The Second Civil Division of the Supreme People's Court: Adjudication Views on the Limitation and Recovery of the Power of Attorney of Duty Agents

Supreme People's Court

Adjudication views on the limitation and recovery of the power of attorney of duty agents

※ Restrictions on the power of attorney and its legal consequences

Paragraph 2 of Article 170 of the Civil Code stipulates that: "Restrictions imposed by legal persons or unincorporated organizations on the scope of authority of persons performing their work tasks shall not be directed against bona fide counterparts." There are differing understandings of what is meant in the article with regard to "not against bona fide third parties". There is a view that when the external authorization (job granting) and the internal authorization are inconsistent, the rules of interpretation of the expression of intent prevail based on the external authorization, which corresponds to the rules of interpretation of the authorized agent, rather than the interpretation rules of the non-authorized agent or the apparent agent; There is a view that this article is an apparent agency rule of duty agency, and is a special provision of Article 172 of the Civil Code; There is also a view that this article is a provision on ultra vires agency in duty agency, but in order for ultra vires agency to constitute apparent agency, it is still necessary to invoke the provisions of Article 172 of the Civil Code, and this article itself cannot be used as the normative basis for apparent agency. The above controversy involves two basic questions: first, whether the article is a provision on agency authority or ultra vires agency? Second, if it is ultra vires agency, will this provision be directly applied when applying apparent agency, or will Article 172 of the Civil Code or other provisions be applied?

It should be made clear that in the case of duty agency, the employee's agency power should be determined according to his authority, and this determination is an objective determination, and whether the employee has agency power cannot be reversed based on whether the counterpart is bona fide. In other words, when a legal person or an unincorporated organization imposes restrictions on the scope of authority of a staff member performing his or her duties, the employee ignores such restriction and engages in agency conduct, which constitutes ultra vires agency. In this regard, article 170, paragraph 2, of the Civil Code is clearly a provision on ultra vires agency. The reason why scholars interpret it from the perspective of authorized agency may be to draw on the theory of independence and non-causality of authorized acts in the case of principal-agent. As long as the authorization is not revoked, the restriction on the power of agency under the underlying relationship does not affect the exercise of the power of agency, and the act of agency performed by the employee still constitutes the right to act as an agent. As mentioned above, we recognize the independence of the act of authorization but do not recognize its causality, in this case, the restriction of the power of agency under the underlying relationship or even the revocation of the power of agency will inevitably affect the basis of the power of agency, so that the authorized agent will become the non-authorized agent. In particular, it should be noted that the authorized act of the duty agent is unattached and difficult to externalize, and it is difficult to construct the independence of the authorized act with full reference to the entrusted agent, so it can only be judged from the perspective of whether the employee has authority. In the case of restrictions on the authority of staff members, such an agency cannot be considered to be an authorized agent from the point of view of the independence of the delegated act. Another possible theoretical source is the reference to the statutory managerial authority system in comparative law. In comparative law, the duty agency is divided into the manager's power and the agency power, and the manager enjoys a wide range of general agency rights after commercial registration, and the internal restrictions on the manager's power do not affect his statutory authority, and then it is determined that the duty agency act of the manager is all authorized agency. However, the mainland does not distinguish between the manager's power and the agency power, nor does it recognize the manager's general agency power, nor does it establish a registration system for managers, so it cannot simply copy the theory of comparative law.

After clarifying that paragraph 2 of Article 170 of the Civil Code is the ultra vires agency of duty agency, it is also necessary to solve the problem of the constitutive elements and normative basis of apparent agency in duty agency, which specifically involves the following issues:

First, in the case of apparent agency in the composition of duty agency, should it be required that the bona fide counterparty is not negligent, or is it only good faith? This relates to the question of whether a distinction should be made between ultra vires agency and the absence of agency and termination of agency.

Second, how to determine the goodwill of the counterpart?

The third is the apparent agency in the duty agency, which is subject to Article 17 of the Civil Code. Paragraph 2, Article 172 of the Civil Code, or does it refer to the provisions of Article 504 of the Civil Code on apparent representation? They are described below.

First, on the issue of the imputability of the counterpart. It is generally believed that the apparent agency provided for in Article 172 of the Civil Code is necessary for the counterparty to be bona fide and not at fault, while Article 170, paragraph 2 of the Civil Code only requires the counterparty to be bona fide. There are different understandings of this.

