Monday, July 22, 2013

No Contract Signature on Behalf of LLC

Dear Rich: What happens if a person working for an LLC enters into a licensing agreement but doesn't sign the agreement on behalf of the LLC. There is no listing of the LLC above the signature line. Is the LLC going to be bound to the agreement or is just the person who signed going to be bound? Three factors affect whether an entity is contractually bound: the language of the agreement (Does it name the entity as a party? Is the entity listed in the signature block?); the intention of the parties (if the contract language is ambiguous, did the parties intend to bind the entity?); and whether the person signing the agreement has authority to bind the entity. In some cases, this last factor may turn out to be the most important because if the signing party cannot bind the entity, the entity usually won't have any obligations under the agreement.
Who has authority?  To bind the entity, the signing party must have authority (or apparent authority). If you have doubts about whether someone has authority to sign an agreement, you should require evidence of that authority, usually in the form of a corporate resolution or similar documentation.Occasionally, language may be included in an agreement that states something like, "I have authority to sign this agreement." Alas, including that language does not bind the entity. At best, it allows you to sue the signing individual for misrepresentation.