VALIDITY OF CONTRACT, AGREEMENT... SIGNED BY BRANCH OF THE COMPANY

In 2014, my company signed a sale contract with the Branch of Company B. The contract was strictly implemented by the Parties, but until the beginning of 2019, the branch of Company B delayed its delivery obligation. Through many times of conciliation, the representative of Company B believes that a branch of Company B has no authority to sign a contract because it has not been authorized by company B, so the contract is invalid.

I would like to ask if we now want to sue, we will sue Company B or a branch of Company B. If the branch of Company B is not authorized, is the contract valid? Thank you.

FDVN’s Opinions:

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. Identify the the subject being sued against

According to Clause 1, Article 84 of Civil Code 2015, “Each branch and/or representative office is an affiliate other than a juridical person”.

Besides, Clause 1 of Article 45 of Law on Enterprise 2014 (Clause 1 of Article 44 Law on Enterprise 2020) provides that, “A branch is a unit dependent on the enterprise and obliged to perform part or all of the enterprise’s functions, including representation under authorization…”.

At the same time, it is stipulated in Clause 6, Article 84 of Civil Code 2015 that “A juridical person shall have civil rights and obligations arising from civil transactions established and performed by its representative offices and/or branches.”

Based on the above provisions, Company B must be responsible for the transactions established and performed by a branch of Company B. Therefore, it is necessary to determine that the person sued in this dispute is Company B.

2. If the branch of Company B is not authorized, will the contract be valid?

According to Clause 1, Article 45 of Law on Enterprise 2014, Clause 1, Article 84 of Civil Code 2015 (as analyzed above), a branch is an affiliate, not a juridical person. Therefore, to enter into an economic contract, a branch is required to be authorized by the legal representative of the Company establishing that branch (referred to as "the Company"). The authorization of the Company to the Branch can be proved through the following documents: Contract, power of attorney; the Branch's Charter, operation regulations; Decision to appoint the head of the branch, Decision on assigning tasks and powers to the branch (the head of the branch)...

In the absence of documents or evidence proving that Company B has authorized the Branch to sign the contract, the Contract will not be automatically invalidated, due to the need to consider the recognition factors on the actual contract performance process.

Under Article 142 of Civil Code 2015, a civil transaction entered into and performed by an unauthorized person representative (branch) shall give rise to rights and obligations of the principal (Company) in cases where:

• The principal recognizes the transaction;
• 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 unauthorized.

Sub-section 2, Section I of Resolution 04/2003/NQ-HĐTP dated May 27, 2003 of the Judicial Council of the Supreme People's Court stipulates the term of “know it without any objection” as follows:

• After the economic contracts are signed, there are enough grounds to prove that the persons signing these economic contracts have already reported the signing to the competent persons (such reporting is expressed in the minutes of briefings of the directorate, the minutes of meetings of the Members’ Councils or Managing Boards, or many persons confirmed that the reporting had been really made…).
• The competent persons, through accounting as well as statistical vouchers and documents, know that these economic contracts have been signed and are being performed (having signed receipts, ex-warehousing bills or revenues from and expenditures for the performance of these economic contracts or accounting books of legal entities…).
• The competent persons have had acts which prove that they have participated in exercising rights and obligations arising under the agreements in the economic contracts (having signed documents applying for extension of payment terms, having committed to perform the contractual obligations, having signed document approving revenues, expenditures or the final settlement of credits and debts related to the performance of these economic contracts…).
• The competent persons have directly used assets or profits earned from the signing and performance of the economic contracts (having used cars for travel and/or business, which, to their knowledge, have been obtained from the signing and/or performance of these economic contracts; having used working offices obtained from the signing and/or performance of economic contracts on property lease…).

In summary, according to the provisions of the law, if the branch has not been authorized by Company B, the contract (transaction) signed by the Branch is still valid in the following cases: Company B recognizes or agrees on the contract; Company Bknows it without objection within a reasonable period of time; Company B makes a mistake that it does not know or is not able to know that the branch enters into and performs the civil transaction.

Lawyer Nguyễn Công Tín – FDVN Law Firm

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