Interlegal consulted the client upon the contract entered into by unauthorized person

The Client applied to Interlegal for analyzing legal effects of entry into a contract by an unauthorized person. Our experts drafted a legal opinion and provided relevant comments and recommendations.

A contract on supply of goods was entered into and signed by the Client’s representative. Later, this employee left his office and failed to notify his successor about this contract.

The other party demanded performance of the contract, but the Client stated that the above contract was not signed directly by the entity director; therefore, the contract is not deemed as entered into.

Under English law, the fact of signing of a contract by a person not authorized to represent a party can have legal effects for validity and enforceability of the contract. Legal principles governing such situations include the doctrine of agency and rules regarding authority of certain persons to enter into contracts on behalf of others.

The company signing the contract is usually fully obliged to perform it, regardless of whether it was signed by director or by secretary. Under English law, there are several types of employee’s authorities to fulfill his/her obligations to the company where (s)he is employed: actual authority and implied authority. If the signatory has one of the above authorities, the contract shall be deemed as valid and duly signed on behalf of a legal entity. Rarely the employee acting in good faith on behalf of the company is not covered at least by one of such categories and it is very difficult to prove the opposite.

As shown by case Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1967], the contract was deemed as valid even though it was signed by an unauthorized party to the company; as a result the defendant was liable to pay royalties in favor of the claimant.

However, special attention should be drawn to the case when the party by its actions can ratify a contract signed by an unauthorized person. Later, it turned out that the Client ratified the contract by accepting part of the goods thereunder, i.e. has accepted these Contracts and their terms by its direct actions.

Interlegal partner Alexey Remeslo and junior lawyer Larysa Karakach led the legal consulting.