Article 20: Where laws or administrative regulations restrict the representation rights of a legal person's legal representative or the responsible person of an unincorporated organization, providing that the matters involved in a contract shall be resolved by the legal person's or unincorporated organization's power or decision-making body, or shall be decided by the legal person's or unincorporated organization's executive body, and the legally-designated representative or responsible person concludes a contract in the name of the legal person or unincorporated organization without authorization, and the counterparty who has not fulfilled the obligation of reasonable review claims that the contract is effective against the legal person or unincorporated organization and that they bear liability for breach of contract; Where the people's court does not support it, but the legal person or unincorporated organization is at fault, it may refer to the provisions of article 157 of the Civil Code to make a judgment that they bear the corresponding liability for compensation. Where the counterpart has already fulfilled the obligation of reasonable review and constitutes an apparent representative, the people's court shall handle it in accordance with the provisions of article 504 of the Civil Code.
Where the matters involved in the contract do not exceed the authority of the legal representative or responsible person as provided for by laws or administrative regulations, but exceed the restrictions on the right of representation by the charter or authority of the legal person or unincorporated organization, and the counterparty claims that the contract is effective against the legal person or unincorporated organization and that it bears liability for breach of contract, the people's court shall support it in accordance with law. However, this is not the case where legal persons or unincorporated organizations present evidence to prove that the counterparty knew or should have known of the restriction.
Where, after a legal person or unincorporated organization bears civil liability, it recovers losses caused by the ultra vires representative or responsible person from the legally-designated representative or responsible person who is at fault, the people's court is to support it in accordance with law. Where laws and judicial interpretations have other provisions on the civil liability of legal representatives or responsible persons, follow those provisions.
【Purpose of the Article】
This article is a provision on the validity of the legal representative or responsible person's ultra vires representative acts.
【Overview of Provisions】
This article is divided into three paragraphs, including the following. The first is to distinguish between the reasons for the restriction of representation and its provisions. Where laws and administrative regulations restrict the right of representation, the act of ultra vires representative is an act whose effect is to be determined, and where the counterpart is bona fide, it constitutes an apparent representative, and its effect is equivalent to that of an authorized representative; Where the counterparty is malicious, the contract is not effective against the legal person or unincorporated organization, except where the legal person or unincorporated organization recognizes it retrospectively. Where restrictions on representation originate from the charter or a decision of the authority, they must not be used against bona fide counterparts, and ultra vires representation does not, in principle, affect the validity of the contract. The second is that the ultra vires representative is not effective against legal persons or unincorporated organizations, which means that legal persons and unincorporated organizations do not bear liability for breach of contract when the contract is valid, but it does not mean that legal persons or unincorporated organizations do not bear any liability, but still bear liability for contractual negligence for their faults, which is different from the provision that the principal does not have to bear any liability in the case of entrusting an agent. Third, it is clarified that ultra vires representation applies not only to legal persons, but also to unincorporated organizations, so the perpetrators are mainly the legal representatives of legal persons, including the responsible persons of unincorporated organizations. Fourth, it stipulates that after a legal person or unincorporated organization bears civil liability, it may recover compensation from the legal representative or responsible person who is at fault. The civil liability borne by legal persons and unincorporated organizations includes both liability for breach of contract and liability for negligence in contracting.
【Controversial Views】
First, when determining whether the counterparty is bona fide, should the formal examination or reasonable examination standard be adopted? We believe that the relevant provisions of the Judicial Interpretation on the Guarantee System of the Civil Code should be continued, and the standard of reasonable review should be adopted.
Second, should legal persons or unincorporated organizations be held liable when the counterparty is not bona fide? There is a view that the provisions of Article 171 of the Civil Code on non-agency should be applied by reference, that is, legal persons and unincorporated organizations are not parties to the contract, so they do not need to bear any liability, but should be borne by the legal representative and responsible person as the actor. Another point of view is that the ultra vires representative act of the legal representative or responsible person is still the act of a legal person or unincorporated organization, and if the representative act is invalid, if the legal person or unincorporated organization is at fault, it should still bear the liability for compensation, which is in the nature of contractual negligence. This judicial interpretation adopts the second viewpoint.
