Volume 6, Number 25, Page 1

Electronic Commerce in the Western Hemisphere: An Ongoing Series

In this edition of the series, our panel of experts analyzes the concepts of agency and representation, including the legal notions of apparent and implied authority. For further information on this topic and e-commerce, in general, contact Mariana Silveira (msilveira@natlaw.com) or Francisco A. Laguna (flaguna@natlaw.com).

Question: The law of agency and representation: How does a corporate signer in an e-commerce transaction establish its capacity to sign, especially in high volume, low formality types of transactions, such as checks, bills of lading or warehouse receipts? Do representations, such as “as President,” “as agent,” suffice, or are there requirements that a formal or notarized power of attorney accompany any assertion of authority to sign? Does your legal system accept the concept of “apparent” or “ostensible” authority? Does it accept as enforceable “unilateral, abstract or independent undertakings or declarations of intent” as is done generally by letter of credit and electronic funds transfers or payment law, by the German BGB and by some Latin American civil and commercial codes?

D.C. Bunge - Argentina

Article 1161 of the Argentine Civil Code prescribes that “No one can contract in the name of a third party, without being authorized by him/her, or without having the representation granted by law. A contract executed on behalf of a third party by someone who does not have such third party’s authorization or who is not acting as the legal representative of such third party is void, and does not even serve to bind the party executing the contract. The contract is enforceable if the third party ratifies it expressly or performs thereunder.”

Thus, the law places a burden on the parties to a contract to obtain proof of the signer’s actual capacity or agency. If they fail to do so, the contract may be unenforceable.

Article 58 of the Commercial Companies Law carves an exception to this wide-ranging proposition. It provides that officers and directors of a company who, by virtue of the entity’s by-laws or by operation of law, have the power to represent the company may bind it, provided the scope of the contract in question falls within the company’s stated purpose (“objeto social”). This rule is applied regardless of whether the corporate bylaws or internal regulations require the signature of more than one officer/representative to bind the company in the issuance of negotiable instruments, or with relation to contracts entered into between absentee parties, adhesion or form contracts. This principle is not applicable, however, if the other parties to the contract have effective knowledge that more than one corporate signatory is required. Finally, it is noteworthy that the company may proceed against the officer/representative who executes an agreement in violation of the bylaws or internal regulations.

M. Devoto - Argentina

A person’s authority to sign on behalf of a third party is confirmed by certificates issued by “public-faith officers.” For instance, a notary public may issue a public deed or certify the signatures of the parties to a contract. In this regard, the notary not only verifies the signer’s identity, he also certifies that such signer has the authority to act on behalf of a third party.

In the case of private documents that are not notarized, parties must “judicially recognize” their signature in order to validate the underlying agreement. In the event a party refuses to acknowledge a signature, other legal mechanisms are invoked to determine the authenticity thereof. The obvious way of avoiding this situation is to execute the document before a notary because notarial certifications of private documents give them the status of public instruments.

R. Nogueira / L.H. Ventura - Brazil

Generally, a company’s by-laws specify who can represent and bind the company. Such authorization may also be evidenced by the minutes of a board meeting or by a power of attorney.

The authority to represent and bind the company may be vested in one individual, such as the company's president, or can be assigned to various persons. It is also common for companies to require the signature of two corporate officers/directors on certain documents, such as loan agreements.

Corporate by-laws may require a signatory to produce a power of attorney when executing any document. Typically, however, the other party is responsible for verifying the signatory’s capacity.

Brazilian jurisprudence does recognize the principle of apparent authority.

R. Lemos - Brazil

Unilateral declarations [such as letters of credit] are enforceable against their signatories.

In Brazil, the representation of individuals is distinguished from the representation of a legal entity. In civil law countries, powers of attorney are regarded as contracts. As such, the principle of freedom of form applies to these instruments, and they may be granted in writing, orally, by mail or electronically. However, since a power of attorney can be the issue of litigation, and the courts may be called upon to recognize the validity thereof, general evidentiary principles must be considered in granting them.

Electronic powers of attorney must be accepted by the courts in order to be enforced. Thus, parties must rely on technical procedures to prove the existence thereof. Draft e-commerce legislation pending before the legislature, such as the 1999 Brazilian Bar Association Draft Bill, would affect favorably the probative value of electronic powers of attorney.

With regard to corporations, two situations must be discussed: a) instances in which the company is represented by directors/officers whose authority has been expressly granted in some corporate instrument (“inherent representation”); and b) instances in which the company is represented by a third party by virtue of a power of attorney.

Inherent representatives are those appointed in the entity’s articles of incorporation. In Brazil, such documents are public and are registered with the applicable State Board of Trade. Thus, it is possible to verify whether a particular officer/director is authorized to represent the company. Regardless, however, it is commonplace for parties to request documents evidencing their capacity.

