IACCM Contract Management Forum

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2016-10-11 21:22:29

Personal liability for employee's unauthorized signature of a contract?

Our company has just released a revised signature policy outlining in detail the proper signatories for our commercial contracts and other agreements. The question has come up whether employees who lack authority to sign under the policy may be subject to personal liability for breach of the contract. I am definitely familiar with Article 3-403 of the UCC, but that deals more with agency and holders in due course rather than employees. Furthermore, I have seen both sections of state statutes and examples of contract sections that deal with personal liability of employees lacking authority to sign in the academic setting. However, I am curious whether anyone can cite specific examples of either (American) state or federal statutory or common law regarding such liability in the commercial or non-academic setting. I thank you very much in advance for your responses.
 •  DXC Technology  •   2016-10-13 14:59:57
Hi, are you referring to liability of the employee or liability of the corporation, for unauthorized contracts? The subject of your post refers to the former, but the description at the bottom ("such liability") is a bit confusing.

In either case, the American law generally follows the theory of "authority" and Common Law has now evolved to exclude doctrine of ultra vires and constructive notice. Both law systems generally tend to protect the third part (i.e. the customer) and the liability is thus taken up on the corporation to enforce the contract. Given that transactions entered into by the corporate are of sizeable consideration, the unauthorized employee discharging the liability is mostly unrealistic; and may not compensate the customer, who is the innocent party. Thus, the liability is enforced through the corporation.
 •   2016-10-13 15:55:00
Thank you so much, Shailendra, for your prompt and courteous reply! Yes, I realize now that I didn't make it quite clear that I meant the personal liability of the UNAUTHORIZED EMPLOYEE, not the corporation. I agree that ultra vires is inapposite for employee liability in this context. I appreciate your insight as well as to the trends in common law on this topic. I am just curious now whether anyone or you may know of any non-UCC precedent that addresses this issue, namely employee liability for unauthorized signing of corporate contracts (or lack thereof). Again, much thanks!
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