[Understanding and Application]
Although Article 504 of the Civil Code stipulates the system of ultra vires representation and apparent representation, it lacks specific provisions on the effectiveness of ultra vires representation, resulting in disputes over whether the use of non-authorized agents should be allowed in practice. The Judicial Interpretation of the Guarantee System of the Civil Code provides for ultra vires guarantees of companies, but they only apply to guarantees, so it is still necessary to make a general interpretation on the issue of ultra vires representation. This article basically continues the relevant spirit of the Judicial Interpretation of the Guarantee System of the Civil Code, and applies it to all ultra vires representative acts. To accurately understand the provisions of this article, it is necessary to pay attention to the following aspects.
1. The right of representation of the legal representative and the person in charge
The right of representation is the right of representation of the actor relative to a certain organization, and the typical one is the right of representation enjoyed by the legal representative of the company. Article 217 of the Company Law stipulates that: "This Law shall apply to foreign-invested limited liability companies and joint-stock companies; Where laws on foreign investment provide otherwise, apply those provisions. Article 31 of the Foreign Investment Law stipulates that "the Company Law of the People's Republic of China, the Partnership Enterprise Law of the People's Republic of China and other laws shall apply to the organizational form, organizational structure and activities of foreign-invested enterprises." It can be seen that foreign-invested enterprises also include companies, partnership enterprises and sole proprietorship enterprises, among which the provisions of the Company Law apply to foreign-invested enterprises under the corporate system, and there is also the issue of the representation of legal representatives. In addition to corporations, the legal representatives of non-profit corporations and special corporations have the right to be represented.
Paragraph 3 of Article 50 of the Judicial Interpretation of the Civil Procedure Law stipulates that: "For other organizations, the principal responsible person shall be the representative. According to Article 52 of the Judicial Interpretation, the so-called "other organizations" in the Civil Procedure Law include not only unincorporated organizations such as partnerships and sole proprietorships, but also branches of legal persons. According to Article 74 of the Civil Code, a branch of a legal person, as a part of a legal person, does not have independent liability capacity, and the effects of its actions are borne by the legal person, which is different from that of an unincorporated organization. The subject of the so-called representation in this article is not limited to legal persons and unincorporated organizations, but also includes branch offices. In practice, when the person in charge of a branch of a commercial bank engages in external acts on behalf of the branch, it is also necessary to determine the liability of the branch or even a legal person in accordance with the rules of this article on ultra vires representation. For the sake of convenience, the following is an analysis of the ultra vires representative behavior of the company's legal representative.
2. Two restrictions on the right of representation
Restrictions on the representation of legal representatives include two situations.
The first is intentional restrictions, that is, the general restrictions on the right of representation made in the articles of association of the company in advance and the individual restrictions on the right of representation made by the shareholders (general meeting) and other corporate authorities. Pursuant to paragraph 3 of Article 61 of the General Provisions of the Civil Law, which stipulates that "the legal person's articles of association or the legal person's authority shall not oppose the legal representative's right of representation", the intended restriction on the legal representative's power shall not be against the bona fide counterpart. From the point of view of proof, it should be presumed that the counterparty is bona fide, thus constituting an apparent representative. Of course, a legal person can prove that the counterpart is malicious by adducing evidence, that is, the counterpart knew or should have known about the legal person's articles of association or the restrictions on the legal representative's right of representation by the legal person's authority, and then deny the application of the apparent representative system.
