Original:Li Kejun,Xia Mengxue Gaopeng Shenzhen August 28,2018


Li Kejun Partner of Beijing Gaopeng(Shenzhen)Law Firm

Introduction:Since the beginning of 2004,he has become a practicing lawyer and has rich legal practice experience,specializing in construction engineering and real estate,corporate mergers and acquisitions,cultural creativity,and other professional legal fields.He has been or is working for China Resources Group,McDonald's China headquarters,Bank of China Hong Kong,Beijing Construction Engineering,Guangzhou Shenzhen Railway,Liantai Group,Shenzhen Zhongzhou Group,Shenzhen Wealth Group,Shenzhen Tianli Group,Shenzhen Golden Guanghua Group,Haijixing Hengming Real Estate Group,Fenghuo Creativity,Seeing Culture,etc.provide professional legal services.

Xia Mengxue:Assistant Lawyer of Beijing Gaopeng(Shenzhen)Law Firm

This article is about 5000 words and takes about 10 minutes to read

According to the author,"agency by estoppel"refers to an agency in which the opposite party has reason to believe that the actor has agency power and carries out legal acts with him,although the actor actually has no agency power,and the legal consequences of his act are borne by the principal.To take a popular example,for example,a company does not entrust me with anything,but I sign contracts or buy in the name of the company,and others see my posture as certain that I can represent the company;Finally,someone else came to the door,and the company couldn't even admit it,unable to pay the bill.

The phenomenon of agency by estoppel exists in a large number of civil disputes,and judicial practice is very complex.There are also significant disputes over the understanding and application of existing provisions.The author once handled a project payment settlement dispute case involving prima facie agency.After going through the first instance,second instance,and retrial,our party ordered us to return it for retrial,and then sent it back for retrial.After settling the case,we had some feelings about the complexity of prima facie agency in construction project cases.Therefore,this article is made.This article mainly analyzes the determination of apparent agency in construction engineering cases through the search of big data on construction engineering cases nationwide and in Guangdong Province from 2016 to 2018,combined with the existing regulations and judicial viewpoints of apparent agency.

1、Big Data Analysis of National Apparent Agency Cases from 2016 to 2018

(1)Cases involving agency by estoppel are mainly concentrated in contract litigation

As of August 15,2018,among the civil cases settled nationwide from 2016 to 2018,the number of cases involving agency by estoppel was 37519,with contract disputes accounting for the majority,as shown in the figure:

(2)Among the contract disputes involving agency by estoppel,the proportion of construction project disputes is within the top three

1.Among the civil cases settled nationwide in 2016-2018,sales contract disputes,loan contract disputes,and construction project contract disputes were ranked among the top three,involving 29.63%,16.5%,and 12.06%of agency cases on the table,respectively,as shown in the figure below:

(3)The proportion of construction project dispute cases involving prima facie agency in the second instance maintaining the original judgment is significantly higher than the average level of construction project dispute cases,indicating that the first instance of construction project contract cases involving prima facie agency may be more critical

As shown in the following table,the proportion of the original judgment maintained in the second instance of construction project contract cases is 60.51%:

The proportion of cases involving superficial agency construction contracts that were upheld in the second instance was 70.87%:

2、Existing regulations and judicial views on agency by estoppel

(1)Legal provisions

The existing laws provide for three basic conditions for determining agency by estoppel:1.The actor does not have the right of agency,2.The actor has implemented the act of agency,and 3.The opposite party has reason to believe that the actor has the right of agency.At the same time,if the principal allows unauthorized agents to engage in illegal acts of agency,they shall bear responsibility.However,the above provisions are too principled and not practical,which can easily lead to disputes in practice

1.Regarding agency by estoppel,Article 49 of the Contract Law stipulates:"If the actor has no agency power,exceeds the agency power,or enters into a contract in the name of the principal after the agency power is terminated,and the counterpart has reason to believe that the actor has the agency power,the agency act is valid."

