Is a Contract Valid When Authority is Exceeded? – Law In A Minute

Brewing Trouble: John’s Tea-riffic Tangle

Once upon a steep, in the rolling hills of Yunnan Province, where tea leaves bask in the whispers of ancient wisdom, our protagonist John found himself steeped in a rather potent infusion of love and legality.

John, known among the legal leaves as the stalwart representative of “The Mighty Leaf Tea Co.,” wielded the mighty pen that could bind the company in contracts of up to one million RMB—no more, no less. Beyond this sum, the nod of the shareholders was required, like a sacred incantation to seal the deal.

But fate, that mischievous mixologist, poured John a heady cocktail when he stumbled upon a love more intoxicating than the finest Pu’er tea—none other than the mayor’s daughter, a vision of beauty with a smile as warm as a freshly brewed cuppa. The mayor, a shrewd negotiator with a heart set on securing a lucrative deal, saw an opportunity in John’s lovestruck gaze. “Sign a purchase contract for two million RMB of our beloved Pu’er,” he proposed, “and my daughter’s hand shall be yours.”

In a heartbeat (or perhaps a heart flutter), John, dizzy with love and the musky aroma of fermented leaves, agreed. With a flourish of his pen and a whirlwind romance, John found himself both wedded and bedded.

Alas, the shareholders were not amused by this romantic rebellion. John had leaped over his legal limit like a runaway gondola, and for this, they bid him a less-than-fond farewell. But in their haste to sever ties, they overlooked a crucial step—they forgot to change the company’s legal representation records. John, in name if not in position, remained their man.

Fuelled by love, or perhaps the audacity that comes with unchecked power, John then frolicked over to another town, signing yet another contract—this time for an exquisite batch of white tea, doubling down on his matrimonial market maneuvers.

As the aroma of scandal filled the boardroom, “The Mighty Leaf Tea Co.” was steeped in dismay. Could they declare John’s impulsive contracts null and void? Or had they left the lid off the teapot too long, letting the steam of their oversight dissipate into the air of legal conundrums?

And so, as the kettle whistles with the impending boil of legal proceedings, we must ask: Can the company untangle John’s knotty nuptial negotiations, or will they find themselves sipping a bitter brew of binding agreements?

Law In A Minute

Both contracts hold validity. Despite John overstepping his authority with the Pu’er tea agreement, the mayor could not be expected to be aware of the internal company policy, thereby rendering him a bona fide party. The contract might only be deemed invalid should it be proven that the mayor was cognizant of the policy and nonetheless proceeded to sign with John. Consequently, the tea company is obliged to fulfill their commitment to purchase Pu’er tea worth 2 million RMB annually or face the consequences for contract violation.

Regarding the second agreement for white tea, it was executed post John’s dismissal when he was no longer the lawful representative. Nevertheless, the company’s failure to update their legal representative registration means that the other mayor was likewise uninformed of John’s termination. This ignorance places the second mayor in the position of a bona fide party, thus affirming the contract’s validity. Once again, the tea company is compelled to adhere to the terms of the agreement or incur the liabilities associated with contractual breach.

Legal Basis

Civil Code

Article 65

If the actual circumstances of a legal entity do not correspond with the registered matters, it cannot be contested against a bona fide counterparty.

Article 504

Contracts entered into by the legal representative of a legal person or the person in charge of an unincorporated organization that exceed their authority are valid, unless the counterparty knew or should have known that they exceeded their authority. The actions of the representative are effective and the concluded contract is binding on the legal person or unincorporated organization.

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