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  • Writer's pictureFair Capital

Overcoming the Challenge of Signature Authority Claims in Contract Disputes

Updated: Mar 17, 2023


As a business owner, it's not uncommon to find yourself in a situation where a debtor refuses to pay, claiming that the person who signed the contract lacked the authority to do so. This argument is particularly common when a subscriber wants to cancel a contract and claims that the person who signed the contract didn't have the authority to do so.


Our experience collecting commercial debt has shown that disputes over signature rights are frequently piled on top of another, more pressing dispute, which may be vague and lacking sufficient grounds, causing a debtor to resort to claiming an insufficient signature to strengthen their position and demonstrate that they have a valid reason for not paying. It is therefore important that you debunk this claim so that you can turn your attention to the real cause of your client's failure to pay.


Who Has the Power/Resolving Contract Disputes When Authority Is Challenged

Fortunately, a debtor's claim of lack of authority does not automatically release them from their duty to pay. As a collection agency, we are aware that, in many instances, the law is in our favor since you have the privilege to depend on the apparent authority of the signatory.



Unlocking the Power of Apparent Authority in Contract Disputes

To properly handle a contract dispute where your debtor claims a lack of authority, it's important to understand the legal concept of apparent authority. Apparent authority is when a third party believes that an agent has the authority to act for another person or company when that authority has not actually been granted. If an agent acts with apparent authority, the agent's acts legally bind the principal.


As per the law of agency, an employee is usually authorized to enter into daily transactions on behalf of the company (agent). Even if they don't have the authority to carry out unusual transactions, they can still bind the company in contractual relationships with customers or vendors.


In the context of a contract dispute, if your debtor's actions or lack of ordinary care lead you to believe that the person who signed the contract had the authority to do so, you may be entitled to hold the debtor responsible. For instance, you may believe that an employee who presents a contract on company letterhead is authorized to sign that contract on behalf of the company. Even if the employee does not have the authority to enter into contracts, the company will be legally bound by the signed agreement.


While your debtor's assertion of a lack of authority does not release them from their payment obligation, it can complicate the process of recovering the owed money. To help you collect what you owe, we recommend the following actionable steps:


The first step is to determine what the real dispute is

To begin with, it is necessary to determine what the actual cause is. Is your debtor's claim of lack of authority just an excuse not to pay, or is there another dispute over the product or service you provided? If there is another more pressing dispute, you may need to shift your focus to resolve the real issue.


If, on the other hand, your debtor is simply using the "lack of authority" as an excuse not to pay, you should first try to educate them about their responsibility. Assuming it does not work, we can often make someone aware and convince them of the validity of the contract by asking them the right questions in an unconfrontational manner. Questions such as: Who is an authorized signer in your company? Who buys or sells office supplies? Are these transactions binding on the company? Have you ever seen this employee (agent) signing? Are there any internal policies or procedures on who can sign?


In addition to making your debtor aware of their responsibility, asking those questions may also help you gather information about the debtor's business to use if legal action becomes necessary.


Use external help when dealing with unrealistic, uncooperative debtors.

If your debtor is unwilling to engage in a reasonable discussion or show any inclination towards resolving the issue amicably, it may be time to seek external assistance. Consider engaging a professional B2B debt collection agency such as Fair Capital, which has a proven track record of successfully collecting commercial debts and has recovered millions of dollars for small, mid, and large corporations. Our expertise and experience can help you navigate the complexities of debt collection and ensure you receive the payment you are owed.



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Disclaimer: Any and all information is not intended to be, nor is it, legal advice. Please consult your attorney for information concerning allowable rates of interest.

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