The second is the statutory restriction, that is, the restriction imposed by the law on the right of representation. On the one hand, according to Article 61, Paragraph 2 of the Civil Code, the legal consequences of civil activities carried out by the legal representative in the name of a legal person shall be borne by the legal person. However, this provision is not without exceptions, and where laws and administrative regulations restrict the legal representative's right of representation, the legal representative's engagement in representative conduct in violation of the provisions of the laws and administrative regulations indicates that he or she is engaging in ultra vires representative conduct. On the other hand, once the law is promulgated, it is presumed that everyone should know and abide by it, including of course the counterparty who engages in transactions with the legal representative. The fact that the counterparty engages in transactions with the legal representative even though the laws and administrative regulations restrict the legal representative's right of representation indicates that the counterparty is not bona fide, so in principle, there is no issue of making the company liable for breach of contract according to the apparent representation rule. From the perspective of judicial practice, the restriction of the legal representative's authority is mainly the provision in Article 16 of the Company Law that a company's external guarantee shall be subject to the company's resolution procedure. For example, Article 121 of the Company Law also has a similar provision: "If a listed company buys or sells material assets or guarantees an amount exceeding 30% of the company's total assets within one year, it shall be resolved by the general meeting of shareholders and approved by more than two-thirds of the voting rights held by shareholders present at the meeting." Accordingly, if the legal representative of a listed company buys or sells material assets within one year or the amount of guarantee exceeds 30% of the total assets of the company without the approval of more than two-thirds of the voting rights held by the shareholders present at the meeting, it also constitutes a representative with ultra vires authority.
3. Apparent representation and determination of good faith
As mentioned above, apparent representation is applicable to two situations: first, there are intentional restrictions on the right of representation, and since such restrictions cannot be used against the counterparty in principle, they constitute apparent representation in principle, and only in exceptional circumstances will they return to the ultra vires representative; Second, if there are statutory restrictions on the right of representation, in principle, it constitutes ultra vires representation, and only when the counterpart is in good faith can it constitute apparent representation. The so-called good faith here refers to the fact that the counterparty is unaware of the fact that the legal representative has exceeded the authority of the representative. On the contrary, if it is aware of the fact, it constitutes bad faith. Taking the legal representative as an example, if the legal representative provides a guarantee to the outside world without the company's resolution procedure, unless there is an exception that does not require a resolution as provided in Article 8 of the Judicial Interpretation of the Guarantee System of the Civil Code, the counterparty signs a guarantee contract with the legal representative without providing a resolution, indicating that it is aware that the legal representative is ultra vires in providing the guarantee, and therefore it is a malicious counterparty, and it is impossible to distinguish between good faith and non-existence. It can be seen that the distinction between good faith and bad faith is only meaningful when the legal representative exceeds his authority and may constitute an apparent representative, and in practice there are mainly two situations: one is that there is a resolution but it is not a qualified resolution; The second is that there is a formal resolution, but the resolution is forged.
The so-called form of qualified resolution refers to the circumstances under which a resolution is required by the shareholders' meeting or the general meeting of shareholders, and under what circumstances only a resolution by the board of directors is required, and this needs to be specifically determined by distinguishing between related and non-related guarantees. The so-called related guarantee refers to the guarantee provided by the company to its shareholders or actual controllers. According to Article 16, Paragraph 2 of the Company Law, a resolution of the shareholders' meeting or the general meeting of shareholders must be passed at this time. If the legal representative has not been resolved by the shareholders' meeting or the general meeting of shareholders, or only by the resolution of the board of directors, the guarantee contract signed by the legal representative shall constitute no authorized representative. Under the circumstance that the law is so clear, the counterparty that signs the guarantee contract without reviewing the resolution of the shareholders' meeting or the general meeting of shareholders is always a malicious counterparty, and there is no possibility of applying apparent representation. The so-called non-affiliated guarantee refers to the guarantee provided by the company to a person other than the shareholder or actual controller. According to the provisions of Article 16, Paragraph 1 of the Company Law, the articles of association of the company shall stipulate whether the resolution of the shareholders' meeting (or the general meeting of shareholders) or the resolution of the board of directors shall be determined by the company. If the articles of association do not provide for it, the resolution of the board of directors or the resolution of the shareholders' meeting (or shareholders' meeting) is a qualified resolution; If the articles of association of the company stipulate that the resolution shall be made by the board of directors, according to the rule of interpretation of "lifting the weight to make the light light", the resolution of the shareholders' meeting is of course also a qualified resolution. It is worth discussing that if the articles of association stipulate that the resolution of the shareholders' meeting (or the general meeting of shareholders) is actually issued, how can the counterparty be determined to be bona fide? One view is that the counterparty only bears the obligation of formal examination, but does not have the obligation to review the charter; In addition, according to paragraph 3 of article 61 of the Civil Code, which stipulates that "the legal person's articles of association or the legal person's authority shall not oppose the legal representative's right of representation, it shall not be opposed to a bona fide third party", and thus does not prevent the determination of the counterparty as bona fide. Another view is that the counterparty has a reasonable obligation to review, which of course includes the obligation to review the articles of association, and where the articles of association clearly stipulate that the external guarantee shall be resolved by the shareholders' meeting or the general meeting of shareholders, the legal representative only submits the resolution of the board of directors, and if the counterparty accepts it, it cannot be determined that the counterparty is in good faith. In our view, the Judicial Interpretation of the Guarantee System of the Civil Code does not simply follow the provisions of the Minutes of the Civil and Commercial Trial Conference on the fact that the counterparty only bears the obligation of formal review, but stipulates that it has the obligation of reasonable review, which obviously adopts the second view. The difference between the formal examination and the reasonable examination standard mainly lies in whether the charter should be reviewed, and special attention should be paid to this point.
