by Viktoriya Badoeva and Michele Cea
A recent court decision from New York-Utopia Home Care Inc. v. Revival Home Care Inc. highlights what happens when an employee signs on a company’s behalf without authority to do so.
In this case, Revival Home Care claimed that Utopia Home Care had failed to timely submit its invoices for the services rendered to Revival Home Care, and therefore was not entitled to payment for such services.
In support of its argument, Revival Home Care referred to the amended contract between Revival Home Care and Utopia Home Care, which stated that if the invoices were not submitted within 30 days after Utopia had rendered the services, Utopia would not get paid.
Unfortunately for Revival, the employee who had signed this amended contract had not been authorized to sign binding agreements on behalf of the company.
Lessons learnt from Utopia. Contract Advice for Small Business Owners
When running a small business, owners should expressly communicate to employees who is authorized to sign contracts. Likewise, business owners should communicate to third-parties dealing with the company, information on who is authorized to sign all legal contracts on behalf of the company.
In Utopia Home Care Inc. v. Revival Home Care Inc., Utopia won the case. Nevertheless it was still a wake-up call for the small business to pay closer attention to who signs its legal contracts.
Communication in any company or any relationship should be clear, especially in legal matters. Management or any authority should always double-check signatures and invoices.
An employee who assumes they have authority can get you in trouble with the law and create confusion between the business and a third party company. It should always be clear who has the authority within the company to make binding agreements.
A great way to avoid the courtroom is to create an oversight process to make sure authorizations of the contracts are correct. This will help keep track of any binding contracts as well as invoice due dates.
About Cea Badoeva Law
Cea Badoeva Law Firm counsels business owners and entrepreneurs on a broad range of transactional and business matters including: Business start-up, Corporate formation and organization, Corporate governance, Contracts and commercial transactions, Business immigration.