The question of who has authority to sign a contact was examined in a Pennsylvania case decided in September 2007. It all began when an insurance company sought to recover the money it paid to an insured company for damages sustained when a pipe burst in its insured building. The plaintiff insurance company brought a subrogation action against the defendant alarm company seeking to recover money it paid to its insured company, alleging negligence and breach of implied warranty. The alarm company filed a motion for summary judgment.

The plaintiff’s insured company had contracted with an alarm company years before the incident in question. After a series of acquisitions, the defendant alarm company became the successor alarm company and the question became whether the terms and conditions on the reverse side of the service ticket, including the limitation of liability provision, issued by the defendant and signed by an employee of the insured company for a repair of the alarm system, were included in the agreement between the plaintiff’s insured and the alarm company, and, if so, whether the limitation of liability provision was valid and enforceable.

When the defendant acquired the account, it notified the insured that it had acquired the old alarm company and that it would now be providing monitoring services. Each time the defendant performed the service or repair for the insured, it issued either a service ticket or a service documentation. The alarm company’s defense was the limitation of liability provision on the reverse side of the service ticket, which limited its responsibility to $1,000. The court ruled that as a matter of law, the defendant’s service ticket is a valid and enforceable contract, including the “limitation of liability” provision on the reverse side of the service ticket, even though plaintiff’s insured did not have a prior written service agreement with defendant.

The court pointed out that the evidence indicated that the parties discussed and/or negotiated the essential terms contained in the service ticket and came to a verbal agreement about the course of action to be taken. The oral agreement was then reduced to writing on the service ticket, which indicated the work to be performed and authorization to a verbal agreement as to the course of action to be taken. The court pointed out that the circumstances surrounding the agreement between the parties failed to establish a public policy interest and unconscionable contract or a contract of adhesion. The employee’s signature on the service ticket, objectively considered, evidenced the insured’s consent to the terms and conditions on the service ticket, including the limitation of liability provision.

Therefore, the court granted the defendant alarm company’s motion for summary judgment with reference to the limitation of liability provision. However, the court pointed out that the question remained as to whether the insured’s employees had authority to agree to the terms and conditions contained on the service ticket. Therefore, there were material issues of fact remaining as to express and apparent authority of the insured’s employees as to whether the company reasonably believed the employees had apparent authority to agree to the terms and conditions contained in the service ticket. Because of this, the court found that the alarm company defendant was not entitled to summary judgment on the issue of whether the limitation of liability provision was included in the parties’ bargain.

The court determined that at the trial, in the event that the jury found that the insured’s employees had actual and/or apparent authority to sign the service ticket, the “limitation of liability” provision would apply and the plaintiff’s recovery would be limited to $1,000. Therefore, the court upheld the limitation of liability provision, but the defendant was denied summary judgment on the issue of whether the service ticket’s limitation of liability provision was part of the parties’ bargain. The lesson to be learned? Make sure the party signing the contract on behalf of the subscriber has the authority to do so.