On 18 July 2019, we signed a contract with our business partner. When signing the contract, we verified in the Commercial Register that the executive manager was authorized to act on behalf of the company. Now the company has a new executive manager, and they refuse to pay us under the contract. The new executive manager claims that the former executive manager was removed from his position on 17 July 2019, i.e., the day before he signed the contract with us, thus making that contract null and void. The entry in the Commercial Register shows that the new executive manager was registered on 6 December 2019. So is the contract signed by the dismissed manager valid?
We signed another contract with the same business partner. This other contract was signed by a manager acting under a power of attorney dated 12 May 2019 and issued by the former executive manager at a time when he had not yet been dismissed. However, the authorized manager signed the contract on 21 December 2019, i.e., after the date when the new executive manager was registered in the Commercial Register. We are concerned that even with this second contract, the company might claim that it is null and void because it was signed by a person authorized under a power of attorney issued by the dismissed executive manager. Is our concern justified?
To answer your first question, the contract may be binding for the company even though it was signed by an executive manager who, at the time of signing the contract, had already been removed from his position by the company’s General Assembly. With respect to your company, it is irrelevant whether or not the executive manager had been dismissed. What is important is whether or not you knew about the dismissal.
Pursuant to Section 27 (3) of the Commercial Code, with respect to third parties, the data entered in the Commercial Register is effective as of the date of its publication. The only time this does not apply is if your business partner proves that you knew about the executive manager having been dismissed. This is the “positive component” of the principle of material publicity protecting third parties against the burden of verifying if the respective entry in the Commercial Register is still up to date, or if the executive manager happened to have been dismissed in the meantime.
So unless your business partner proves that at the time of signing the contract you knew that the executive manager signing the contract no longer held the position of executive manager, the contract will be considered as having been signed by a person fully authorized to act on behalf of the business partner. Please note that even if it is proven that you knew that the manager had already been removed from his position at the time of signing the contract, it does not automatically mean that the contract is invalid, or that the terms and conditions of such a contract are not binding for the company. The other thing to take into account is whether or not the law requires that specific type of contract to be concluded in writing. If the written form is not required and an oral form is sufficient under law, such as in the case of a standard contract for the provision of services or delivery of goods, what is especially important when assessing the validity of the contract is if the behaviour of the company suggested that they had agreed to the contract content. If, for instance, the company accepted the services or goods, or if they paid part of the price in accordance with the contract, or if the new executive manager referred to the contract in subsequent email communication, or if the company’s employees behaved in compliance with the contract even after the former executive manager was no longer there, this may help you prove that the company’s will to adhere to the contract followed from other facts and that the missing signature of a person authorized to act on behalf of the company is not decisive. Such a contract not signed by an authorized person would serve as proof of the content of the oral agreement.
The answer to the second question is also favourable for you. The power of attorney does not expire, under any circumstances, with the dismissal of the executive manager who issued it. The new executive manager may revoke the power of attorney issued by the former executive manager, but the right to act under the power of attorney shall definitely not cease to exist merely on the grounds of the dismissal of the executive manager who issued it. The fact that the former manager who signed the power of attorney no longer holds the position has no effect on the validity of the power of attorney.
The power of attorney is issued by the company, where the manager merely acts on the company’s behalf. Even though it is important who acts on behalf of the company, unilateral legal actions, such as powers of attorney, are governed by the same principles as any bilateral or other legal act, or any other action on behalf of the company for that matter. If it were true that the executive manager’s dismissal would make the powers of attorney he had signed on behalf of the company expire, it would also have to invalidate other legal acts executed by the manager acting on behalf of the company. This would create enormous legal uncertainty, and it would have no inherent sense. If a company has expressed its will, that expression of its will cannot change by the fact that there is a change in internal organization.