Dear SaaStr: What is the best way to deal with an “unauthorized signer” on a contract in SaaS sales? A large company signed a contract to buy about $30K worth of software from us, and then the person who signed the contract said he didn’t have the authority to.
First, this isn’t legal advice, but my guess is the contract mostly likely IS enforceable.
The signer probably did have the legal right to sign the contract. And even if they didn’t, they probably had sufficient “apparent authority” to bind your prospective customer.
But … at least in my experience … it ain’t worth trying to enforce it.
I tried this twice in our Year From Hell, when I thought it mattered:
The first time, a Fortune 100 TechCo signed a contract like this with us. I would have let it go, but it was very important to a sales rep. Against my better judgment, this one time, I tried to enforce it. What I quickly learned is two things: (1) you can’t afford to hire a lawyer because legal fees will quickly eclipse the value of the contract (this should be obvious), and (2) but you absolutely can send it to an enforcement / debtor / credit outsourcing firm.
There are firms that will try to enforce contracts for say 20% of the value. The problem is, like most folks working on contingency, they don’t try that hard. As soon as this Fortune 100 company said “we ain’t paying, period”, the firm stopped doing any real work. Worse, this company ended up going with our competitor after this process. Never, again.
The flip side, at about the same time, we had two contracts ourselves with vendors for about $30-$50k each that were not performing. One I paid based on the argument this vendor was also a customer. This turned out to be irrelevant, because it was such a different division of the customer, that the left arm never talked to the right. I shouldn’t have paid.
The second, I partially paid but asked to be let out of the parts of the contract they didn’t perform on. This led to more ill will and problems than if I’d never paid at all.
So net net, none of this stuff is really worth it in most cases, in my experiences. You have better uses of your time. Just honor your own debts. And if a customer won’t pay … just turn off your service for them, politely, and call it a day.
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