Capacity and authority

The twin pillars of paranoia that remain when all is said and done on your negotiation and you're ready to sign on the dotted line.

• Authority: whether the fellow who purports to sign the contract for your counterparty has any ostensible grounds to do — whether she is properly appointed by the board or, by dint of her role within the organisation, has the general authority to sign — so is a question of her authority. Here the law of agency lends an innocent contracting party a hand, with the doctrine of ostensible authority meaning one can rely on someone who seems to have appropriate authority even if she doesn’t, as long as you don’t know (or can not reasonably have been expected to know).
• Capacity: whether your counterparty is even constitutionally capable of entering into obligations of the type contemplated by your contract, is a question of its capacity (as to which see also ultra vires). In this day and age, capacity — once a rich source of legal paranoia — is largely a dead letter among commercial enterprises in sensible jurisdictions, but it is still a banana skin for municipal bodies and local governments. Even thirty years on, the words “Orange County” or “Hammersmith and Fulham council” will be enough to get buttocks clenching in your risk department.

See also

• Ostensible authority
• Ultra vires — no, not the celebrated Scottish new romantic band.
• Agency