Disputes over the invalidity of contracts due to signing by unauthorized persons are increasing. If the contracts are signed by Unauthorized representative, what will be the consequences? Please follow the article below to find the answer.
I. What is the basis for the establishment of representation rights?
Article 135 of the Civil Code 2015 stipulates the basis for the establishment of representation rights as follows: “Representation rights shall be established according to a power of attorney between a principal and a representative (hereinafter referred to as authorized representation); according to a decision of a competent authority, a charter of a juridical person or as prescribed by law (hereinafter referred to as legal representation)”.
Accordingly, representation means a natural or juridical person (hereinafter referred to as the representative) acting in the name and for the benefit of another person (hereinafter referred to as the principal) enters into and performs a civil transaction within the scope of representation. Each natural or juridical person may enter into and perform civil transactions through a representative.
II. Forms of representation
According to Article 135 of the Civil Code 2015, forms of representation include two types: (i) Legal representatives; and (ii) Authorized representatives.
1. Legal representatives
Articles 136 and 137 of the Civil Code 2015 provide for legal representatives as follow:
1.1. Legal representatives of natural persons
Legal representatives of natural persons include:
● The father and/or mother with respect to a minor.
● The guardian with respect to a ward. The guardian of a person with limited cognition and behavior control is a legal representative if appointed by a court.
● The person appointed by a court in cases where it is not able to determine the representative in the two cases aforementioned.
● The person appointed by a court with respect to a person with limited legal capacity.
1.2. Legal representatives of juridical persons
Legal representatives of juridical persons include:
● The person appointed by the juridical person in accordance with its charter;
● The competent person to represent in accordance with the law;
● The person appointed by a court during the proceedings at the court.
Each juridical person may have multiple legal representatives and each representative is entitled to represent the juridical person as prescribed in Articles 140 and 141 of the Civil Code 2015.
2. Authorized representatives
According to Article 138 of the Civil Code 2015, each natural or juridical person may authorize another natural or juridical person to enter into and perform contracts.
Members of a household, co-operative group or a non-juridical person may agree to appoint another natural or juridical person to enter into and perform contracts in connection with their common property.
A person aged from fifteen years to below eighteen years may be an authorized representative, except where the law provides for that the contracts must be entered into and performed by a person who has reached eighteen years of age.
III. Consequences of a contracts are entered into and performed by an Unauthorized representative
A contract signed by an unauthorized person is understood as a contract made and entered into by a person who is not the legal representative or authorized representative. Article 142 of the Civil Code 2015 stipulates the consequences of contracts signed by unauthorized persons as follows:
Firstly, a contract made and entered into by an unauthorized person shall not give rise to rights and obligations of the principal, except for one of the following cases:
● The principal recognizes the contract;
● The principal knows it without any objection within an appropriate time limit;
● It is the principal’s fault that the other party does not know or is not able to know that the person entering into the contract therewith was unauthorized.
Hence, except for the three cases aforementioned, if an unauthorized person enters into a contract with a third party on behalf of the principal, such contract shall not give rise to the rights and obligations of the principal. The unauthorized person who makes and enters into the contract must be sole liability to the third party.
Secondly, if a contract signed by an unauthorized person does not give rise to rights and obligations with respect to the principal, the unauthorized person must fulfill the obligations to the third party, unless the third party knew or should have known that the Unauthorized representative.
Thirdly, the person having signed with the unauthorized person is entitled to terminate unilaterally the performance of or to terminate the contract entered into and to demand compensation for any damage (if any).
Nevertheless, if the person entering into the contract with the unauthorized person knew or should have known that the Unauthorized representative is not entitled to terminate unilaterally the performance of or to terminate the contract. At that time, he/she has accepted that the contract is signed with the unauthorized person. Therefore, the contract takes effect forcing the unauthorized person and the third party to be sole liability for performing the rights and obligations arising from the contract. Or in case the principal has recognized the contract between the unauthorized person and the third party, the third party also has no right to terminate unilaterally the performance of or to terminate the contract.
Fourthly, if the Unauthorized representative and the third party in a contract deliberately enter into such a contract and thereby cause damage to the principal, they must jointly compensate for the damage.
In order to clarify the consequences of contracts signed by unauthorized persons, TNTP gives an example as follows:
A is a customer care staff of company B, so he/she shall regularly advise customers regarding the company’s products and services. During a consultation, A and the customer signed a service contract. Nevertheless, A does not have the right to represent the company to sign the contract with the customer. In this case, the contract signed by and between A and the customer does not give rise to rights and obligations to company B. On the other hand, if the customer enters into the contract without knowing that A does not have the right to be represented to sign the contract, A must fulfill the obligations to the customer. On the client’s side, he/she is entitled to terminate unilaterally the performance of or to terminate the contract. If A and the customer intentionally enter into the contract to obtain profit and thereby cause damage to the company, they must jointly compensate for damages to the company and other related persons (if any).
Above is the content of the article “Consequences of a contract signed by a person without authority ”. Should you have any questions, please do not hesitate to contact TNTP for the greatest support.