2.Similar provisions are made in Article 172 of the General Principles of the Civil Law,except that the scope of application extends from contracts in the Contract Law to general civil acts.

3.In addition,Article 167 of the General Principles of the Civil Law stipulates,"...If the principal knows or should have known that the agent's act of agency is illegal and has not made an objection,the principal and the agent shall bear joint and several liabilities."

(2)Guiding Opinions of the Supreme People's Court

"Agency by estoppel is an extremely exceptional situation,and its determination is quite strict.The counterpart must fully prove that the unauthorized agent objectively forms the appearance of agency power,and requires the counterpart to be subjective in good faith and without fault.In this case,the court strictly determines the act of agency by estoppel after comprehensive analysis and judgment:"

1.The"Guiding Opinions on Several Issues Concerning the Trial of Civil and Commercial Contract Dispute Cases under the Current Situation"issued by the Supreme People's Court on July 7,2009 stipulates that:

12.The people's court should correctly apply the provisions of Article 49 of the Contract Law on the system of agency by estoppel and strictly identify the act of agency by estoppel.".

13.The system of agency by estoppel stipulated in Article 49 of the Contract Law not only requires that an agent's unauthorized act of agency objectively form the appearance of having agency power,but also requires that the opposite party subjectively believe in good faith and without fault that the actor has agency power."If the counterpart of a contract claims to constitute an agency by estoppel,it shall bear the burden of proof,not only proving that there are objective appearance formal elements such as a contract,official seal,or seal that have the authority to act as an agent,but also proving that it believes in good faith and without undue fault that the actor has the authority to act as an agent.".

14.When judging whether the counterpart of a contract is subjectively bona fide and negligent,the people's court should consider various factors in the process of contract conclusion and performance to comprehensively determine whether the counterpart of the contract has fulfilled the reasonable duty of care.In addition,it should also consider the time of contract conclusion,the name of the signatory,whether the relevant seal is affixed,the authenticity of the seal,the delivery method and location of the subject matter,the purchased materials,and the leased equipment"Comprehensive analysis and judgment shall be made based on various factors such as the purpose of the borrowed funds,whether the construction unit is aware of the behavior of the project manager,and whether it participates in the performance of the contract."

2.In addition,when responding to a reporter's question on"Guiding Opinions on Several Issues Concerning the Trial of Civil and Commercial Contract Disputes under the Current Situation",the person in charge of the Second Civil Division of the Supreme People's Court mentioned in his response to the question of apparent agency that apparent agency is an extremely exceptional situation in the market transaction law,and that the opposite party did not have negligence or negligence in knowing that the actor did not have agency rights,and therefore bears the burden of proof.

(3)Judicial Opinions of the Supreme People's Court on Apparent Agency in Construction Projects

1."Where the other party is at fault,whether the fault is intentional or negligent,the provisions of the Contract Law on agency by estoppel should not apply."."Integration of Judicial Opinions of the Supreme People's Court(New Edition)·Civil Volume I,Page 691,Opinion No.307"

2.Seal is not a sufficient condition for constituting an agency by estoppel.It is necessary to distinguish different situations and combine relevant evidence to determine whether it constitutes an agency by estoppel."Supreme People's Court's Judicial Interpretation of Contract Law(II):Understanding and Application",People's Court Press,2009 edition

3.Distribution of burden of proof for apparent agency determination:First,the principal bears the burden of proof that the actor is indeed not authorized to act.Secondly,the burden of proof is on the counterpart to prove that the trustor has agency power and that trust is justified.Finally,the principal shall bear the burden of proving whether the opposing party subjectively acted maliciously or whether there was gross negligence in the contracting process.The process of adducing evidence is progressive,that is,only after the current one is sufficient to adduce evidence,it proceeds to the next step."Supreme People's Court's Judicial Interpretation of Contract Law(II):Understanding and Application",People's Court Press,2009 edition

