Authority to execute agreement: Overview, definition, and example
What is authority to execute an agreement?
Authority to execute an agreement refers to a person’s legal power to sign a contract on behalf of a company, organization, or another party. It ensures that the person signing has the right to commit their company or entity to the terms of the agreement.
Without proper authority, a contract might not be legally binding. If someone signs an agreement without the right authorization, the other party could challenge its validity, leading to potential legal disputes or unenforceability.
Why is authority to execute an agreement important?
This concept is crucial because businesses and organizations operate through authorized representatives rather than individuals acting alone. Ensuring that a person has authority to sign protects all parties by:
- Preventing unauthorized commitments that could cause legal problems.
- Ensuring agreements are enforceable and legally binding.
- Avoiding confusion over who has the right to negotiate and finalize contracts.
For example, in a corporation, a CEO or CFO may have authority to execute agreements, but a lower-level employee may not. Similarly, in a partnership, only certain partners may have signing authority unless otherwise specified in a partnership agreement.
Understanding authority to execute an agreement through an example
Imagine a software company is signing a deal with a new vendor. The vendor receives a signed agreement from a mid-level manager at the software company, but later, the company refuses to honor the contract, claiming the manager didn’t have signing authority.
If the vendor didn’t verify the manager’s authority before finalizing the deal, they could face legal trouble trying to enforce the agreement. However, if the contract included a clause requiring proof of signing authority, the vendor would have been protected from this risk.
An example of an authority to execute agreement clause
Here’s an example of a clause that might appear in a contract:
“Each Party represents and warrants that the individual signing this Agreement on its behalf has full legal authority to execute this Agreement and bind the respective Party to its terms. If requested, each Party shall provide documentation confirming such authority.”
Conclusion
Ensuring authority to execute an agreement is a critical step in contract management. It helps businesses avoid unenforceable contracts, unauthorized commitments, and legal disputes.
Before signing any contract, it’s essential to confirm that the person signing has the proper authorization. Whether through internal company policies, corporate resolutions, or explicit contract clauses, verifying signing authority ensures agreements are legally valid and enforceable.
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.