Legal Memorandum: Officer's Authority to Bind the Company

Issue: Under Virginia law, can a CEO bind the corporation in an agreement if he is authorized to act on behalf of the company?

The execution of a contract by one authorized to act on behalf of a corporation binds the corporation.  E.g., Horner v. Holt, 187 Va. 715, 47 S.E.2d 365 (1948). 

This principle is well settled in Virginia law.  See, e.g., Richmond Enquirer Co. v. Robinson, 65 Va. (24 Gratt.) 548 (1874) (holding over a century ago that a corporation must abide by the consequences of the acts of its agents done within the scope of their authority).  A corporate executive generally has power coextensive with the business that is entrusted to him, and he has the apparent authority to bind the corporation by all contracts reasonably incident to the business.  See generally 4B Michie’s Jurisprudence of Virginia and West Virginia, Corporations § 173 et seq. (1999) (citing W. Va. cases). 

When the power to enter into a contract comes within the scope of the general and apparent authority of a corporation, the other party has the right to assume that the contracting party had the authority to bind the corporation.  See generally A.I.M. Percolating Corp. v. Ferrodine Chem. Corp., 139 Va. 366, 124 S.E. 442 (1924).  In other words, a corporation is subject to the same extent as a natural person to the principle that one who holds out another or allows another to appear as having authority to act as his agent, with respect to business generally or a particular matter, cannot, as against persons dealing with the agent in good faith, […]