, is it legally binding? For example, a sales contract. And if it is legally binding, what exactly is the purpose of the power of attorney and what prevents a random employee making unauthorised commitments in their firm's name?

[blindswelledrat]

HappyMidget said:

One from the wife for anyone in the know:

If a company contract is signed by an employee without power of attorney, is it legally binding? For example, a sales contract. And if it is legally binding, what exactly is the purpose of the power of attorney and what prevents a random employee making unauthorised commitments in their firm's name?

I am not a lawyer, but I have had this situation before as a supplier.
Treat this as a guide rather than the answer because I think it is more complex than yes or no.
Roughly: was it reasonable for the supplier to believe that the person who ordered the goods had the right to do so?
So if the office cleaner has done it, and the supplier knew it was the office cleaner, then no it isn't binding.
If a director did it, then yes it would be.

I *think* that mostly the onus is on the company with the rogue employee but if the supplier has been negligent in who it has allowed to book then the liability swings.

Breadvan will probably come on shortly to say that this is nonsense.

[HappyMidget]

Cheers BSW, I look forward to the ensuing ianal arguments

[Soov535]

HappyMidget said:

One from the wife for anyone in the know:

If a company contract is signed by an employee without power of attorney, is it legally binding? For example, a sales contract. And if it is legally binding, what exactly is the purpose of the power of attorney and what prevents a random employee making unauthorised commitments in their firm's name?

Depends.

Was it reasonable for the other party to think that the person signing had authority?

Obviously if Glennis the cleaner signs then no. If it's a reasonable senior sales employee, probably yes.


"Ostensible authority" - Google is your friend.

[anonymous-user]

HappyMidget said:

One from the wife for anyone in the know:

If a company contract is signed by an employee without power of attorney, is it legally binding? For example, a sales contract. And if it is legally binding, what exactly is the purpose of the power of attorney and what prevents a random employee making unauthorised commitments in their firm's name?

Ignore the PoA.

The employee will bind his employer if he has authority to do so. Authority can be actual or apparent (aka ostensible).

Actual authority is based on an agreement between employer and employee that the employee should have authority to bind the employer. Like any contract, the real scope of the authority granted by an agreement turns on the express and the implied terms of the agreement.

Apparent authority arises where there is no actual authority, but the employer has held the employee out to the world as able to bind the employer. It rests on holding out by the employer. An employee can't give themselves apparent authority, eg simply by claiming they are authorized.

Back to the PoA: that might be the source of the employee's actual authority. But his apparent authority may be wider. Eg: in a shop an employee is authorized to sell TVs but not sofas. That's his actual authority. But by letting him loose on the shop floor where he can interact with customers buying TVs, sofas, beds, underwear etc, with no overt indications as to what he can't do, his employer holds him out as having authority to sell any goods in the shop. So if he sells a £3000 sofa for £1000, the customer gets lucky.

[dacouch]

There's a thread on Pepipoo about a supplier having issues with a business customer for exactly this reason, the court case is imminent.

http://forums.pepipoo.com/index.php?showtopic=1010...

[HappyMidget]

Cheers all, wife appreciates the answers.

[blindswelledrat]

Greg66 said:

Apparent authority arises where there is no actual authority, but the employer has held the employee out to the world as able to bind the employer. It rests on holding out by the employer. An employee can't give themselves apparent authority, eg simply by claiming they are authorized.
.

What is the test for this then? How must an employer "hold out" an employee for it to be binding?
Will job titles suffice?

[vanordinaire]

We had an example of this a few years ago. A senior manager was leaving but just before he went he signed up to 3 long term maintenance contracts for stuff that wasn't required (lift inspections which were already covered by another contractor, maintenance for a system which was under manufacturer's guarantee, and a roof inspection regime which was already covered by our own internal staff. He didn't tell anyone about the contracts before he left and the first we knew about them was when we received invoices a year later. Each contract was for tens of thousands, well over his authorised spend.
We argued against the invoices on the grounds that the employee had not been authorised to order the 'work' but were given legal advice that the contractors had no way of knowing this and had carried out the contracts in good faith and therefore we were bound to pay.
In this particular case we suspected but couldn't prove fraud and we negotiated a compromise solution with the 'creditors' as when they went into it, we could prove they hadn't been on site some of the times they said they had been, but if they had been a bit more diligent, we would have been stuck with some nasty debt.

[anonymous-user]

blindswelledrat said:

Greg66 said:

Apparent authority arises where there is no actual authority, but the employer has held the employee out to the world as able to bind the employer. It rests on holding out by the employer. An employee can't give themselves apparent authority, eg simply by claiming they are authorized.
.

What is the test for this then? How must an employer "hold out" an employee for it to be binding?
Will job titles suffice?

TBH it is quite a flexible test. The employer can hold out by words or conduct - titles, positions, an so on could all amount to the requisite holding out, or giving someone a role where in the normal course people would expect a certain level of authority. Generally speaking, English law tends to be protective of innocent third parties who deal in good faith, which tends to make this area quite forgiving for the person dealing with the employee.

[Jasandjules]

blindswelledrat said:

What is the test for this then? How must an employer "hold out" an employee for it to be binding?
Will job titles suffice?

It falls to the facts.

For example, if you are in the building and the cleaning lady suggests she will sell you 100 boxes of whatever for Y price, it is unlikely to be considered binding.

However, if the chap who is sat at the desk with "Sales Director" on the door says the same thing.....

[blueg33]

I have learned that with anything important its best to check that the person is authorised. I have seem a number of occasions with the public sector where the signatory has no authority to sign.