Of course, as far as the review of the qualified resolution itself is concerned, the reasonable review can still only be a formal review, and it is difficult to require the counterparty to conduct a substantive review, after all, the counterparty is not an insider of the company, and it is difficult to understand the specific circumstances of the company's resolution. Therefore, the review of the company's resolution can only be a formal review, and the basic requirements include: first, to review whether the identity of the shareholders or directors is true; The second is whether the shareholders who should abstain from voting participate in the voting in the case of related guarantees. As for the company's defense that the creditor is not bona fide on the grounds that the resolution of the organ was forged or altered by the legal representative, the resolution procedure is illegal, the signature (name) is false, or the guarantee amount exceeds the statutory limit, the people's court will generally not support it, unless the company has evidence to prove that the creditor knew that the resolution was forged or altered.
4. The distinction between ultra vires representatives and non-authorized agents
With regard to the liability of ultra vires representatives, one view is that the provisions of Article 171 of the Civil Code on non-authorized representation should be applied by reference, that is, in the case of ultra vires representation of the legal representative, not only is the ultra vires representative act not effective against the company, but the company is not a party to the contract, so it does not need to bear any liability, but should be borne by the legal representative as the actor. Judging from the relevant expressions of the Civil Code, although there are many similarities between ultra vires and non-authorized agents, there are still differences between the two, so the ultra vires representative behavior cannot be fully explained by the system of non-authorized agency.
First, from the perspective of the expression of relevant authority. The Civil Code summarizes the lack of agency as no agency, exceeding the power of agency, and terminating the power of agency, while Article 504 of the Civil Code only has the expression "exceeding authority", and does not have the expression "no right of representation" or "termination of the right of representation".
The second is from the expression of the goodwill of the relative. With regard to ultra vires representation, Article 504 of the Civil Code only distinguishes between bona fide and malicious acts: in good faith, the contract is valid; If it is malicious, the contract is invalid and the fault of the counterparty is not considered. However, judging from the provisions of Articles 171 and 172 of the General Provisions of the Civil Law on non-authorized agency and apparent agency, it is actually divided into three situations: the counterpart's bona fide non-authorized agency (Article 171, Paragraph 3), the counterparty's malicious non-authorized agency (Article 171, Paragraph 4), and the counterpart's bona fide and non-negligent apparent agency (Article 172). It can be seen that the rules for ultra vires representation and non-authorized representation are not completely consistent.
The third is from the perspective of the source of authority. According to paragraph 2 of Article 61 of the Civil Code, which stipulates that "the consequences of civil activities engaged in by the legal representative in the name of a legal person shall be borne by the legal person", the legal representative may generally engage in civil activities on behalf of the company without additional authorization. Even if he engages in external acts beyond his authority, he is only a representative who exceeds his authority, not a representative without authority. In addition to the legal representative, the entrusted agent is generally authorized on a case-by-case basis, and the agent is very variable. In the absence of agency, the agent has no power of agency at all, and there is no connection between him and the so-called principal. For this reason, Article 504 of the Civil Code only provides for ultra vires representation, but not for non-authorized representation.
