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Unauthorized agency

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									    General Principles of Civil Law
                   (民法通则)
This chapter mainly deals with general provisions
    on civil subjects(民事主体) civil rights(民事
    权利)civil legal act(民事法律行为) civil
    liability (民事义务)and limitation of action
1. Natural Person (自然人)
2. Legal Person (法人)
3. Partnership (合伙)
4. Civil Legal Acts (民事法律行为)
5. Agency           (代理)
6. Limitation of Action (诉讼时效)
          5. Agency (代理)

 5.1   Overview
 5.2   Classifications
 5.3   Exercise of agency power
 5.4   Unauthorized agency
 5.5   Termination
         5.1 Overview
            Principal ( 委托人)




    Agent(代理人)             Third party
   Agency refers to that the agent performs civil legal
    acts in the principal’s name within the scope of the
    power of agency, the principal bears civil liability for
    the agent’s acts.
   Such powerful device (制度)is designed to enlarge
    people’s scope of action. Since no one can do
    everything in person due to limited time and energy.
    With this device in place, people may use their agents
    to fulfill certain actions just like he does it himself.
    Agent use their expertise to service the principal and
    act in the interest of the principals, who then assume
    all the legal consequences of the agent’s acts.
   Civil juristic acts( 民事法律行为) that should be
    performed by the principal himself, pursuant to
    legal provisions or the agreement between the two
    parties, shall not be entrusted(委托) to an agent.

   For example: the expression of mind possesses
    strict personal characters, such as execution of
    wills, marriage registration and adoption.
            5.2 Classifications
   There are three types of agencies, i.e.

   5.2.1 Entrusted agency (委托代理)
   5.2.2 Statutory agency (法定代理)
   5.2.3 Designated/ Appointed agency (指定代理)
            5.2.1 Entrusted agency
   It is most widely used particularly in business. The
    entrusted agent exercises the power of agency as
    entrusted( 委托、托付) by the principal. Agency
    contract is a kind of contract by which the principal
    is bound by obligations created in its name by its
    agent. It is important to distinguish between two
    contracts in the agency relationship.
   (1) Principal and agent: it creates internal agency
    relationship and gives the agent the power to
    perform legal acts in the name of the principal.
   (2) Principal and third party: the agent makes the
    contract in principal’s name. Normally the agent does
    no have contract with the third party. Agency is
    divided into direct agency( 直接代理) and indirect
    agency( 间接代理), also known as brokerage(行
    纪).
   In direct agency, the relationship is between principal
    and agent, while in indirect agency the relationship is
    between principal and principal.
   The broker(行纪人) performs legal acts in its
    name, rather than in the name of its “ principal”. In
    terms of the scope and contents of the authority of
    the agent, it falls into full power and limited power
    agency.
    A civil juristic act may be entrusted to an agent in
    writing or orally. If legal provisions require the
    entrustment to be written, it shall be effected in
    writing.

   Where the entrustment of agency is in writing, the
    power of attorney shall clearly state the agent’s name,
    the entrusted tasks and the scope and duration of the
    power of agency, and it shall be signed or sealed by
    the principal.
   If the power of attorney is not clear as to the
    authority conferred, the principal shall bear civil
    liability towards the third party, and the agent
    shall be held jointly liable. ( art. 65 GPCL )
      Case : Department Store and agent
        held jointly and severally liable
    In April 1993 the Department Store gave Mr Zhang
    sealed referral and some sealed blank contracts
    entrusting him to order some fashionable dress for the
    company. Mr Zhang executed a contract with a
    Costume Company ordering 1000 pieces of clothes
    covering more than ten varieties. Mr Zhang took
    delivery of clothes from the Costume Company twice
    thereafter. After the first delivery the Department
    Store found the clothes were not selling well on the
    market, thus refused to pay the price.
   The Costume Company requested payment a few
    times and the Department Store rejected on the
    ground that such clothes were not fashionable dress
    and the agent should be personally liable for said
    purchase due to ultra vires( 超越权限). The
    Costume Company had now way but to sue the
    Department Store before the court . The trial court
    held that the Department Store could not avoid
    liability since the instruction given by it was
    ambiguous , thus the Department Store and Mr
    Zhang should be jointly and severally liable for said
    payment.
            5.2.2 Statutory agency
   It is based on direct provision in law. The statutory
    agent shall exercise the power of agency as prescribed
    by law. Its primary scope of application includes:
   (1) Guardians act as statutory agents of the wards.
   (2) Family agency where the spouse may represent
    each other in daily life.
   (3) Social organizations act as statutory agents for
    their members under express provisions in the law.
   The statutory agency differs from the legal
    representative in that the legal representative acts
    on behalf of the legal person in the capacity of
    the organ of legal person. In such case the legal
    representative is not independent from the legal
    person , while statutory agent is independent
    from its principal.
    5.2.3 Designated/ Appointed agency

