Bound by an employee in cc? What you need to know about representation authority in a private limited company.
Legal entities only exist “on paper”. In economic transactions, a private limited company is therefore (ultimately) always represented by people: directors, employees or other authorised representatives. The general rule for private limited companies is that directors have unlimited and unconditional authority to represent the company, insofar as the law or the articles of association of the private limited company do not impose any restrictions. In principle, a director can therefore conclude agreements on behalf of the company without a separate power of attorney being required for each transaction.
In practice, this power of representation is not always unlimited. The Civil Code provides for a number of exceptions whereby the BV can take the position that a legal act is not binding on it or is voidable. One example is the so-called exceeding of the purpose: if a transaction clearly exceeds the statutory purpose of the company and the other party knew or should have understood this, the BV can challenge the agreement.
In addition, the articles of association may stipulate who may represent the BV and whether several persons must sign jointly. They often state that the company is only legally represented by two or more directors acting jointly, or by a director together with another designated officer. Such representation rules only become effective vis-à-vis third parties if they are registered in the commercial register. As long as such registration is lacking, a counterparty acting in good faith may, in principle, assume that each director is independently authorised.
Internal instructions (e.g. a maximum amount per director) are in principle only effective internally: the BV is still bound vis-à-vis third parties, but the director may be held liable internally for any damage.
In addition to directors, others may also legally bind the legal entity. This can be done by means of a power of attorney, by subsequent ratification or because the legal entity itself gives the impression that someone is authorised (appearance of authority). In the latter case, the legal entity cannot, in principle, invoke lack of authority vis-à-vis the other party.
Practical example: the Mollie / Phonemarket case
Mollie B.V. (‘Mollie’) operates an online payment platform and facilitates various payment methods for webshops. Phonemarket.nl B.V. (‘Phonemarket’) operated an internet shop selling mobile phones and consumer electronics. Since 2017, the parties had a user agreement under which Mollie provided payment services and Phonemarket paid a fee.
A dispute arose over chargebacks amounting to €6,213.90. Mollie was willing to reimburse this amount as a gesture of goodwill, but wanted a settlement agreement (‘VSO’) in return, including:
1. A two-year commitment;
2. A minimum invoice amount of €2,725 per month, regardless of turnover;
3. Exclusion of future chargeback claims.
Mollie sent its proposal by email to the indirect director [person A], with the legal adviser in cc. [Person A] forwarded this proposal to employee [Person C]. From that moment on, [Person C] conducted the email negotiations, as [Person C] himself stated, ‘on behalf of [Person A]’, while [Person A] and the legal adviser were always copied in and did not intervene.
The VSO was then signed and returned via DocuSign. The proof of signature states that [person A] signed digitally from his email address. Phonemarket later claimed that it was not [person A] but [person C] who had signed, that [person C] was unauthorised and that Mollie was aware of this.
Phonemarket paid the fee for only one month and then stopped. Shortly thereafter, the activities, the trade name ‘Phonemarket’ and the domain name were transferred to sister company NH Products B.V. for a relatively low amount. Phonemarket informed Mollie that it would not comply with the VSO due to a lack of turnover, without disputing the content of the agreements. Mollie then claimed compliance with the VSO and liability from NH Products, the holding company and [person A] personally.
Digital signature: what is the legal situation?
The court qualifies the VSO as a private electronic document. Because the document can be stored permanently as a PDF via DocuSign and consulted without modification, it can be a private deed. The VSO is signed with a “normal” electronic signature.
Under the law, an electronic signature can have the same legal effect as a written signature, provided that the method used is sufficiently reliable in the given circumstances. Given the long-standing relationship between the parties, previous agreements and the recorded email negotiations, the court considered DocuSign to be reliable in this case. The VSO therefore qualifies as a private deed.
This does not end the discussion. Phonemarket strongly denies that the signature under the VSO is that of [person A]. In that case, a private deed whose signature is strongly denied does not provide (compelling) evidence as long as it has not been proven who the signature comes from. The burden of proof for the authenticity of the electronic signature then rests with the party invoking the deed – in this case, Mollie.
In this case, the court does not address the question of who exactly signed. It has already been able to base its decision on the email correspondence and the agreements apparent from it, regardless of the digital signature.
Important for entrepreneurs: a digital signature via a platform such as DocuSign can provide strong evidence, but if the other party disputes that the correct person signed, you must be able to prove who actually signed.
Appearance of power of attorney: bound by the employee in cc
The court then considered the question of whether, apart from the VSO, an agreement had been reached on the minimum invoice amount. According to Mollie, it was agreed that Phonemarket would pay a minimum fee of €2,725 per month for 24 months, regardless of turnover. This agreement is clearly evident from the emails.
Crucially, these emails came from [person C] and not from [person A]. Nevertheless, the court found that Phonemarket could not use this against Mollie. Mollie was entitled to trust that [person C] had power of attorney to represent Phonemarket. In this regard, the court takes into account, among other things, that:
i. [Person A] forwarded Mollie’s proposal to [person C] himself;
ii. [Person C] states in the email that he is acting ‘on behalf of [Person A]’;
iii. [Person A] and the lawyer are always copied in and do not intervene at any point;
iv. Phonemarket indicates in later emails that it will not pay due to a lack of turnover, without disputing the agreements made or the authority of [person C].
The mere fact that an authorised person is included in the cc is not always sufficient in itself to assume apparent authority. In this case, it is the combination of actively forwarding, acting ‘on behalf of’ the director, tacitly observing and not subsequently disputing the agreements. Under these circumstances, Mollie was entitled to rely on [person C] being authorised and Phonemarket is bound by the agreement.
The lesson for directors is: if you forward important proposals to an employee and then watch that employee negotiate on your behalf without intervening, your legal entity may be bound by that.
What does this mean for you as an entrepreneur?
Some concrete lessons:
Check not only the signing authority of your contracting party, but also your own internal agreements: who negotiates on behalf of your organisation and what do you communicate about this to the outside world?
Be alert to email correspondence in which employees negotiate on your behalf while you are cc’d. Tacit consent may contribute to the appearance of power of attorney.
Use digital signatures (such as DocuSign) with clear internal procedures so that you can subsequently demonstrate who actually signed.
Advice
Do you have any questions about this article? Our lawyers are ready to advise you! Contact one of our solicitors by email, telephone or fill in the contact form for a no-obligation initial consultation. We are happy to assist you.
