Authority of buyer: Overview, definition, and example
What is the authority of buyer?
The authority of buyer refers to the legal power or permission a buyer has to make decisions, enter into contracts, or take actions on behalf of themselves or their organization in a transaction. It defines the scope within which a buyer can act to purchase goods, services, or assets and can vary depending on the type of agreement, the buyer’s role, and whether they are acting individually or on behalf of a company.
In a business context, the buyer’s authority may be granted by their position within a company or through explicit delegation by an authorized representative, such as a manager or director. The extent of this authority is important to ensure that the buyer does not exceed the boundaries set by their organization or the seller.
Why is the authority of buyer important?
The authority of buyer is important because it ensures that transactions are conducted legally and that the buyer has the necessary permissions to commit the buyer or the company to a contractual agreement. Without clear authority, there is a risk that the transaction may not be valid, or that the buyer could face personal liability for actions outside their scope of authority.
For businesses, establishing clear authority for individuals acting as buyers helps prevent unauthorized deals, reduces legal risks, and ensures that all parties understand their rights and obligations. It also protects sellers by ensuring that the person with whom they are contracting is properly authorized to bind the buyer to the terms of the agreement.
Understanding authority of buyer through an example
Imagine a small business owner looking to purchase office equipment for their company. The business owner, as the decision-maker, has full authority to make the purchase and sign contracts on behalf of the business. However, if a manager or employee is tasked with the purchase, they may have limited authority—such as only being allowed to purchase items up to a certain value, or within specific parameters set by the business owner. If the manager goes beyond this limit, they may not have the authority to bind the business to the agreement, potentially making the purchase invalid.
In another example, a buyer at a large corporation negotiates and signs a contract for the supply of raw materials from a vendor. The buyer’s authority is typically granted by the company’s policies or by a senior executive. If the buyer has the proper authority, the company is legally bound by the agreement. However, if the buyer were acting without the necessary authority, the contract may be voidable, and the company could be at risk of facing legal consequences.
An example of an authority of buyer clause
Here’s how an authority of buyer clause might appear in a contract:
"The Buyer represents and warrants that they have full legal authority to enter into this Agreement and bind their organization to the terms set forth herein. In the event that the Buyer is acting on behalf of a company or entity, the Buyer further represents that they have obtained all necessary approvals and have the requisite authority from their organization to execute this Agreement."
Conclusion
The authority of buyer is a critical concept that ensures that individuals engaging in transactions or agreements have the proper legal power to do so. For businesses, clarifying and confirming the buyer’s authority helps prevent disputes, unauthorized actions, and potential legal risks. For buyers, understanding the scope of their authority ensures they are acting within their rights and are properly representing the interests of their company or organization.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.