   Such agent is designated by the courts or relevant
    official organs. For instance the residents or
    villagers commission at the location of minors
    designates agent ( guardian ) for minors. The courts
    designate custodian for the missing persons so
    declared . In contrast with statutory agency where
    the scope of agency is broad, the scope of
    designated agency is relatively more specific and
    specialized.
 5.3 Exercise of agency power
 5.3.1 Duties of the agent
 5.3.2 Restriction on agency power

 5.3.3 Re-delegation of power
           5.3.1 Duties of the agent
   The agency is to a large extent based on the trust
    between the principal and agent. The exercise of
    agency power is in fact the process of performing
    agency duties. By fulfilling the duties on the part of
    the agent, the agent realizes the goals, which the
    principal creates such agency. The main duties of the
    agent:
   (1) To act in the interests of the principal.
   Since the principal and the agent are in a fiduciary
    relationship (信赖关系), the agent must act in
    complete good faith for the principal. The agent
    must place the interests of his principal above all else
    except the law.
   (2) To act in person. Due to high degree of
    confidence and trust implicit in agency relationship,
    the agent is required to personally perform its duties
    and cannot delegate its duties normally. The reason is
    that the agent’s personal skill and judgement are what
    lead the principal to retain this particular agent and
    not another one. Else it is a breach of contract by the
    agent.
   (3) To report to the principal promptly. The agent
    shall promptly report to principal major issues
    relating to the disposition of agency affairs, so that
    the principal knows the progress and gain and loss
    status of his/her property. Upon completion of
    agency ,the agent shall report to principal the
    progress and result of executing agency affairs and
    provide necessary documents.
   (4) To keep secrecy. The agent may not disclose the
    personal secrets and trade secrets of the principal
    obtained in the course of agency, or resort to unfair
    competition with the principal by utilizing such
    secrets.
    5.3.2 Restriction on agency power
 In order to ensure the interests of the principal,
  various limitations are imposed on the exercise of
  agency power. Such restrictions include:
 (1) Prohibition of self-dealing (禁止自己代理)
  Just as the economics assumes that people are selfish
  economic persons, it is impossible to protect the
  interests of the principal if the agent enters into deals
  on behalf of the principal with the agent himself/
  herself. In such case the agent poses dual roles, i.e.
  agent and third party. Such agreement is doubtlessly
  detrimental to the interests of the principal, hence
  prohibited by the law.
   (2) Prohibition of dual agent ( 禁止双方代理)
     it is also known as simultaneous agency, referring to
    the situation where the agent poses as agents for two
    parties simultaneously. Though not dealing with
    himself/herself, such agent manipulates the
    transactions easily and may make private profits
    therefore. Unless otherwise agreed by the foregoing
    two parties in advance or ratified afterwards, such
    agency is null and void.
   (3) Prohibition of nonfeasance and conspiracy.
    ( 禁止懈怠和密谋)

