Legal Memorandum: Officer's Authority to Execute Contracts

Issue: Under New York law, are the employment contracts containing extraordinary terms enforceable against the corporation in the absence of the signing officer’s authority to enter into such agreements?

A corporation may act only through its directors, officers and employees.  Goldenberg v. Bartell Broadcasting Corp., 47 Misc. 2d 105, 108, 262 N.Y.S.2d 274, 279 (N.Y. Sup. Ct. 1965).  Accordingly, in every action in which a person sues a corporation on a contract executed by one of its officers on behalf of the corporation, one of the issues to be determined is whether the officer had the express, implied or apparent authority to execute the contract.  Id. at 108, 262 N.Y.S.2d at 279.

In Goldenberg, the plaintiff alleged the breach of an employment contract that provided for the payment to him of 12,000 shares of free registered stock of the corporation.  He offered no proof, however, that the president of the corporation, who executed the employment agreement, had the express authority to enter into that contract.  Id. at 109, 262 N.Y.S.2d at 279.  The question, then, was whether the president had the implied or apparent authority to execute the contract.  Id. 

Implied authority, explained the court, is a type of actual authority, which gives the corporate officer the power to do all necessary acts within the scope of his or her authority.  Generally speaking, the president of a corporation has the implied authority to hire and fire employees and to set their compensation.  The president of a corporation does not, however, have the implied power to execute “‘unusual or extraordinary’ contracts of employment.”  Id. (citing Carney v. New York Life Ins. Co., […]