Authority: Overview, definition, and example
What is authority in a contract?
Authority in a contract refers to the legal power or capacity of a party to enter into and bind themselves or their organization to the terms of the agreement. An authority clause often confirms that the individuals signing the contract have the proper authorization to do so on behalf of their respective entities, ensuring the contract is valid and enforceable.
For example, a sales agreement might include a statement that the signatories are authorized to act on behalf of their companies.
Why is authority important?
Authority is important because it ensures that the individuals entering into a contract have the legal right to bind their organization to its terms. This protects both parties from disputes about whether the agreement was validly executed. Without proper authority, a contract could be challenged or deemed unenforceable.
For SMBs, an authority clause provides confidence that the other party is legally bound by the agreement and helps avoid complications or disputes about the validity of the contract.
Understanding authority through an example
Imagine a service agreement between a marketing agency and a client company. The authority clause might state:
- “Each Party represents and warrants that the individual signing this Agreement on its behalf is duly authorized to execute and deliver this Agreement and to bind the Party to its terms.”
This ensures that the contract is binding and enforceable.
An example of an authority clause
Here’s how an authority clause might appear in a contract:
“Each Party represents and warrants that it has the full power and authority to enter into this Agreement and to perform its obligations hereunder. The individuals signing below represent and warrant that they are duly authorized to execute this Agreement on behalf of their respective organizations.”
Conclusion
The authority clause ensures that the individuals signing a contract have the legal right to bind their organization to its terms, safeguarding the validity and enforceability of the agreement. It provides a foundation of trust and accountability between the parties.
For SMBs, including a clear authority clause in contracts is essential for avoiding disputes about the legitimacy of the agreement and ensuring that all parties are legally committed to fulfilling their obligations. This provision is a critical safeguard in any professional or commercial contract.
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.