4.The case constitutes an agency by estoppel,and the content of the contract is expressed by the true intentions of both parties.The validity of the contract is not affected by defects in the form of the contract such as doubts about the authenticity of the printed text.[Opinion No.305,page 688,Civil Volume I,Integration of Judicial Opinions of the Supreme People's Court(New Edition)]

5.The signing and confirmation of the monthly construction report by the supervising engineer generally does not constitute an agency by estoppel for the construction unit,and does not have a visa effect;However,the supervising engineer has the working practice of signing and approving the monthly construction report,and has not raised any objections to the signing and approval results,except for one or more signing and approval results.It should be considered that this signing and approval constitutes an apparent agency act."Integration of Judicial Opinions of the Supreme People's Court(New Edition)·Civil Volume III,page 2094,Opinion No.891"

6.The company knows that the seal of its project department is used externally during the construction period undertaken by others,but has no objection.It shall bear civil liability for the acts of others.[Opinion No.298,page 665 of the Judicial Opinions Integration of the Supreme People's Court(New Edition)Civil Volume I]

3、Case analysis of big data in various dimensions

(1)Case Analysis of the Supreme People's Court's Bulletin on Agency by estoppel

The Supreme People's Court has issued a total of 7 communique cases on the system of agency by estoppel,of which 2 cases have been identified as constituting agency by estoppel.It can be seen that the Supreme People's Court holds a cautious attitude in determining agency by estoppel.

Situations that tend to be identified as apparent agents include:

1."If the principal has no evidence to prove that the other party is subjectively malicious or has gross negligence,it constitutes an agency by estoppel.".[Supreme People's Court(2007)Min Er Zhong Zi No.219]

2.The actor actually controls and operates the factory,and the counterpart has sufficient reasons to believe that the actor has the right to represent the principal,constituting an agency by estoppel.[Supreme People's Court(2012)MYZZ No.65]

3.Although the agent was dismissed by the company's superior,the publicity content of the industrial and commercial registration shows that the agent is still the legal representative,and the contract is stamped with the official seal.[Supreme People's Court(2009)MTZ No.76]

Situations that tend not to be identified as apparent agents include:

1.An agent who forges documents and privately engraves official seals is investigated for criminal responsibility.[Supreme People's Court(2008)Min Er Zhong Zi No.124]

2.The opposite party did not exercise reasonable care obligations and subjectively had the intention to pursue high interest rates.[Supreme People's Court(2013)MTZ No.95]

(2)Analysis of Construction Engineering Cases Involving Apparent Agency by the Supreme People's Court from 2016 to 2018

Situations that tend to be identified as apparent agents include:

1.As the person in charge of construction,the actor acted beyond the authority of the agent,but the principal did not explain the authority to the counterpart,nor raised any objections to the actor's behavior.[(2017)No.2315 Supreme Law and People's Court]

2.The perpetrator and the principal are in a marital relationship and jointly operate a business.The perpetrator has presented the principal's relevant documents,but the principal has not raised any objections after learning of them.The opposite party has reason to believe that the perpetrator has the agency power.[(2016)Supreme Law and People's Republic of China No.2226]

3.The principal is aware that the official seal has been forged and has not taken timely measures to prevent damage to the interests of the opposite party.[(2016)Supreme People's Court No.255]

Situations that tend not to be identified as apparent agents include:

1."When a shareholder collects funds on behalf of him,the counterpart has no evidence to prove that the shareholder is entitled to collect funds,nor has there been any evidence to prove that the shareholder acted as an agent by estoppel when collecting funds.".[(2017)Supreme Law and People's Republic of China No.4095]

2.The perpetrator is the corporate manager,but the contract was signed without the corporate character,seal,or authorization letter.[(2016)Supreme Law and People's Republic of China No.2581]

(3)Analysis of construction project cases involving agency by estoppel in Guangdong Province from 2016 to 2018

In 2016-2018,there were 66 second instance cases involving agency by estoppel in construction projects in Guangdong Province,and 13 cases were identified as agency by estoppel.

