Exceeding the Scope of Representation and Regulatory Treatment

Civil transactions and contractual relations are being established and carried out in a multitude of differing ways everyday.  In practice, sometimes individuals and organizations often cannot carry out these transactions on their own, but have to do so through their representatives.

This legal insight will analyze the concepts related to exceeding the scope of representation and methods to protect the interests of the parties in accordance with law.

Scope of Representation

Article 141 of the 2015 Civil Code (code) provides for the scope of representation:

  1. Each representative may only enter into and/or perform civil transactions within his/her scope of representation…

Accordingly, the representative may only establish and carry out civil transactions within the scope of representation. If the representative fails to determine the specific scope authorization, the legal representative has the right, subject to complying with the law, to enter into and perform all civil transactions in the interests of the principal.

At that time, the representative must inform the parties of the scope of their representation.

The flow on effects of the representative acting outside their scope may have legal consequences.

Consequences of Representatives Acting Beyond Scope of Representation

Article 143  of the code provides that civil transaction entered into and performed by a representative beyond their scope of representation, shall not create obligations upon the principal, with respect to that part of the transaction which exceeded the scope of representation, except for any of the following circumstances:

  • The principal gives consent;
  • 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 and performing the civil transaction therewith was beyond his/her scope of representation.

If a civil transaction is entered into and performed by a representative beyond their scope of representation, they must fulfill the obligations owning to the person with whom the transaction was performed.

In addition, a person having transacted with such representative has the right to terminate the civil transaction with respect to that part of the transaction which is beyond the scope of representation, or in the alternative, the entire transaction.  They may also demand compensation for any damages which may have occurred as a result of the representatives’ actions.

However, if a person and a representative enter into and perform a civil transaction deliberately beyond the scope of representation and cause damages to the principal, they may also be jointly liable.

Examples of Cases Exceeding the Scope of Representation

In many cases, although the company knows that the representative has performed the role beyond the scope of representation, they remain silent and do not object. For example, in the sale and purchase of goods: a contract maybe signed by a person who is not authorized to sign and remains silent.

In addition, a representative of a company may be have their scope of representation limited by the internal charter of a company. The question: Does this company Charter force a third party to participate in the transaction which signed by the legal representative?

As recent case examples answers this question, where Decision No. 177/2014/QDST-KDTM dated March 5, 2014, the People’s Court of Ho Chi Minh City provides:

The case of H, as the General Director, the legal representative of the Company, had signed a contract beyond the authority specified in the company’s charter. if he caused damage, he must be responsible before the law and must pay compensation to the company. The opinion of the Company (the request for the contract to be invalid) is groundless for the meeting Council to accept. Therefore, the contract has arisen rights and obligations between the two parties (ie between the Company and the third party)”.

Thus, although the provisions within Article 141 of the Code affirms that the representative can only sign contracts according to the company’s charter, the actual adjudication of the dispute settlement agencies for many cases has a more, shall it be said, flexible discretion.

Specifically, in the event a representative signs a contract beyond their authority under the Company Charter, it is usually handled by dispute settlement agencies by: a requesting the company to initiate a lawsuit against the representative to compensate for any damages or losses to the company.

The above are the contents of analysis related to the over-representation.

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