     Nonfeasance means that the agent fails to fulfill the
    agency affairs diligently and with care, which renders
    the goal of creating such agency meaning-less and the
    principal suffers loss consequently. Conspiracy means
    that the agent colludes with third party maliciously
    harming the interests of the principal . In such cases
    the agent shall be separately or jointly liable with third
    party respectively.
    Case : Mr Cheng’s dual agency banned
   Mr Zhang and Mr Cheng are colleagues living in the
    same dormitory. Zhang was sent to work in Shenzhen
    for one year. Before his departture, he entursted
    Cheng to keep and use his TV. Three months later,
    Zhang informed Cheng that he had purchased another
    TV and asked him to sell his old TV at reasonable
    price. Mr Tan is also the colleague of Zhang and
    Cheng. He wanted to buy TV but unwilling to pay
    reasonable price. Tan asked Cheng to write to Zhang
    and fraudulently inform him that tube of his TV has
    broken down, thus can only be sold at reduced price.
   Cheng did so, because Tan is a driver and he often
    asked him to transport private materials for him and
    Zhang agreed so. Therefore Cheng sold it to Tan for
    only RMB500. When Zhang came back and learned
    of the true situation, he asked Tan to return the TV.
    Following Tan’s refusal, Zhang sued Cheng and Tan
    for invalidation of the TV sale. Zhang won the
    lawsuit.
        5.3.3 Re-delegation of power
   The re-delegation of power requires prior consent by
    the principal. In emergency circumstances the agent
    may do so for safeguarding the principal’s interests. In
    such cases the principal is liable for the acts of the
    sub-agent. It is very important to note that the sub-
    agent is the agent of the principal rather than that of
    the agent. Such sub-agent shall act in the interest of
    the principal. In the meanwhile the re-delegation does
    not replace the agent. In other words both the agent
    and sub-agent are the agent of the principal
    simultaneously.
        Case: Painter Songshi cannot use
                   sub-agent
   54-year-old Songshi was retained by the Painting Store to
    paint six traditional Chinese painting on 8 October 1986. The
    Store provided him the papers and brushes, and an advance
    payment of RMB3000. He was very busy and did not have
    time to do this. On 4 December 1986, he had to go abroad.
    Before his departure, he transferred those papers and brushes
    as well as his stamp to one of his students. The student
    finished the painting and sent them to the Store on 28
    December 1986. The Store examined and found that the
    paintings delivered by
the student were inferior to his painting in every
aspect. On 4 January 1987, he came back to
China and the Store asked him to personally
make the foregoing paintings for the Store.
Following his refusal, the Store sued him and
requested for personal performance. The court
supported the Store’s claim and ordered him to
make those paintings personally for the Store.
      5.4 Unauthorized agency
 5.4.1    concept

 5.4.2    consequences
   5.4.2.1 effective by ratification ( 追认有效)
   5.4.2.2 invalid ( 无效)


 5.4.3    ostensible agency ( 表见代理 )
               5.4.1 concept
 Unauthorized agency refers to agency exercised by
  agent without agency power. Such situation may be
  caused by ( Art.66 GPCL) :
 (1) no authorization on the part of agent at all,
 (2) ultra vires, (超越权限) and
 (3) termination of agency power.
 In all these cases the acts of agents appears to be in
  conformity with agency. However the agent exercises
  the foregoing acts in absence of agency power
  resulting from either primary or secondary causes.
           5.4.2 consequences
   5.4.2.1 Effective by ratification ( 追认有效)
   The principal may ratify such unauthorized agency.
    Once ratified, it is converted into formal agency where
    the principal is liable for the acts of the agents. Such
    ratification may be made expressly to the third party
    or unauthorized agents. Once ratified, such agency is
    effective retroactively ( 追溯地) from the very
    beginning . Ratification may also be implied from the
    fact of assuming the benefits of the legal acts made for
    it. Such ratification cannot be partial.
   In other words, the principal cannot accept the
    benefits without reimbursing the costs of the agent ,
    nor can it ratify only those advantageous aspects but
    rejects the disadvantageous aspects. In addition, if the
    principal is aware that pseudo( 假的、虚伪的 ) agent
    is executing acts in his name but fails to repudiate ( 拒
    绝接受、否认) it, he is deemed to have given
    consent. In other words he is liable for his silence in
    such case.
   5.4.2.2   Invalid ( 无效)

