DELEGATING YOUR COMPANY’S SIGNATURE
As a business owner you may not be aware that you are not the only person who can legally bind your business. In fact, a person may bind your business under Florida law even when he or she does not have your express permission to bind your business under the law of apparent agency.
A Short Story of Good Intentions Gone Wrong.
Your new Vice-President of Advertising receives a call from an advertising agency offering to promote and advertise your company on the internet for a flat fee of $1,000.00 per month for the next twelve months. Excited by this opportunity, your new Vice-President requests a copy of the agreement and (after marginally skimming it), executes the agreement.
Thirty days later, you receive an invoice from this advertising company and immediately call in your new Vice-President of Advertising who proudly admits to signing the agreement. Despite your new employee’s intentions, you are concerned and now wonder whether you will have to pay this monthly invoice and the next eleven invoices.
What is an Apparent Agent
An apparent agent is a concept of contract law designed to protect contracting parties who honestly believed they entered into a contract with a person authorized to bind a third-party (also known as a principal).
Under the circumstances above, the advertising agency need only demonstrate (i) the existence of a direct or implied representation of agency by the company; (ii) reliance upon the representation and; (iii) that the reliance was to their detriment.
Applying the above circumstances:
it is reasonable to believe the Vice-President of Advertising, a title bestowed upon the employee by the employer, could sign advertising agreements on behalf of his employer. It is common-place in many businesses for a vice-president to enter into agreements, especially where related to their department. Therefore, the advertising agency relying upon the signature of the Vice-President of advertising may prove justifiable. Additionally, the advertising agency may be able to demonstrate substantial work (and expense) had been incurred in the implementation of this agreement.
In short, you may have a difficult time avoiding these next eleven payments under these circumstances.
How Can I Prevent This?
Sometimes the best defense is excellent planning. Defending a company out of an agency relationship, as in the example above, may prove difficult, but there may be certain ways to avoid the circumstances altogether.
As a business owner, creating an internal signature policy is an excellent first step. This policy goes towards advising your employees what they can and, more importantly, cannot sign on behalf of the company. These policies can also hold the employee accountable for violating this policy. A signature policy encourages communication within the company and allows ownership the freedom to bestow responsibilities on their employees in a structured fashion. Had such a policy been in place in the situation above, the new Vice-President may have never signed the agreement to begin with. If you are a business owner, you should take a careful look at your own internal policies to determine whether the creation of a corporate signatory policy is a good move for your business.