Contracts Can Seem Contradictory
It’s pretty easy to understand why contracts are often confusing. After all, contracts can include clauses that allow opposing sides to make contrary assertions about the meaning of one or more of the clauses in the contract.
When a contract comes under fire, and the amount in controversy increases, so do opposing counsels’ arguments about such things as the meanings of “a,” “the” and the placement of colons, commas, semicolons and other punctuation.
Politicians and lawmakers (most of whom are lawyers) have argued over the meaning of the word “is.” In a civil trial, both sides have plausible arguments, and the jury decides who is more believable.
With this real-world reality in mind, most companies strive to provide their sales force with the best “boiler plate” contracts. However, those can pose their own challenges.
Boiler Plate Contracts
Although, our company’s “Boiler Plate” contracts have served us well – we now have a new situation…
The New Situation
Our Company’s Region 1 representative executed a contract with a new Lexington, Kentucky company for 1 MM Gizmos. We ordered 1 MM Gizmos from our supplier F.O.B. origin. The new company is refusing to pay an upfront deposit as required by our “boiler plate” contract. In addition, this new company indicated it considered all “boiler plate” contracts “null and void.”
We have an agreement signed by the new company and our Region 1 representative. We gave the Region 1 representative the authority to execute the “boiler plate” contracts for our company. Our attorneys inform us the agreement is “solid.” Our Region 1 representative tells us that he and the other signatory were in the signatory’s office on the premises of the new customer when they both signed the contract.
Is the Contract Enforceable?
For there to be a valid contract, each signatory must have the authority to bind their respective companies to the agreement. Whether the agent of a company has the authority to bind the company is factually dependent.
Corporations
- As a general rule, the President, CEO or COO has the designated explicit authority to bind the corporation to a contract. If the customer’s signatory was a President, CEO or COO, then the contract is likely valid.
- Agents such as the CFO and Vice Presidents can be granted actual authority to bind the corporation to a contract. If the customer’s signatory was one of these agents, the contract is likely valid.
- Agents such as the chief of marketing or chief of engineering may have either actual authority or implicit authority to bind the corporation to a contract. If the customer’s signatory did not have actual authority, but a pattern of behaviors can prove that the customer’s agent had a history of executing contracts for the customer, the contract would likely be held valid at trial.
- A midlevel marking manager would not likely have explicit or implicit authority to bind the corporation to a contract and the contract with the customer would be invalid.
Limited Liability Companies, Professional Limited Liability Companies, Limited Liability Partnerships
- As a general rule, the designated Manager or Managing Member has the explicit authority to bind the limited liability company to a contract. If the customer’s signatory was the Manager or Managing Member, then the contract is likely valid.
- Agents can be granted actual authority to bind the limited liability company to a contract. If the customer’s signatory was one of these designated agents, the contract is likely valid.
- It is possible to prove an agent’s implicit pattern of behaviors that the customer’s signatory had a history of executing contracts for the customer. With such proof, the contract would likely be held valid at trial.
General Partnerships
- General partners are jointly and severally liable. Each general partner can bind the partnership to a contract.
- Agents can be granted actual authority to bind the general partnership to a contract. If the customer’s signatory was one of these designated agents, the contract is likely valid.
Do you have questions about contracts? We can help. Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.
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