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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
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One of my employees entered into a contract with a company

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One of my employees entered into a contract with a company three months ago. LocalOnlineYellow Pages.com

I pay the bills, when the original invoice came through, I thought it was a scam so I threw it away. They sent our company to "collections" for not paying their bill for two months, and sent us a fax to notify us.

I called them and they played a tape recording of one of my employees agreeing to their contract. She does not have the authority to do this.

She thought it was (the real) yellow pages asking for a renewal - I knew the renewal period was due, so I put her on notice to watch for it.

We keep good records. She recalls (and it is documented) saying at the end of the conversation "wait. I better check with the owner" - and he immediately hung up on her. She tried to call him back to cancel it, but there was no answer. Of course, that portion of their recording was not played back to me today.

If any of my employees enter into a stupid contract on behalf of my business, am I liable for their actions?
Submitted: 1 year ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 1 year ago.

Thank you for your question. Please permit me to assist you with your concerns.

To answer your question directly, I am afraid that the business is indeed liable. This is a situation of 'apparent authority'. Your employees are the agents of the business. Being agents, they represent the business and they therefore can make decisions on behalf of the business, regardless on whether those decisions are ultimately wise or bone-headed. So long as the other person had a reasonable belief that he was speaking with someone who had 'apparent authority' to make such contracts, the contract is valid. "Apparent authority" is what the agent is believed to have rights to do regardless on whether or not it is accurate. For example if you see someone wearing a store shirt, you assume that this person has the ability to help you find items. If that person is, for example, not a store employee, or is employed in a different division, it still does not detract from that reasonable assumption. "Actual authority" is, on the other hand, what the agent can really do. Both of these types of authorities can be utilized for such a situation by a third party. I am sorry, truly, but this is a valid agreement since the decision to enter into this agreement was based on a perceived benefit and it was done during the regular scope of doing business.

Good luck.

Customer: replied 1 year ago.

"ability to help me find items" is a far throw from a $4500 contract for a service.


 


You mean to say that if I walk in to any store, let's say Home Depot, and I find a half witted employee, convince them to sign up for an expensive service and tape record it ... that it would be legal for me to require Home Depot to pay on the contract?


 


 

Expert:  Dimitry K., Esq. replied 1 year ago.

Cathy,

Thank you for your follow-up. Not quite--please notice that I stated that the other party to the contract has to have a 'reasonable belief' that such a contract could be made and be binding. When your employee spoke with the other representative and made the contract, since the communication took place via phone and your employee agreed to the transaction, it can be considered that this 'reasonable belief' was upheld. It would be unreasonable for someone to claim that a store clerk has the apparent authority to make contracts on behalf of the business, but calling a business and having that employee affirm that he had authority is a different story.

 

From your facts I do not know if your employee was solicited or the employee took the act upon herself to sign the agreement--if she solicited then the claim for apparent authority is even stronger since it can be shown that your employee went to seek out this agreement. In case where she was solicited, if your employee affirmed that she could make such a contract, the contract was deemed valid.

 

I do not know how much responsibility you give to your employees but if they can pay bills on behalf of the business, then they are entering into contracts daily--this is a similar situation only obviously not as favorable to you and your business. It still does not void out the contract on basis that your employee could not enter into it, however--the better argument may be based on fraud, misrepresentation, and breach of contract for failure to provide the services if that is applicable in this instance.

Good luck.

Customer: replied 1 year ago.

No, none of my employees pay bills on behalf of my business. I am the only one who pays the bills.


 


My company was solicited by the vendor, not the other way around.



Yes, they provided the service. They listed us on a vague website.


 


Ok, I'm liable. I get that. Can I take another tack?


 


Fraud? How would that pertain?


Misrepresentation? She believed she was speaking the THE yellow pages. Would that offer me any help?

Expert:  Dimitry K., Esq. replied 1 year ago.

Thank you for your follow-up, Cathy.

That is exactly why I brought up misrepresentation--if your employee reasonably believed that he was talking to a different company (the real yellow pages) and the other party KNEW of the mistake but chose to not enlighten your employee of the facts, that can be considered a mistake to the contract and therefore grounds under misrepresentation and willful omission or pertinent facts. Fraud would pertain if they intentionally stated that they were someone else--it is a far tougher argument to make in this case. So yes, this can offer you some help but purely from a very practical position that is based on my past experience, I rarely see such contracts overturned by the courts. This is likely going to be binding against you unless you can find a legitimate basis that your employee was actively misled.

Good luck.

Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 38773
Experience: Run my own successful business/contract law practice.
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Run my own successful business/contract law practice.