[We believe that] a distinction should be made between ultra vires agency and other non-authorized agents, and different constituent elements should be stipulated for apparent agency. When the actor does not have the power of agency from the beginning or still carries out the act of agency after the termination of the power of agency, the transaction counterparty should first examine whether the power of agency exists on the surface, and then whether there is "reason to believe" that the actor has the power of agency. On the occasion of examining the existence of the power of agency, they have an obligation to reasonably review, and if they fail to perform the obligation of reasonable review, it is shown that they are negligent and cannot constitute apparent agency. However, in the case of ultra vires agency in the case of duty agency, the governance situation such as the distribution of authority, management and restriction within the commercial organization is a "black box" for the transaction counterpart. The law not only does not require this, but clearly stipulates that such restrictions "shall not be used against bona fide counterparties", in order to reduce the cost of agency verification pushed up by the "governance black box" of commercial organizations. This view more effectively explains the reason why the ultra vires agency of the duty agency and the ultra vires representative do not need to examine whether the counterparty is negligent when constituting the apparent agency or the apparent representative. Following this logic, in the case of ultra vires agency of entrusted agency, a corresponding distinction should be made between the other two types of non-authorized agents. However, Article 172 of the Civil Code does not make such a distinction, therefore, if the ultra vires agency constitutes apparent agency, according to Article 172 of the Civil Code, it is still necessary to consider whether the counterparty is negligent, and the factor of the counterparty's negligence is not necessary to be considered in the case of duty agency. This makes it difficult to explain why the constituent elements of the principal's agency and the duty agency are different from those of the same ultra vires agency. Of course, in practice, when determining whether the counterparty is bona fide, it depends on whether the counterparty has fulfilled the obligation of reasonable review: if it fails to perform the obligation of reasonable review, even if it is truly unaware, it will be determined that it is a malicious counterparty because it has not fulfilled the obligation of reasonable review; On the other hand, if the duty of reasonable examination has been fulfilled, while constituting good faith, it often shows that it is not negligent. In other words, in the process of determining good faith, the negligence factor has actually been examined, so that the aforementioned distinction is only theoretical, and the consequences are basically the same in practice.

Second, to determine whether the counterpart is bona fide, it is necessary to conduct a typological analysis of the specific circumstances of the restriction of the power of attorney.

First, the law clearly restricts the right of representation or agency, which can be used against the counterpart. In other words, for major transactions that the law clearly stipulates requires special authorization, the duty agent who has not obtained special authorization does not have the power of agency, and the counterparty should also be aware of the clear provisions of the law, and it still signs a contract with the agent even though it knows or should know that the agent does not have the power of agency, indicating that the counterparty is in bad faith, and of course does not constitute apparent agency. However, in practice, it is not excluded that the duty agent forges or alters the relevant resolution, and if the counterpart is still unable to review the authenticity of the resolution after fulfilling its reasonable review obligations, it is also necessary to protect the reasonable trust of the counterparty, and only then can there be room for the apparent application of the agent.

Second, the internal restrictions on the authority of the duty agent by the power or decision-making body of a legal person or unincorporated organization through means such as articles of association, board resolutions, etc., must not be used against bona fide counterparts. The question is, does the counterparty have the obligation to review documents such as the articles of association? On the one hand, it is necessary to distinguish whether such documents are open to the public. The articles of association of a listed company are open to the public, and the counterparty's reasonable review obligation should include the review of the listed company's articles of association, and the counterparty that fails to fulfill the trial obligation generally cannot be determined to be a bona fide counterpart; On the other hand, if the articles of association of a closely held company such as a limited company do not need to be made public, can it be concluded that the counterparty does not have the obligation to review the articles of association? There are different views on this. If the articles of association of the company stipulate that matters such as the provision of external guarantees shall be resolved by the shareholders' (general meeting), but the official agent only issues a resolution of the board of directors to the counterparty, can it be determined that the counterparty is in good faith? One view is that, in accordance with the provisions of Article 170, Paragraph 2 of the Civil Code, and with reference to Article 61, Paragraph 3 of the General Provisions of the Civil Law, which stipulates that "the articles of association of a legal person or the legal person's authority shall not confront a bona fide third party", the provisions of the articles of association shall not be against the bona fide counterparty, and this does not prevent the determination that the counterparty is 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 if the articles of association clearly stipulate that the external guarantee shall be resolved by the shareholders' (general meeting), the legal representative only submits the resolution of the board of directors, and if the counterparty accepts it, it cannot be deemed to be a bona fide counterparty. On this issue, the Judicial Interpretation of the Civil Code on the Guarantee System does not simply follow the provisions of the Minutes of the Civil and Commercial Trial Conference that the counterparty only bears the obligation of formal review, but stipulates that it bears the obligation of reasonable review, which obviously adopts the second view. The difference between the standard of formal examination and reasonable examination lies to a large extent in whether the charter should be examined, and special attention should be paid to this point.

The third is other restrictions imposed by legal persons or unincorporated organizations on the authority of duty agents, such as stipulating that the amount of each contract signed by the counter staff shall not exceed a certain amount, or the total amount of contracts signed within a month shall not exceed a fixed amount, etc. Such restrictions are often difficult for the counterparty to know, so it does not bear the obligation of review, so it can often be determined that it is a bona fide counterpart.

In short, the bona fide counterparty needs to make a case-by-case determination depending on the specific circumstances of the authority restriction, and the determination of negligence is often included in the process of determining good faith. Compared with the theory of causality, the determination of good faith or non-existence can better take into account the dual requirements of transaction security protection and corporate property protection. From the perspective of the burden of proof, the counterparty should be presumed to be bona fide, so that the legal person or unincorporated organization that asserts that a certain act is ineffective against it can adduce counter-evidence to overturn the presumption of good faith, that is, to prove that the counterparty is in bad faith.

