Is a business owner held responsible for an employee that signs an unauthorized contract?

Question

Is a business owner held responsible for an employee that signs an unauthorized contract?

Answer

Possibly.

Answer

Depends on what you mean by a "business owner" (shareholder, officer, sole proprietorship) and the position and authority of the employee and the circumstances under which the contract was signed.

Answer

There are several things to consider. Does the employee have the authority to sign on behalf of the business? if not, is that obvious to anyone looking at the situation? (e.g. a cashier at Wal-Mart would not have authority to bind Wal-Mart to a contract and everyone knows that. However, a cashier at a family owned business where the cashier is part of the family, and known to be, could appear to have the authority to bind the company even if they really don't). This apparent authority could be enough for the business to be held liable for the contract. Other factors could include prior relationships with the other party and how those were handled. Has the employee entered into contracts with this vendor in the past or even other vendors?

There are quite a few scenarios where an employee can bind the business to a contract, but the facts of each are important.

Now, to your question of whether the "business owner" can be held liable, that would depend, in large part, on the type of business structure in place and whether you are talking about personal liability vs business liability. There are many things to consider here as well.

It looks like you would be well served to contact a local business attorney and pay for a consultation to get the answers to your specific situation. A consultation may cost you a couple of hundred dollars, but it will likely be worth it in the long run.