   In absence of ratification by the principal ,
    such unauthorized agency is null and void.
    The pseudo agent i.e. the performer bears
    civil liability for it.
    Case: Li Jin should be personally liable
   As a staff of A Company, Li Jin was retained as
    advisor with a monthly subsidy of RMB50 by B
    Company mainly engaged in sunflower seeds on 29
    September 1984. On 27 October 1984, Li Jin
    privately signed a purchase contact with B in the name
    of A. By the contract, B would supply 100000 kg
    sunflower seeds to A with a total value of RMB 80000.
    Goods should be delivered from November 1984 to
    November 1985. Li Jin affixed A’s official seal on the
    contract, but A was not aware of the contract. In
    December 1984, B contacted the sales
   department of A , and the department agreed to
    purchase 6700 kg. Goods were delivered and
    payments were settled immediately. Later B delivered
    another 11900 kg to A , which was accepted and paid
    in full. However no one in A Company was aware of
    the contract between Li Jin and B . A Company leader
    soon became aware of the contract and the true
    situation, thus ordered its subordinate departments to
    reject further delivery from B . B sued A for breach of
    contract, but the court invalidated said contract.
    Instead Li Jin should be personally liable for
    performing the contract with B .
    5.4.3 Ostensible agency (表见代理)
   The agent’s apparent authority to act on behalf the
    principal and its actual authority do not always
    coincide. You may be an agent but act beyond the
    scope of authority, or you may have been an agent but
    are no longer , or you may have less power than the
    agent normally do in such a trade or profession. You
    may appear to have authority though you are not an
    agent at all. You may have some real authority, but
    your apparent authority exceeds your real authority.
   Ostensible agency refers to the situation where the
    third party may reasonably believe from the acts of the
    principal that unauthorized agent has agency power ,
    and therefore enters into the deal with such
    unauthorized agent based on such reliance, the
    principal is liable for the acts of the foregoing
    unauthorized agent. It is also known as agency with
    apparent authority.
   The agent may acquire apparent authority from the
    past manner of business dealing by the principal or
    from trade usages or custom. In some cases, the
    circumstances may make it appear to the third party
    that such agent has authority to make the legal acts.
    The major causes for the third party to reasonably
    believe that the unauthorized agent has apparent
    authority include:
   (1) The principal informs the third party in oral or in
    writing directly or indirectly that he will use others as
    agent, but does not delegate power to anyone yet.
   (2) The principal gives others documents capable of
    evidencing agency power, but does not intend to
    delegate him any agency power.
   (3) The authorization in the power of attorney is unclear.
   (4) The principal fails to adopt relevant measures and
    publicize the fact of termination of agency after
    termination.
   (5) The principal is aware that pseudo agent is
    executing acts in his name but fails to repudiate it.
   Under such cases the third party may reasonably believe
    that the pseudo agent has apparent authority to represent
    the principal and therefore makes deal with him. Thus
    such ostensible agency has equal legal force and effect
    with the authorized agency. That is to say the principal
    bears the consequences of such agency . No doubt
    internally the principal has recourse against such agent
    for losses suffered thereby.
   The acts performed by the agent on behalf of the principal
    who dies, are still effective under the following situations:
   (1) the entrusted agent is not aware of the death of the
    principal;
   (2) the successors of the principal agree to ratify the act;
   (3) the principal and the agent have agreed that the agency
    would terminate only after the matters have been completely
    accomplished; or
   (4) the act was already under way before the principal died ,
    and the continued performance until completion is in the
    best interest of the successors of the principal.
   The causes for terminating statutory and designated
    agency are : (art. 70 GPCL)
   (1) the principal gains or recovers competence;
   (2) the principal or the agent dies;
   (3) the agent becomes incompetent;
   (4) the people’s court or the unit designating the agent
    rescinds such designation;
   (5) the guardian relationship between the principal and
    agent terminates due to other reasons.
   5.5.2 Consequence
   Upon termination of agency, the agent can no longer
    act in the name of the principal. Else, it is invalid as
    discussed above. The agent should in time of
    necessary and possible , report to the principal, or its
    heirs, liquidators or new agent the status of the
    agency matters and deliver to them relevant
    documents and property. The agent shall also return
    the principal the power of attorney and other
    documents capable of evidencing agency power. The
    principal should take care to inform the third party
    with whom the agent was acting in his name, that
   The agency relationship has now been terminated
    and the agent no longer has the authority to bind
    the principal . Else , if the former agent still holds
    himself as the agent, such agent falls within the
    scope of apparent authority. If the third party has
    no reason to suspect the former agent is acting
    beyond his scope of authority, the principal is still
    bound by the act of the agent.

								
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