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Disputes on authority to sign contracts

(VLR) In the signature section at the end of each contract, representatives of each party are usually stated. A dispute happened when a party assumed that the representative was not the lawful representative or was just a branch director, so the contract was invalid. The following disputes developments with the arbitral tribunal’s analysis could help prevent damages due to disputes for readers’ reference.

WAS IT TRUE THAT THE CONTRACT WAS SIGNED BY THE LEGAL REPRESENTATIVE?

The sale and purchase contract of goods was established between a Taiwanese company (the Claimant - the Seller) and a Vietnamese company (the Respondent - the Buyer) in 2009 (“the Contract”). On the Respondent’s side, the Contract mentioned that the representative was Mr. D. When there was a dispute, the Respondent argued that the information that the Claimant gave about Mr. D’s representation status through the checking on the website was incorrect. The Respondent presented a business registration certificate issued on March 30, 2011 by the Department of Planning and Investment of a city in the south (“Department of Planning and Investment”) stating that Ms. N was the legal representative. Therefore, the Respondent denied the Contract because it thought that the Contract had no enforceable value. Did the Contract bind the Respondent?

The Arbitration Tribunal found that both the Claimant and the Respondent are enterprises with legal status. Therefore, they had to participate in transactions through representatives. This person could be a legal representative or an authorized representative specified in Article 85 of the Civil Code 2015, where: “Representative of a legal entity could be a legal representative or authorized representative”.

The Arbitral Tribunal requested verification and the Department of Planning & Investment said that on 20/7/2005, the Respondent was granted a registration to change the legal representative to Mr. D. On 30/3/2011 the Department of Planning & Investment issued a changed registration, stating that Ms. N was the legal representative. The contract was signed on 10/10/2009. Thus, at the time of signing the Contract, Mr. D was the legal representative, therefore, that Mr. D signed the Contract was in accordance with Article 85 of the Civil Code 2015 as above mentioned. The Arbitral Tribunal concluded: The Contract was signed in accordance with the law and regulations, therefore, it was valid and binding the Respondent according to the rights and obligations stated in the Contract.

IS THE CONTRACT SIGNED BY A BRANCH OF THE COMPANY LEGAL?

The Seller (the Claimant) and the Buyer (the Respondent) had a dispute over a sale and purchase contract of construction steel (the “Contract”) established by a branch of the Respondent. The Buyer had paid part of the Contract price but did not continue to pay the balance under the Contract. Therefore, the Seller sued the Buyer at arbitration. The Arbitral Tribunal considered to determine whether the Contract was binding the Respondent or not.

The Arbitral Tribunal said that, according to Clause 1 Article 84 of the Civil Code 2015, “Branches, representative offices were dependent units of legal entities, not the legal entities”, and Clause 2 of this article provided that “the branch had the duty to perform all or part of the functions of the legal entity”. The Arbitral Tribunal found that the Respondent’s branch had the authorization letter of the General Director of the company when signing the Contract. Therefore, the company (legal entity) was bound by the act of signing the Contract of the branch as prescribed in Clause 6 Article 84 Civil Code 2015 as follows: “Legal person had civil rights and obligations arising from civil transactions which were established, implemented by the branch or representative office”.

On the basis of the above analysis and explanation above mentioned, the Arbitral Tribunal concluded that the Contract was legally signed and binding the Respondent, or in other words, that the Respondent was obliged to (continually) perform the Contract.

WHAT SHOULD ENTERPRISES PAY ATTENTION TO WHEN SIGNING CONTRACTS?

(1) The parties needed to check the registration certificate of enterprises to know who was the legal representative or who were the legal representatives in case the enterprise had more than one legal representative;

(2) legal representative or legal representatives who signed contracts did not need a power of attorney (authorization letter) to sign. However, “A representative might only establish and perform civil transactions within the scope of representation ...” (Clause 1 Article 141 Civil Code 2015). The scope of representing the enterprise in signing the contract was usually based on the Charter of legal entities or power of attorney;

(3) In case of signing with a branch, an authorization letter from the company (legal entity) was required;

(4) If there was no power of attorney (when required), it should not be signed. If signed without a power of attorney, it was necessary to prove that the person who was represented knew but did not object (Point b, Clause 1, Article 143 of Civil Code 2015), for example: The legal representative signed the invoice to claim money;

(5) At the time of signing the contract, whether the person signing the contract either the legal representative or the authorized representative because the enterprise could change the legal representative;

(6) Needed to check company charter for the legal representative’s authority. It should not just base on the certificate of business registration;

(7) For large or complex contracts that the enterprise was not proficient at, it was advisable to hire a lawyer for consultation to avoid risks;

(8) If the representative and the person transacting with the representative intentionally entered into and performed a civil transaction beyond the scope of representation and caused damage to the represented person, they shall be jointly liable for damages. (Clause 4 Article 143 Civil Code 2015);

(9) “In case of a civil transaction established or performed by a representative in excess of the scope of representation which did not give rise to rights and obligations of the represented person with respect to a portion of the transaction established or performed in excess beyond the scope of representation, the representative was obliged to perform the obligations to the person who had transacted with him for the part of the transaction beyond the scope of representation, unless the person who made the transaction knew or ought to know about the excess of the scope of representation but still transacted.” (Clause 2 Article 143 Civil Code 2015).

Ngo Khac Le - VIAC Arbitrator

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