Worker not on the hook for company's breach

5/22/2011

Dear Dale: When I was a salesman for a business, my boss had me review a print advertisement and then told me to sign the contract to place the ad if I thought the proof was OK. My boss folded the business later that year and the advertising company apparently didn't get paid. Now the company is claiming that I have to pay for the ad because I signed the contract. Am I really responsible for this debt?

Your question presents a combination of agency and contract law, so it might be helpful to understand a little bit about both in order to address your situation.

Generally, an employee who has authority or appears to have authority can bind the employer to a contract. The employee is an agent for the employer, which is the principal. This makes a lot of practical sense. To have it otherwise would grind business transactions to a halt.

For example, let's say that the manager of a restaurant orders two dozen steaks from Meats R Us for a quoted price. The steaks are delivered to the restaurant and the owner claims she never ordered them and refuses to pay up. In this case, the owner -- the principal -- should be bound by the actions of the manager -- the agent.

To have it otherwise would mean that the principal always could wiggle out of a contract by claiming no knowledge of the deal. Imagine what chaos that would create in the context of a much larger business.

For example, it wouldn't be workable if a massive corporation could breach contracts entered into by a purchasing agent on the basis that the CEO didn't know about the deal. The other party has to know that the agent's signature is binding or the contract would be virtually worthless.

Therefore, it appears that you had the ability to bind your boss to the contract for the advertisement. But your question raises the issue of whether an agent who signs a contract for his boss can be bound if the boss breaches. Generally, an agent who acts on behalf of a disclosed principal will not be bound by the contract. The equation shifts when the agent signs a contract for an undisclosed principal, but we don't need to go down that road.

Again, the idea behind this rule makes practical sense. Using the example of the large corporation again, how would it be fair to make the purchasing agent personally liable if the CEO refused to honor the contract? If the purchasing agent was acting with authority for a corporation named in the contract, he shouldn't be on the hook.

In your question, you state that the name of your boss' business was on the contract. So, my view would be that you were an agent acting on behalf of a disclosed principal so you should not be liable for the debt.

Dale Emch practices law at the Dale Emch Law Office, LLC, in Toledo. In his column, he will discuss general legal principles and answer readers' questions. Neither Mr. Emch nor The Blade present or intend his column to be taken as legal advice. Readers seeking legal advice should consult with an attorney. Readers may send their questions to 615 Adams St. Toledo, OH 43604 or dale@daleemch.com. His Web site is www.daleemch.com.