Is the contract without signing from the legal representative of the company correct?

On June 15, 2018, my company entered into a goods sale and purchase contract with Company X. My company has paid  VND 200 million in advance to Company X for goods. However, Company X refuses to deliver the goods as agreed. After a while, Company X reasoned that the Goods sale and purchase contract is invalid because Mr. A (the representative of Company X who signed the contract with my company) is not the legal representative, otherwise, Mr. A is not an authorized representative, has no power of attorney.

We went to the Department of Planning and Investment to verify that, the results are as follows:

1. The legal representative of company X is Mr. B at the time of enterprise registration.

2. On August 20, 2011, Company X changed the legal representative to Mr. A and it was granted the registration.

3. On August 2, 2019, Company X changed the legal representative to Mr. B and it was granted the registration.

 Is the goods sale and purchase contract with Company X invalid?

FDVN’s opinion:

Thank you for concerning FDVN’s legal services. Regarding your consulting requests, after studying the relevant legal documents, FDVN Law Firm would like to give you the following advice:

 [1] Definition of “The legal representative of an enterprise”

Under Clause 1 Article 13 Law on enterprise 2014, “The legal representative of an enterprise is the individual that exercises the rights and fulfills the obligations on when making transactions on behalf of the enterprise, represents the enterprise as the plaintiff, defendant, and person with relevant interests and duties before the arbitral tribunal, the court, exercises other rights and fulfills other obligations as prescribed by law”

 Pursuant to Clause 1 Article 137 Civil Code 2015 Legal representatives of juridical persons include:

“a) The person appointed by the juridical person according to its charter;

b) The person competent to represent as prescribed by law;

c) The person appointed by a court during the proceedings at the court.”

According to the above provision, Mr. A is the legal representitive appointed by Company X according to its charter.

However, in order to confirm that Mr. A is the competent person to enter into the Goods sale and purchase contract with your company, you must prove that the Goods sale and purchase contract signed by Mr. A within the term of representation and in The scope of his representation.

[2] Term of representation and scope of representation of the Enterprise's legal representative

“At clause 1 Article 140 Civil Code 2015 stipulates term of representation as follow:

The term of representation shall be determined according to a power of attorney, a decision of a competent authority, and a charter of a juridical person or as prescribed by law”.

Thus, Mr. A's term of representative to Company X is the period from August 20, 2011 to the end of August 1, 2019. The goods sale and purchase contract was signed on June 15, 2018, which means the contract has been satisfied within the term of representation.

According to clause 1 Article 141 of Civil Code 2015, scope of representation is stipulated as follow:

“1. Each representative may only enter into and/or perform civil transactions within his/her scope of representation according to any of the following bases:

a) The decision of the competent authority;

b) The charter of the juridical person;

c) Contents of authorization;

d) Other regulations as prescribed by law.”

Thus, Mr. A's scope of the representative is determined based on the Charter of Company X, not in all cases the legal representative has the right to sign the contract.

Example: at point h Clause 2 Article 149 Law on enterprise 2014

“2. The Board of members has the following rights and obligations:

h) Approve sale, loan, borrowing contracts, and other contracts of which the values are equal to or higher than 35% of the total asset value written in the latest financial statement of the company, unless another rate is prescribed by the company’s charter. This Point does not apply to the contracts and transactions mentioned in Point d Clause 2 Article 135, Clause 1 and Clause 3 Article 162 of this Law”.

According to the above example, the Board of Directors decides to sign the sale and purchase contract with a value equal to or higher than 35% of the total value of assets recorded in the most recent financial statement of the company, Mr. A signs the Contract is beyond the scope of representation.

From the above analysis, the Charter of Company X needs to be considered whether Mr. A is competent to sign a Goods Purchase Agreement with your Company or not.

[3] Consequences of civil transactions established by representatives beyond the scope of representation

Firstly, A civil transaction entered into and performed by a representative beyond his or her scope of representation shall not give rise to rights and obligations of the principal with respect to that part of the transaction which exceeded the scope of representation, except for any of the following cases:

- The principal gives consent;

- The principal knows it without any objection within an appropriate time limit;

Being known without objection in one of the following cases:

After the contract has been signed, there is sufficient evidence to prove the signatory has reported to the representative that the contract has been signed (such report is shown in the minutes of the meeting of the Board of Directors, minutes of meetings of the Board of members of the Board of Directors, many people agree that the report is true ...)

The principal passed accounting and statistical documents and documents knows that the contract has been signed and it is being performed (signed on invoices, ex-warehousing bills, receipts and expenditures showing contract or on the accounting books of juridical persons)

The principal has acts of proving he/she performs rights and obligations under the agreement (sign documents to extend payment time, performing contractual obligations, sign revenue and expenditure documents or Debt comparison related to the performance of the contract ...).

The principal was directly using assets, profit gained from the signing and performance of the contract (using the car for travel, for business while knowing it is the result of signing and performance the economic contract, using the office as the result the signing and performance of the lease contract ...).

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 is unauthorized persons.

Secondly, In case a civil transaction entered into and performed by a representative beyond his/her scope of representation does not give rise to rights and obligations of the principal with respect to that part of the transaction, the representative must fulfill the obligations owning to the person with which he/she transacted in respect of the part of the transaction which is beyond the scope of representation, unless such person knew or should have known that the scope of representation was exceeded.

Thirdly, A person having transacted with such a representative has the right to terminate unilaterally the performance of or to terminate the civil transaction with respect to that part which is beyond the scope of representation or with respect to the entire transaction and to demand compensation for any damage, except in case such person know or should have known the scope of representation was exceeded.

Above is FDVN Law Firm's opinion for your consulting requests based on studying the relevant legal provisions. Hopefully, FDVN's advice would be helpful to you.

FDVN Law Firm

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