Can a contract signed in the name of the trustee require a third party to perform directly to the principal?

From January 1, 2021, the Civil Code of the People's Republic of China came into force. The Civil Code consists of 7 parts and 1260 articles, each of which is divided into general provisions, property rights, contracts, personality rights, marriage and family, inheritance, tort liability and by-laws. The whole article satisfies the people's needs for a better life, and makes clear and detailed provisions on citizens' personal rights, property rights, personality rights, etc., reflecting the full protection of people's rights, and is known as "the declaration of people's rights in the new era".

In order to better understand the content of the Civil Code, I have sorted out the provisions of the Civil Code as a whole and selected the important provisions in it for interpretation. I hope it will be beneficial to everyone

Contract Part | entrustment contract

Netizens ask questions

As the actual property owner of the house, Zhang Mou entrusted his friend Xi Mou to operate and manage the house on his behalf because he could not be present to sign the contract abroad, and his authorization letter did not exclude Xi Mou from renting out the house in his own name. Then, As the lessor, Mr. Xi and Mr. Liu signed the Lease Contract, stipulating that Mr. Xi would lease a house to Mr. Liu. Then, because Liu was in arrears with rent, Xi sued Liu to the court. Defendant Liu argued that Zhang's authorization of Xi met the constituent elements of indirect agency, that the lease relationship was directly established between Zhang and the lessee, and that the case should be filed with Zhang, the actual owner of the house, as the plaintiff, and should not be filed in the name of the trustee, Xi. So, is Liu's argument right?

Often on the "canon"

Article 925 of the Civil Code of the People's Republic of China A contract concluded between a trustee and a third party in his own name and within the scope of the trustor's authorization, and the third party knows of the agency relationship between the trustee and the trustor at the time of conclusion of the contract, the contract directly binds the principal and the third party; however, unless there is conclusive evidence to prove that the contract only binds the trustee and the third party.

The lawsuit filed by the trustee xi X as the plaintiff in this case did not violate the law, and the defendant Liu X's argument had no legal basis.

The court held that Zhang, as the actual owner of the house, entrusted Xi X to operate and manage the house on his behalf due to the reality that he could not be present to sign the contract abroad, and his authorization letter did not exclude Xi X from renting out the house in his own name, so the lessor of the contract in this case was Xi X, so it did not violate the provisions of the law. And according to the above-mentioned legal provisions, "if the third party knows the agency relationship between the trustee and the trustor when concluding the contract, the contract directly binds the principal and the third party", therefore, Liu, as the third party, also knows the existence of the agency relationship when concluding the contract, the lease contract can actually bind the principals Zhang and Liu, and the court ordered Liu to directly pay the remaining rent to Zhang and bear the loss of capital occupation.

Interpretation of the law

Article 925 of the Civil Code stipulates the right of the client to intervene in the entrustment contract, in which the client has a special right, that is, the right to intervene. The right of the client to intervene breaks through the relativity of the contract, which means that when the trustee does not perform the contractual obligations of the trustor due to the reasons of the third party, the client intervenes in the contractual relationship between the trustee and the third party and directly claims the contractual right to the third party. Of course, the client cannot exercise his right to intervene at will, and the prerequisites for the client to exercise the right to intervene are as follows:

1. The Trustee shall conclude a contract with a third party in his or her own name

If the trustee directly concludes a contract with a third party in the name of the settlor, the counterparty to the contract is the principal and the third party, and the principal no longer needs to exercise the right to introduce the person, so there is no need for the trustee to disclose the existence of the third party to the client.

2. The trustee does not perform its obligations to the client due to the reasons of the third party

If the trustee fails to perform its obligations to the settlor for its own personal reasons, the trustee shall be liable for breach of contract to the settlor, and at this time, since no third party is involved, the existence of a third party is irrelevant to the trustor.

Third, the third party does not know that there is a entrustment relationship between the trustee and the settlor

Whether it is known that there is a trust relationship between the trustee and the trustor, the burden of proof is on the trustee. Moreover, when the third party concludes the contract with the trustee, there is no situation in which the contract will not be concluded if the principal is known.

Finally, it is reminded that the right of the client to intervene can be completely based on its own interests and will to decide whether to exercise the right, without the consent of the trustee or a third party. If the settlor is willing to exercise this right, it will replace the trustee's position in the contract, and the legal act carried out by the trustee in his own name will have direct effect on the settlor, that is, the consequences of direct agency.