Power of attorney and power of representation when entering into contracts

Legal entities such as companies, associations or foundations can participate in legal transactions (Article 2:5 jo. 3:32 of the Civil Code). However, they depend on natural persons for actual acts. How does this work legally? You will read the answer in the article.

Representation

Natural persons may be authorized to act on behalf of a legal entity. This applies primarily to directors, who in principle can represent the legal entity by their position. In some cases, they can do so independently, where a director has independent authority to act on behalf of the legal entity.

In other cases, a director is authorized only if he acts jointly with one or more other directors. It is listed in the trade register of the Chamber of Commerce whether directors are authorized independently or jointly.

Authority by power of attorney

Others, such as employees, can also bind a legal entity and enter into agreements, for example, because the legal entity has granted them a power of attorney. Power of attorney is the authority granted by a principal to a proxy to perform legal acts in its name (Article 3:60 paragraph 1 of the Civil Code). This may be a limited power of attorney, e.g. up to a certain amount, or an unlimited power of attorney.

A contract is concluded between the backman (the legal entity being represented) and a counterparty if the intermediary had an adequate power of attorney when he contracted with the counterparty on behalf of the backman (Article 3:60 paragraph 1 jo. 3:66 paragraph 1 of the Civil Code).

Appearance of power of representation

It may be unclear between the parties whether the other party granted a power of attorney to the intermediary. This lack of clarity may have arisen because a power of attorney can also be granted tacitly (Article 3:61 paragraph 1 BW), but it may also be the case that the other party explicitly or tacitly grants the intermediary a power of attorney to that effect (Article 3:33 jo. 3:61 paragraph 1 BW). Finally, it may also be the case that the figurehead did not grant a power of attorney or did not want to do so, but the other party relied on it and was entitled to rely on it (Article 3:35 jo. 3:61 paragraph 1 DCC).

In such cases, the other party could invoke Section 3:61(2) of the DCC,the appearance of granting a power of attorney, and argue that it had relied and was entitled to rely on it that the intermediary had a valid power of attorney. In addition, this reliance should be for the account and risk of the backman. Section 3:61 (2) of the Civil Code states that a declaration or conduct (act) of the backend man is required for trust created. The Supreme Court broadened this requirement to circumstances for the account and risk of the rear man. From these circumstances, according to common opinion, an appearance of power of representation should be inferred.

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