Authority relative to this agreement: Overview, definition, and example
What is authority relative to this agreement?
Authority relative to this agreement refers to a representation or warranty in a contract where a party affirms that it has the legal power, capacity, and authority to enter into the agreement and perform its obligations under its terms. This provision ensures that the entity or individual signing the agreement is properly authorized and has obtained all necessary approvals or consents to bind themselves or their organization.
For example, a corporation entering into a merger agreement might represent that its board of directors has approved the transaction, giving it the authority to execute the agreement.
Why is authority relative to this agreement important?
This provision is important because it provides assurance to the other party that the agreement is legally valid and enforceable. It reduces the risk of disputes arising from claims that one party lacked the authority to enter into the agreement or fulfill its obligations.
For businesses, this representation is critical to establishing trust and ensuring compliance with internal governance requirements. For counterparties, it guarantees that the agreement is binding and enforceable against the other party.
Understanding authority relative to this agreement through an example
Imagine a publicly traded company enters into a partnership agreement. The agreement includes a clause stating that the company’s board of directors has approved the agreement and authorized its CEO to execute it. This assurance ensures that the company is legally bound by the terms of the partnership.
In another example, an individual acting as an agent for a company signs a supply agreement. The authority relative to this agreement clause requires the individual to confirm that they have the proper authority to bind the company to the contract. Without this confirmation, the agreement might be challenged as unenforceable.
An example of an authority relative to this agreement clause
Here’s how an authority relative to this agreement clause might appear in a contract:
“Each Party represents and warrants that it has full legal right, power, and authority to enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated herein. All necessary approvals and consents have been obtained, and this Agreement constitutes a valid and binding obligation of such Party, enforceable in accordance with its terms.”
Conclusion
The authority relative to this agreement provision is essential to ensuring that parties entering into a contract have the legal capacity and authorization to do so. For businesses, it confirms compliance with governance requirements and provides legal certainty. For counterparties, it minimizes risks of unenforceability and establishes confidence in the transaction. Including a clear authority clause in agreements helps protect the interests of all parties involved.
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.