| ||1. Scope of the Section
This Section governs the authority of an agent to affect the legal relations between its principal and a third party. In other words, it focuses on the external relations between the principal or the agent on the one hand and the third party on the other and is not concerned with the internal relations between the principal and the agent. Even those provisions which deal with issues affecting both the internal and the external relations (see, e.g., Articles 2.2.2 and 2.2.10 on the establish¬ment and termination of the agent’s authority, Article 2.2.7 on conflict of interests and Article 2.2.8 on sub-agency), consider those issues only with respect to their effects on the third party.
The rights and duties as between principal and agent are governed by their agreement and the applicable law which, with respect to specific types of agency relationships such as those concerning so-called “commercial agents”, may provide mandatory rules for the protection of the agent.
2. Authority to contract
The Section deals only with agents who have authority to conclude contracts on behalf of their principals. Intermediaries whose task it is merely to introduce two parties to one another with a view to their concluding a contract (e.g. real estate agents), or to negotiate contracts on behalf of a principal but who have no authority to bind the principal (as may be the case of commercial agents) are outside the scope of the Section.
On the other hand, the wording “the authority […] to affect the legal relations of […] the principal by or with respect to a contract with a third party” used in paragraph (1) is to be understood in a broad sense, so as to comprise any act by the agent aimed at concluding a contract or which relates to its performance, including giving a notice to, or receiving it from, the third party.
3. Irrelevant whether agent acts in its own name or in that of its principal
Contrary to a number of legal systems that distinguish between “direct representation” and “indirect representation” depending on whether the agent acts in the principal’s name or in its own name, no such distinction is made in this Section. As to the distinction between “disclosed” and “undisclosed” agency, see Articles 2.2.3 and 2.2.4.
4. Voluntary nature of the relationship between principal and agent
A further condition for the application of this Section is the voluntary nature of the relationship between principal and agent. Cases where the agent’s authority is conferred by law (e.g. in the field of family law, matrimonial property and succession), or is derived from judicial authorisation (e.g. acting for a person without capacity to act), are outside the scope of this Section.
5. Agents of companies
The authority of organs, officers or partners of a corporation, partnership or other entity, with or without legal personality, is tradi¬tionally governed by special rules, sometimes even of a mandatory character, which by virtue of their specific scope necessarily prevail over the general rules on the authority of agents laid down in this Section. Thus, for instance, if under the special rules governing the authority of its organs or officers a corporation is prevented from invoking any limitation to their authority against third parties, that corporation may not rely on Article 2.2.5(1) to claim that it is not bound by an act of its organs or officers that falls outside the scope of their authority.
On the other hand, as long as the general rules laid down in this Section do not conflict with the above-mentioned special rules on the authority of organs, officers or partners, they may well be applied in lieu of the latter. Thus, for instance, a third party seeking to demon¬strate that the contract it has concluded with an officer of a corporation binds that corporation, may invoke either the special rules governing the authority of that corporation’s organs or officers or, as the case may be, the general rules on apparent authority laid down in Article 2.2.5(2).
1. A, a Chief Executive Officer of company B incorporated in country X, has under the company’s articles authority to carry out all transactions falling within the company’s ordinary course of business. A enters into a contract with C that clearly falls outside the scope of B’s ordinary business. According to Section 35A of the Companies Act of country X, “[i]n favour of a person dealing with a company in good faith, the power of the Board of Directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company’s constitution” and “[...] a person shall not be regarded as acting in bad faith by reason only of that person’s knowing that an act is beyond the powers of the directors under the company’s constitution [...]”. B is bound by the contract between A and C even if C knew or ought to have known of the limitations to A’s authority, and B may not rely on Article 2.2.5(1) to claim the contrary.
2. A, Managing Director of company B incorporated in country X, has been given by the Board of Directors of the company the authority to carry out all transactions falling within the company’s ordinary course of business except the hiring and dismissal of employees. A hires C as the new accountant of B’s branch in country Y. B refuses to be bound by this appointment on account of A’s lack of authority to hire employees. C may overcome B’s objection by invoking Section 35A of the Companies Act of country X. Yet C, who as a national of country Y may not be familiar with that special provision of the Companies Act of country X, may equally rely on the general rule on apparent authority laid down in Article 2.2.5(2) and claim that, in view of A’s position as Managing Director of B, it was reasonable for C to believe that A had the authority to hire employees.