18/08/2008
Can a customer rescind an agreement on the basis that the person who signed the agreement on behalf of the customer was not authorised to do so?
Our client agreed to provide its customer with a product pursuant to a rental agreement. After receiving the product and making the required rental payments, the customer alleged that it was not bound by the rental agreement because the person who signed the rental agreement on behalf of the customer, was not authorised to do so. On that basis, the customer threatened to rescind the rental agreement.
We formed the view that the customer could not do this for the following reasons:
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The customer was deemed to have accepted the rental agreement by its conduct. Our client sent the rental agreement to its customer’s registered address; supplied the customer with the product and the customer made rental payments in accordance with the rental agreement. |
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Our client’s customer was a corporation. Section 126 of the Corporations Act provides that a corporation is bound by an agreement if the signatory had the corporation’s express or implied authority to enter into that agreement. Factors which show implied authority include whether or not : |
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| (a) |
there was something said or written by a senior manager or employee of the customer that gave our client the impression that the particular signatory was authorised to sign the rental agreement; |
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the customer’s signatory had previously signed other agreements between the customer and our client; |
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| (c) |
there was previous correspondence between our client and its customer that indicated the customer’s intention to enter into the rental agreement; |
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| (d) |
the signatory was a senior manager or senior employee within the customer’s organisation who manages the business generally or in relation to matters such as agreements with third parties; |
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| (e) |
our client had discussions regarding the rental agreement with more than one person in the customer ‘s company and the signatory subsequently signed the rental agreement; |
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the signatory was in a particular area of the customer’s organisation that would ordinarily deal with these types of agreements. |
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The so-called Indoor Management Rule prevents the customer from denying the validity of the rental agreement provided that: |
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| (a) |
the rental agreement is signed by a person who would ordinarily be expected to have the authority to do so; |
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| (b) |
the rental agreement was executed for the customer’s business and/or for the customer’s benefit; and |
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| (c) |
there were no circumstances which put our client in a position to question the authority and capacity of the person who executed the rental agreement on behalf of the customer. |
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For these reasons, our client held the customer to the rental agreement.