When third parties represent an entity, the company must grant a power of attorney granted by corporate entities. Such powers need not be registered with any public office. As a result, parties should request a copy of the power of attorney to avoid future legal problems. It may be advisable for parties to electronic transactions to verify initially the authority of a corporate representative and to keep a copy of the power of attorney in their files. This initial verification may serve to avoid litigation.

Brazilian courts have accepted the concept of apparent or ostensible authority. There is no statutory provision on apparent authority. Rather, the concept, referred to as the “Appearance of Authority Doctrine,” has been adopted in jurisprudence based on general legal principles and on doctrinal opinions. The underlying rationale for applying the “Appearance of Authority Doctrine” is to protect the innocent parties who enter into contracts in good faith.

J. Remsu - Canada

Accordingly, it can be argued that an electronic contract in which one of the parties is represented by an unauthorized agent may be enforced on the basis of apparent authority, provided the other party executes the agreement in good-faith. However, in light of the nature of civil law countries and courts’ reliance on statutory provisions, it is unclear that the judiciary will consistently apply the “Appearance of Authority Doctrine”.

In general, the rules pertaining to agency and representation are no different for electronic transactions than for paper-based transactions. The law does not require formal support to assert authority to sign. However, parties to a specific transaction may insist on such evidence (such as a corporate resolution) for their own comfort. Our legal system routinely accepts the concepts of apparent or ostensible authority. To some extent, unilateral declarations are accepted. For example, letters of credit are accepted at common law.

J. Otero - Chile

There are no special regulations related to apparent authority.

F. Reyes - Colombia

Authority to act is governed by several commercial and civil rules. These rules circumscribe the capacity of certain persons to contract, viz., minors and incompetents. Nevertheless, these persons may enter into civil or commercial transactions through a legal representative.

Legal entities may enter into any legal transaction, provided such transaction falls within the ambit of their corporate purpose. As such, the doctrine of “ultra vires” is clearly applicable. Generally, any “ultra vires” act will be considered outside the scope of the corporation’s purpose and deemed void as against public policy.

The law of agency and representation is of paramount importance. In fact, any circumstance affecting the capacity of a party to a civil or commercial transaction may result in the judicial nullification of the underlying contract. Article 899 of the Commercial Code establishes that “a juridical act shall be deemed null and void in the following instances: […] 3. If executed by a fully unqualified person”.

J.A. Avellan - ICC

The only instrument that explicitly refers to this issue in the context of electronic commerce is Section VII(3) of the General Usage for International Digitally Ensured Commerce (GUIDEC (1997)):

If an agent ensures a message and represents himself to do so by authority of a principal, the ensured message is valid as that of the principal if, under applicable law, the agent had sufficient authority to ensure the message.

The decision to rely on an agent’s representation must be made by the parties to a contract, as made clear by the commentary to the GUIDEC. However, when PKI technology is used, the proof of a person’s agency may be included in a public key certificate.

The specific answers to the remaining questions will vary depending on the applicable domestic law over which the ICC has no control.

Our legal system does not recognize the concept of ostensible or apparent authority. Agency will not be recognized unless evidenced by a duly notarized and apostilled power of attorney. However, the Commercial Code does recognize the validity and enforceability of independent undertakings or declarations of intent, such as checks, letters of credit or electronic transfers of funds, provided the corresponding agreement has been reduced to writing or authenticated.

A signer verifies its capacity through the intervention of a certification entity.

F. Galindo - Spain

Do statements such as “as President,” “as agent” suffice, or are there requirements that a formal or notarized power of attorney accompany any assertion of authority to sign? The requirements are met when the certification entity verifies the capacity of the individual signing the document.

Does your legal system accept the concept of “apparent” or “ostensible” authority? There are general provisions in the Civil and Commercial Code.

Does it accept as enforceable “unilateral, abstract or independent undertakings or declarations of intent” as is done generally by letter of credit and electronic funds transfers or payment law, or by the German BGB and by some Latin American civil and commercial codes? There are the general previsions of the Civil and Commercial Codes, but electronic commerce mechanisms necessarily require the intervention of a third party in all transactions. This issue has yet to be regulated by the Spanish Law.

O.T. Johnson - USA

In general, a corporate signatory in an electronic commerce transaction in the United States can establish his capacity to sign simply through a declaration of such authority (e.g., by signing as "president" or "agent"). Such declarations are likely to be effective in relation to a third party that relies upon them absent some evidence that the third party's reliance was unreasonable.

I. Rubinstein - USA

In the U.S., an agent’s authority can be established in a number of ways, under the traditional rubric of actual, implied, and apparent authority. In general, a statement of agency will suffice for signing a document, without formal evidence of agency.