This is the seventh in a weekly series of legal advice provided in a short and entertaining story format.
This week’s areas of Interest: Company, Corporate Law
This week’s keywords: Business and Corporation Law, Laws of Corporation, Legal Representative, Legal Authority.
What happens when the Legal Representative exceeds his authority?
Alex is the legal representative of his company trading toy products, and in order to limit his authority, the board of directors resolved that Alex not sign any deals above 2 million in writing.
Alex was sent to Guangdong to talk business with a manufacturer, which would make them toys. Despite his efforts, he just could not talk the manufacturer into a deal below 2.5 million. Alex struggled back and forth. If he signed the deal, he would be disobeying orders; if he didn’t sign the deal, his boss would think he was useless and give him the sack.
It was choosing between the lesser of two evils. Alex finally decided to sign the deal anyways, because he knew it was probably the lowest price he could get. Other factories required 3 million or above for the same amount of toys, so he knew the boss would take the deal if he were in Alex’s shoes.
Half a year later, the toys were manufactured and it was time for Alex’s company to pay. However, there was a major problem in another line of toys. The paint contained poisonous elements and all the toys had to be recalled. The company bore a huge loss, and were unable to pay the 2.5 million.
Putting the blame on Alex, Ken, as a director, told the manufacturer, ‘Alex is only allowed to sign any deal under 2 million, so we do not approve of this 2.5 million contract.’
So does the deal still hold? Does the amount need to be paid?
Prof Simon Says:
Yes, the contract still withstands. The 2.5 million has to be paid.
Although Alex did disobey his orders and exceeded his authority, the manufacturer has no notice about it. The contract also bears the company stamp and Alex’s signature, so both parties are bound by the terms.
In conclusion, either Alex’s company has to borrow money to pay the amount in full, or to sign another contract with the manufacturer’s consent allowing it to pay them by installments.
“This article was originally written in Chinese by Mr Huanyu Li and rewritten into English by Simon Choi.”
For more about this or to contact Professor Simon Choi at www.acmeardent.com, [email protected], +86 13823677853 or by WeChat: simonhkchoi.
About the Author: Professor Simon Choi
Prof Simon Choi, solicitor and linguist, is an international lawyer, qualified to practise law in England & Wales and in Hong Kong, China. Simon graduated from law schools of the Peking University, the University of London and the University of Hong Kong respectively, with an in-depth knowledge of Chinese laws and common laws and with more than 20 years experience in China practice and international trade, investment, finance, merger & acquisition. He is an adjunct professor of laws at the Zhongnan University of Economics and Law. Simon is the founding partner of Acme Ardent and can be reached at [email protected] or +86 13823677853.