Fourth, from the perspective of whether it is an act of duty. The legal representative is the legal authority of the company, and its representative authority is derived from the express provisions of the law. Even if the legal representative engages in an act that is ultra vires, it is also an act of the company that is engaged in externally, which is essentially an act of performing duties, and even if the act of ultra vires does not have effect on the company, there is no basis for the legal representative to be personally liable. In the case of entrusting an agent, the authority of the agent comes from the authorization of the principal, and if it is not authorized by the principal, its behavior has nothing to do with the principal, and naturally does not take effect on the principal, but the agent itself should bear the responsibility.
It is precisely because of the aforesaid distinction between ultra vires and non-authorized agents that this article provides that even if ultra vires representation is constituted, the company is liable for compensation, which is in the nature of contractual negligence. The premise of the company's liability is that it is at fault, and the question is, is such fault the fault of the legal representative or the fault of the company itself? One view was that such a fault was the fault of the legal representative, and that the legal representative exceeded his authority and that the representative itself was at fault. Another point of view is that this kind of fault is the fault of the company itself, which is mainly manifested in the fault of the selection and supervision of the legal representative, as well as the fault of the management of the official seal. In our view, the Civil Code adopts a practical rather than a fictional theory for legal persons, and regards the legal representative as the organ of the legal person rather than an agent, so such fault should be the fault of the company itself rather than the fault of the legal representative.
Paragraph 2 of Article 20 of the Minutes of the Civil and Commercial Trial Conference stipulates that the company shall not be liable as long as it provides evidence to prove that the creditor clearly knew that the legal representative exceeded his authority or that the resolution of the organ was forged or altered. We believe that as long as the legal representative fails to provide a qualified resolution, the counterparty should know that it has exceeded its authority to provide the guarantee, but this only indicates that the counterparty is malicious, and cannot further deduce that the company itself is not at fault. As long as the company is at fault, it should be liable, so the company cannot claim exemption solely on the ground that the counterparty knowingly exceeded its authority. It is worth discussing whether the company can be exempted from liability if the counterparty accepts the guarantee knowing that the resolution is forged or altered? There are differing views on this. There is a view that the company still cannot be exempted from liability, because the company will be liable without a resolution, and forging or altering the resolution is equivalent to no resolution; In addition, the forgery or alteration of the resolution shows that the legal representative or the company is still at fault, so it cannot be exempted from liability. In our view, if the counterparty accepts the guarantee even though it knows that the resolution is forged or altered, it can often be determined that the legal representative and the counterparty have maliciously colluded to damage the interests of the company, and the company can be exempted from liability on this basis, as detailed in Article 23 of this Judicial Interpretation on how to determine the validity of a contract when the legal representative and the counterparty maliciously collude.
5. The company's recovery from the legal representative
Paragraph 2 of Article 62 of the Civil Code stipulates that after a legal person bears civil liability, it may recover compensation from the legal representative at fault in accordance with the provisions of the law or the articles of association of the legal person. If the legal person refuses to file a lawsuit, the other shareholders may file a lawsuit in accordance with the provisions of the Company Law on shareholder representative litigation. If the company is unable to liquidate and the creditor is unable to obtain compensation, can the creditor file a subrogation lawsuit against the legal representative? In the process of drafting this judicial interpretation, there was a view that a creditor could file a subrogation lawsuit against the legal representative, but this judicial interpretation ultimately did not adopt such a view. Because the right of subrogation refers to the creditor's subrogation of the creditor's claim against the secondary debtor in its own name when the debtor neglects to perform its claim against the secondary debtor. The premise for the exercise of subrogation is that the debtor's claim against the secondary debtor must actually exist and mature. In the case of ultra vires guarantee, the company can only recover from the legal representative after assuming responsibility to the counterparty. In other words, when the counterparty claims compensation from the company, the company's claim against the legal representative does not actually exist, so there is no issue of subrogation.