As a commercial debt collection agency, we at C2C Resources have heard just about every excuse in the book for refusing to pay a debt. So, when we hear, “The person who signed the contract was not authorized, so I don’t have to pay,” we know to read between the lines.
With that excuse, the debtor has given us some valuable information right away:
1. The debtor doesn’t want to pay
2. The debtor is well aware of the outstanding debt
3. It’s likely that he has the money and is able to pay
4. The debtor is either unaware of the law or is playing ignorant to it
Before we even start thinking about the law, we make contact with the responsible party to learn the REAL reason that the customer refuses to pay. We listen. Were the services they received substandard? Were the products defective? Maybe the original contract was unclear or perhaps the payment terms were misunderstood.
The bottom line is, the “not authorized” excuse is exactly that: an excuse. And if we can find out what’s really going on, we have a better chance of collecting the debt.
After we’ve had a thorough discussion with the delinquent, and if he sticks with that excuse, we know it’s time to talk about the law.
When an employee (also called an agent) enters into an agreement with a third party (a customer) on behalf of his company, under the law of agency, the company is contractually bound with that customer.
It’s a matter of practicality. There are supplies to be ordered, purchase orders to be submitted and quotes to be made. As a business grows, it will become necessary that certain employees have the authority to make those things happen on behalf of the company.
It’s the daily stuff of keeping a growing business moving forward that’s at the heart of what’s called, Apparent Authority. According to Legal Information Institute of Cornell University Law School, Apparent Authority is defined as,
An agent’s power to act on behalf of a principal, even though not expressly or impliedly granted. This power arises only if a third party reasonably infers, from the principal’s conduct, that the principal granted such power to the agent. The idea of apparent authority protects third parties who would otherwise incur losses if the agent’s signature did not bind the principal after reasonable observers thought that it would.
In the course of conversation as we work to collect, we may hit a brick wall as the debtor clings to his excuse. At that point, we have to determine what he truly knows about the law so we can know how to broach the topic.
Inexperienced business owners may honestly not realize that they are legally bound by the contractual agreements that their agents make on their behalf. Experienced business owners will know this.
Ignorance doesn’t change their responsibility for the debt, of course, but it may change the tone of the remainder of our discussion with them.
Once they understand that the law is on our side, we’re a step closer to resolving the debt.