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Example from https://www.lawinsider.com/clause/authority-to-sign

Authority to Sign. Each of the persons signing below on behalf of any party hereby represents and warrants that s/he or it is signing with full and complete authority to bind the party on whose behalf of whom s/he or it is signing, to each and every term of this Agreement.

I once heard the point is that if the person signing doesn't have the authority to bind the company, then you can sue them instead of suing the company, which is presumably easier. Is this correct?

Wouldn't such a clause be desirable in any contract where someone is signing on behalf of a company?

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you can sue them instead of suing the company, which is presumably easier. Is this correct?

Not necessarily. Some scenarios where that presumption would be inaccurate are:

  • An impersonator who disappears. The court will eventually grant default judgment, and yet it will be very difficult or impracticable to actually recover losses that resulted from his misrepresentation(s).

  • A person with true authority to enter contracts on behalf of a company is murdered. The person's death gives the company the opportunity to [tortiously] deny that the murdered person was authorized to enter contracts. Disproving the company's misrepresentation only increases the hassle of litigation and discovery.

  • The company benefited from the contract falsely entered on its behalf. This enables to viably sue the company for unjust enrichment, in which case the advantage of suing the impersonator instead of suing the company is quite questionable.

Wouldn't such a clause be desirable in any contract where someone is signing on behalf of a company?

Yes, although a clause of that sort is unnecessary because the conduct could be actionable under one or multiple legal theories such as fraud, tortious interference with relation, or unjust enrichment, or by statute. Furthermore, the circumstances might warrant a finding of an implicit contract to which the company is a party, thereby defeating the allegation that the company did not actually enter the written contract.

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  • Whoever keeps downvoting answers should be less shady and make an effort to articulate why he presumes answers are wrong. – Iñaki Viggers Sep 12 '20 at 10:08
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The supermarket checkout operator has the authority to enter contracts for the sale of groceries. It’s unlikely they are an officer of the company. –

This is a good example of the problem.

Say a company charges 2 dollars for an apple. But a employee error makes it 1.

The 1 dollar sale is not actually legal. So the company can dispute the sale and the further away decisions are from corporate officers the more vague and uncertain their legality. If a corproate officer agrees in a contract to sell you something for 2 dollars, that is legal, everything else becomes unclear.

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A corporate officer is the only person legally allowed to sign contracts on behalf of the company. Anything else gets into murky waters.

Low level employees will not have the authority to create their own contracts. They will be carrying out orders and providing a standard form created by someone at a high level. Usually, there is a legal department in charge of this.

Within the legal department, there will be a few VP level executives. These are corporate officers who are legally shielded from being sued personally. Goldman Sachs makes everyone a VP and this has actually created legal problems.

Corporate officers can sign on behalf of a company without personal liability. Anyone else is usually going to be providing a contract approved through the legal department and written as if the VP was present.

Even though anyone can sign, the higher the status the clearer the responsibility, so if you read most contracts (supplier or employment contracts) you'll usually see a the company (not any specific person) as a signatory and the low level manager as a witness, and the actual contract will be written by somebody at the director or VP level or reviewed by them then printed thousands of times in a cookie cutter manner. The jr manager is just a witness.

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    "Corporate officers can sign on behalf of a company without personal liability." This isn't universally true, for example if the officer was acting in bad faith. There are also a lot of other people authorized to sign contracts other than corporate officers, usually the type of contract is specified, like an NDA can be signed by lower-level managers but monetary contracts need to be regional. Of course this depends on the size of the company as well... – Ron Beyer Sep 11 '20 at 15:13
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    This answer is not correct. Anyone with authority can sign, not just a "corporate officer." Authourity may be delegated to anyone the company designates. You would need a full time VP assigned only to document signatures! That's not practical. – acpilot Sep 11 '20 at 17:51
  • Clarified and added – Dan Sep 11 '20 at 19:12
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    The supermarket checkout operator has the authority to enter contracts for the sale of groceries. It’s unlikely they are an officer of the company. – Dale M Sep 11 '20 at 21:53

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