Third, on the issue of the normative basis for the apparent agency of duty agency. Based on the foregoing analysis, a distinction should be made between the apparent agency in the principal's agency and the apparent agency in the duty agency, and there is a difference between the two in terms of whether the counterparty is required to be imputable. Article 172 of the Civil Code is a provision on apparent agency in the case of entrusted agency, and cannot be used as the basis for determining the apparent agency in the case of duty agency. So, can it be considered that Article 170, Paragraph 2 of the Civil Code itself is the basis for constituting apparent agency on the occasion of duty agency?

[We believe] that paragraph 2 of Article 170 of the Civil Code is similar in function and nature to paragraph 3 of Article 61 of the General Provisions of the Civil Law, and the latter itself is not the normative basis for apparent representation. Should its effects be attributable to legal persons or unincorporated organizations? These two provisions are not directly prescribed, and in this respect they are incomplete norms. Article 504 of the Civil Code, on the other hand, clearly stipulates the legal effect of ultra vires representatives, which is a direct provision on apparent representatives. Together with paragraph 3 of Article 61 of the General Provisions of the Civil Law, it constitutes a complete norm on ultra vires representation and apparent representation. Similarly, from the perspective of systematic interpretation, paragraph 2 of Article 170 of the Civil Code itself is not a complete provision on ultra vires agency and apparent agency in duty agency. Article 504 of the Civil Code is the most similar to the authorized agency and apparent agency in duty agency, so Article 504 of the Civil Code can be used as the reference basis for the application of ultra vires agency and apparent agency in duty agency. Of course, the aforesaid interpretation has a strong academic color, and from the perspective of convenient application, it is reasonable to not refer to the application of Article 504 of the Civil Code, but only cite Article 170, Paragraph 2 of the Civil Code, and use it as the basis for apparent agency in duty agency. In this sense, paragraph 2 of article 170 of the Civil Code can also be used as a special provision of article 172 of the Civil Code.

※The right of recourse against the duty agent

After assuming responsibility, a legal person or unincorporated organization has the right to recover compensation from the duty agent who has intentionally or grossly negligently exceeded its authority. When accurately understanding the right of recourse of a legal person or unincorporated organization against a duty agent, it is necessary to pay attention to the following.

First, a legal person or unincorporated organization has already borne civil liability. As mentioned above, in the case of an agent exceeding his authority, if a legal person or unincorporated organization is at fault, it shall still bear tort liability to the counterparty in accordance with Article 1191 of the Civil Code. However, in the case of a principal agent, the principal generally does not need to be liable, so there is no question of recovering from the agent. From the perspective of the counterparty, in the case of entrusting an agent without the right to act as an agent, the counterparty should directly request the actor to bear responsibility in accordance with the provisions of paragraphs 3 and 4 of Article 171 of the Civil Code, and there is no question of recovering from the agent after the principal has assumed responsibility. It is worth discussing whether a legal person or unincorporated organization can recover from the agent after assuming the liability for breach of contract when the contract is valid.

[We believe] that in this case, the legal person or unincorporated organization bears a heavier liability than in the previous case, and has more right to recover from the duty agent, and cannot exercise the right of recovery because it bears a heavier liability for breach of contract.

Second, the duty agent has intentional or gross negligence. After a legal person or unincorporated organization assumes responsibility, according to Article 62 of the Civil Code, as long as the legal representative is at fault, it can recover compensation from the legal representative; In the case of an agent acting as a duty agent, according to Article 1191 of the Civil Code, compensation can only be recovered from the agent if he or she is intentional or grossly negligent. It can be seen that the conditions for recovering from the duty agent are stricter than those from the legal representative. The reason why the handling is different is that in the case of ultra vires representation, the legal representative or responsible person has a wide range of representation rights, and the consequences of his actions are, in principle, borne by the legal person or unincorporated organization. The greater the power, the greater the responsibility, as long as the legal representative or the person in charge is negligent, he must bear the corresponding responsibility. In the case of duty agency, the agent's power of agency is limited, so the duty agent is only held liable if he has intentional or gross negligence.

The third is the issue of whether the right of recourse can be exercised by subrogation. After a legal person or unincorporated organization bears civil liability, it may recover compensation from an agent of duty who has intentionally or grossly negligently. For example, if the company refuses to file a recovery lawsuit, other shareholders may file a lawsuit in accordance with the provisions of the Company Law on shareholder representative actions. The question is that if the company is unable to pay off and the creditor is unable to obtain compensation, can the creditor file a subrogation lawsuit against the legal representative? There is a view that a creditor can file a subrogation lawsuit against the legal representative, but we take a negative view on this because subrogation refers to the subrogation of the creditor 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 be actual and mature. In ultra vires agency, the company can only recover from the duty agent after assuming responsibility to the counterparty. In other words, when the counterparty claims compensation from the company, the company's claim against the duty agent does not actually exist, so there is no issue of subrogation.

Transferred from the same judgment rule for similar cases