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BV or NV: Unauthorized representation but still bound?

Blogs Marc Janssen Corporate M&A

Introduction

If a representative does not have an (adequate) power of attorney, the principal ("represented") is not bound by the legal act that the representative has performed with a third party on behalf of the principal. Under circumstances this may be different. From the law follows three requirements that must be met for the third party to be able to invoke the boundness of the represented party, despite the lack of an (adequate) power of attorney:
  • the third party assumed that the pseudo-representative was authorized to represent;
  • the third party could reasonably assume this;
  • the third party assumed the existence of an adequate power of attorney based on a statement or conduct of the pseudo-principal (act or omission); in other words, the appearance of the presence of an adequate power of attorney must have been created by the pseudo-principal. There must be an alleged `doing' by the back-man.
These requirements are also important if someone is acting as a representative for reasons other than power of attorney. Think of the actions of directors of a legal entity.

Representation of BV or NV

In the case of representation of legal persons, it is important that, insofar as the law does not provide otherwise, the other party to a legal person cannot invoke ignorance of a fact that has been disclosed in a manner specified by the law. In other words, a limitation of authority validly recorded in the commercial register and permitted by law can be successfully invoked by the legal entity against the third party. On the third party rests a certain duty of investigation regarding  the authority of the representative. With respect to an NV and a BV, third parties should consult the trade register as to whether a particular director is authorized. The articles of association may provide that a director may represent the legal entity only with the cooperation of one or more others. If this limitation of authority has been used, it should not soon be concluded that there is a culpable appearance of representative authority based on the conduct of persons other than those who had decision-making authority.

Binding despite unauthorized representation

However, the legitimate expectation of the third party may entail that a registered limitation of authority cannot be invoked by the legal entity. This may be the case if the pseudo-representative himself has created an appearance that deviates from the entry in the commercial register and can be attributed, as a result of which the entry is no longer decisive. In the case of third-party protection, importance is also attached to the traffic conception that it is not necessarily a BV or NV with an opaque organization and/or unclear division of powers among the various bodies and/or persons. Also in such a case, how the scope of the power of representation should be judged according to the general opinion, in view of the position of the pseudo-representative and his tasks, may play a role in whether or not there is an attributable appearance of power of representation. The BV or NV can therefore also be bound if the third party, taking all circumstances into account, can be regarded as acting in good faith, while the actions of the pseudo representative are based on factors that lie within the sphere of risk of the BV or NV. In the event that one can hardly speak of an actual act of the competent board, because it, for example, only appointed someone to a certain position, while the other party could have found out quite easily (for example, through the Trade Register) that the representative acted unauthorized, it is not obvious that the unauthorized representation should be at the risk of the principal. However, on the basis of all the circumstances of the case, it will have to be assessed in concreto for whose risk the unauthorized representation should ultimately fall.   If you have any questions as a result of this blog or if you have other corporate law questions, please feel free to contact Marc Janssen or any of the other members of the Corporate Law Section.
Marc Janssen

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