Based on the analysis of the above cases,the situations that tend to be identified as agency by estoppel include:

1.With the seal of the department affixed,the actor shall sign as the signing representative.[(2017)Yue 01 Min Zhong No.3313]

2.The perpetrator,as the person in charge,signs and affixes his official seal.Even if the official seal has not been filed,the counterpart has reason to believe that the perpetrator has the power of agency.[(2016)Yue 13 Min Zhong No.3335]

3.The perpetrator has no agency authority,and the principal knows the situation without raising objections.[(2017)Yue 06 Min Zhong No.3986]

Situations that tend not to be identified as apparent agents include:

1.The seal was forged,and the counterpart did not review the relevant documents of the signing representative,failing to fulfill the duty of care.[(2017)Yue 01 Min Zhong No.11905]

2.The use of the official seal exceeds the purpose specified in the seal.[(2016)Yue 07 Min Zhong No.2154]

4、Summary and Suggestions

From the analysis of the above big data,it can be seen that the court holds a cautious attitude towards the determination of apparent agency,but there are still a large number of disputes in apparent agency cases in practice.Due to the complexity of the subjects involved in construction project cases,including counterparties,construction units,actual constructors,and site workers,there are widespread phenomena of affiliation,subcontracting,and illegal subcontracting in the industry.The company's internal management system is not sound,resulting in frequent disputes over apparent agency.Whether the resulting behavioral effects are borne by the actor or by the construction unit mainly depends on the understanding and application of the apparent agency system.In view of the common cases of agency by estoppel in practice,the author summarizes several types of frequent occurrences.The identification criteria for agency by estoppel are not single and unchanging.In these frequent cases,due to different specific circumstances,different results can also be caused:

(1)The actor has no agency power to sign the contract

(2)The actor uses the company's official seal

(3)The actor uses the seal of the project department

(4)The perpetrator used a forged corporate seal

(5)In response to the frequent agency disputes by estoppel in practice,the author proposes the following suggestions for the project contractee for reference:

1.Pay attention to contract management and prevent risks

The Employer shall specify the responsibilities and authorities of their respective representatives in the construction contract.When signing a subcontract with the actual constructor,it is necessary to clearly define not only the authorization matters,but also the authorization period,etc.In the event of a dispute,these details become very important evidence in court proceedings,and when combined with other evidence,they serve as evidence that does not constitute an apparent agency.

2.Strengthen the audit management of enterprise certificates,seals,etc

"Licenses,official seals,blank letters of introduction,special financial seals,and letters of attorney for legal persons are generally associated with specific entities,and the object holder is the legitimate agent of the enterprise,which has important significance.Therefore,they often constitute evidence that the opposite party in an agency by estoppel dispute has reason to believe in accordance with the law.".At present,there are many units that do not strictly manage this,which has become a hidden danger of constituting an agency by estoppel.Therefore,a review and registration system for the storage,carrying,and use of enterprise certificates,seals,and blank introductory letters should be established.In particular,due to the characteristics of the Project Department's seals that are easy to forge and engrave privately,special care should be taken in their production and use during project construction.If it is necessary to use the seal of the project department,the scope and matters of use of the seal of the project department should be clearly stated in the engineering contracting and subcontracting contracts,and the necessary rights restriction marks can be made on the surface of the seal of the project department.Other types of official seals of construction enterprises should also be managed by special personnel,and the use of such items by units and individuals who use them should be avoided as much as possible.

3.Timely announce restrictions or adjustments to the authority of the agent

If the authority or position of the agent is subject to internal restrictions or adjustments,the construction unit must announce or notify such internal restrictions in the form of a matter(preferably in writing).If changes involve changes in industrial and commercial registration,they should be promptly changed.Otherwise,without stating the restrictions on the perpetrator's authority,I shall not use internal restrictions as a reason to oppose bona fide counterparts.

(This article is translated by software translator for reference only.)