Who is authorized to bind your family business to contracts?

by Murtha Cullina

A family business’ significant commercial relationships are usually reflected in written agreements.  But who is authorized to sign those agreements and to bind the company to the terms?  Typically, a company’s management will have actual authority to sign agreements.  However, the company may give the impression to third parties that other employees (for example, purchasing agents, account managers and IT personnel) that those employees have “apparent” authority to sign contracts relating to their areas of responsibility and thus bind the company to agreements.  It is therefore important for family business owners and management to clearly instruct their employees and agents – and to communicate to third parties – as to whether those employees or agents are authorized to sign contracts and other important documents on the company’s behalf.

A recent trial court decision from New York – Utopia Home Care, Inc. v. Revival Home Health Care, Inc. – highlights the confusion and potential for liability that can arise when an employee signs a document on a company’s behalf without express authority to do so.  According to the Court’s decision, Utopia is a family owned and operated business, with its president, her father and her brother being the company’s sole stockholders and officers.  Utopia provided home care services for patients referred by Revival.  A written contract, signed by Utopia’s president, provided the terms of payment for these services.

After Utopia provided certain services, it sent invoices to Revival totaling over $60,000, which Revival refused to pay.  Utopia filed a lawsuit to collect the unpaid balance.  Revival defended by pointing to a document that it claimed was a written amendment to the contract that reduced the time within which Utopia must submit an invoice in order to receive payment.  This amendment was signed by an employee who, Utopia claimed, “was an administrator for [Utopia’s] New York offices only . . . and [who] had no authority to negotiate or approve any contract amendments.”

Revival defended by pointing to a document that it claimed was a written amendment to the contract that reduced the time within which Utopia must submit an invoice in order to receive payment.

According to Utopia’s president, only the family member owners and shareholders were authorized to enter into contracts on Utopia’s behalf and to bind the company.  The Court credited this testimony and found that the administrator who signed the amendment was not authorized to sign it and thus could not bind Utopia to the shorter time limits for submitting invoices for payment.  The Court noted that neither party called the administrator as a witness and further stated how it was “somewhat remarkable that the key witness as to the issue of agency, authority, [and] apparent authority . . .” was not called.

It is not clear how the Court would have ruled had the administrator been called as a witness, but one expects that Revival would have attempted to make it clear through that witness or others that Utopia represented or gave the impression that the administrator was authorized to sign the amendment and to bind the company to the change in payment terms.  Such testimony, if the Court believed it, may have led the Court to rule that Utopia was in fact bound by the claimed amendment and thus not entitled to collect on the late requests for payment.  Instead, the Court entered judgment in Utopia’s favor for the full amount of the unpaid invoices, concluding that the amendment was not effective to bar payment.

One takeaway from this case is that a family business should clearly notify all employees that only certain company personnel – such as the family member owners and managers in Utopia’s case – are authorized to sign any contracts, amendments or other legally binding documents on the company’s behalf.  The company also should take steps to not give the impression to third parties that unauthorized personnel actually do have the ability to sign and bind the company to agreements.  Finally, the company should put oversight processes into place to ensure that such limitations on contract signing are enforced.  By doing so, family businesses may be able to avoid claims that they are bound to terms of agreements that they did not intend to enter.

Written by:

Murtha Cullina

Murtha Cullina on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.