DOES THE CONTRACT SIGNED BY THE CHAIRMAN OF THE BOARD OF DIRECTORS TAKE EFFECT?

Posted 17:17 Date 19/07/2023

Mr. Truong Van Nhi living in Cam Le district, Da Nang City asked: Our company signed a construction contract with The A company in Quang Nam. The contract was signed by The A company's Chairman of the Board. When signing the contract, we knew that the Chairman does not have the right to sign, but because of the sensitivity, we did not request the authorization letter. When the contract was implementing approximately 60% of the workload, some issues arose that both parties could not be consensus. Thus, the Manager - Legal representative of The A company - requested to cancel the contract because the person who signed the contract didn't have authority. We would like to understand clearly that, is the contract in the above circumstance seem as an invalid contract?

Mr. Le Ngo Hoai Phong (Lawyer) answered:

According to the Enterprise Law 2020, a limited liability or joint stock company may have one or more than one legal representative. The company's charter must specify the quantity, titles, rights, and obligations of each of the enterprise’s legal representatives. Enterprises that have more than one legal representative usually create a mutual supervise mechanism between these representatives; as well as establish the determination of joint responsibility or separate responsibility of the legal representatives and the scope of representative of legal representatives in establishing trading on behalf of the enterprise. Besides, The Civil Code 2015 specifies that a civil transaction entered into and performed by an unauthorized person representative shall not give rise to the rights and obligations of the principal, except for having the recognition of the principal or the representative. Moreover, the Council of Judges of the Supreme People’s Court also enacted guiding documents resolving cases in which a contract is established by an unauthorized person. Accordingly, if the contract is signed by an unauthorized person but there is a basis proofing that the authorized one knows it without any objection then this civil transaction still has legal value and is not being declared invalid.

Therefore, Mr. Nhi needs to check whether the chairman of the board of Company A an unauthorized legal representative or not. If it is, Mr. Nhi needs to check all documents, and evidence, such as working minutes, official dispatches, payment receipts via bank, receipts, tax reporting records... If there is a evidence that the legal representative of the partner knows this contract but has not objected, the contract remains legitimate.

Through the above case, it can be seen that, in order to avoid possible disputes during the performance of the contract, in addition to carefully reviewing the contents of the contract, the parties need to check the status of the person signing the contract. If it is not the legal representative, it is necessity for requiring to provide an authorization letter attached to the contract. Usually, many businesses think that asking for a power of antorney letter may make partners dissatisfied and uncomfortable. However, this thought may lead to many unwanted dispute cases. In fact, there are some businesses that even have to go bankrupt.

*The article was published in the Da Nang police newspaper on 18/02/2019.

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