Can I be held accountable for a contract signed by an unauthorized employee?

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Can I be held accountable for a contract signed by an unauthorized employee?

A very shady advertising company sent a fax that looked like a legitimate request for information for a free listing with a phone book. An employee signed it. She is a simple clerk who is in no way authorized to sign contracts for my company. I then received an invoice from a different company telling me I owe them $1,188 and now have a 2 year contract with them. Is that legal?

Asked on March 21, 2012 under Business Law, Massachusetts

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

There is no simple answer. Sometimes, an employee who lacks actual power or authority can still bind their employer or business if, to the outside world, the person would have appeared to have authority. This is called "apparent authority"; third parties are allowed to rely on representations or appearances of authority, IF it is reasonable to due so, and are not required to verify each employee's authority before entering into a contract. So much will depend on the specific facts, including how the employee signed or identified herself in executing the contract, for purposes of determining whether it was reasonable to conclude she could have authority to bind your business.

Even if she might be considered to have apparent authority:

1) If the contract is sufficiently misleading, you have may have grounds to rescind it under the doctrines of "unilateral mistake" or "fraud." This requires not just that it was obtuse or difficult to  understand, but that it was sent/communicated/written/etc. in such fashion as to be deliberately misleading.

2) You could potentially hold your clerk liable for her actions and seek recovery of the cost from her. (Note: you can't simply withhold the money from her paycheck--you'd have to sue and prove that she negligently acted beyond the scope of her authority.)


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