RECENT COURT RULING SERVES AS A REMINDER ABOUT CONTRACTS

 

A University of Memphis professor made a mistake that could cost the university more than $1.7 million dollars – all because the professor signed a contract that he was not authorized to sign.

 

In 2005, the University of Memphis (a part of the Tennessee Board of Regents system) rented a facility for $350 to hold an event.  During the event, a University of Memphis art student fell 15 feet down an elevator shaft and was permanently disabled.  A professor in the University of Memphis’s Art Department made the mistake of signing an indemnification agreement with the owner of the facility. The professor was not authorized to sign contracts and agencies of the State of Tennessee cannot agree to indemnify other parties.

 

In November 2011, a judge ruled that the University of Memphis must pay more than $1.7 million dollars to the student.
 
This amount greatly exceeded the State’s liability for a typical case because the judge found that a department head at the University of Memphis signed a contract agreeing to indemnify (pay damages incurred by) the building’s private owner, even though University policy prohibited him from doing so.  The State is expected to appeal the trial court’s decision.  However, the lawsuit demonstrates the significant legal and financial risks arising from an individual signing a contract without being authorized to do so. In the University of Memphis case, the university could sue the professor who signed the contract without authorization.

 

Departments at The University of Tennessee are reminded that all contracts, regardless of dollar value (including receivable and zero-dollar contracts), must be processed through the appropriate campus contract office.  Moreover, University fiscal policy applies to any document that imposes an obligation upon the University (not just documents titled “Contract” or “Agreement”).  Further, only authorized officials are allowed to sign contracts.  The University’s bylaws and fiscal policy identify the limited number of University officials who are authorized to sign contracts. 

 

In general, please note that managers, directors, and department heads, etc. are not authorized officials and cannot sign contracts.  Additionally, both state law and fiscal policy prohibit the University from signing any contract that contains language that could obligate the University to indemnify, hold harmless, and defend any other party.

 

For more information regarding the lawsuit against the University of Memphis: http://www.commercialappeal.com/news/2011/nov/15/judge-says-u-m-student-deserves-17-million-elevato/

 

If you have questions regarding the University’s Contracts Fiscal Policy, please contact your campus contract office or the UT System contract office at (865) 974-2302.

 







Contact:

Charles M. Peccolo

Vice President & Treasurer

301 Andy Holt Tower
Knoxville, TN 37996
865-974-2302
865-974-2701 Fax

 

 

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