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Redressing Unauthorized Representation, Make Sure You’re Doing It Right

The Dutch Caribbean Civil Code contains provisions relating to a power of attorney. It stipulates, for instance, that when someone has acted as the unauthorized representative of someone else, the latter can ratify this legal act, which means that the same result is realized as if it would have been performed pursuant to an actual power of attorney.

In a recent case, a creditor discovered that it had entered into a purchase agreement with a limited liability company not yet in existence at the time of signing. The company was incorporated much later, and failed to comply with the obligations under the purchase agreement. The creditor subsequently held the persons who incorporated the company personally liable based on unauthorized representation. They had signed the purchase agreement on behalf of the company, but had failed to state that it concerned a company in formation.

The incorporators of the company tried to avoid personal liability by having the company ratify the legal acts. The deed of incorporation of the company stated that ‘all the legal acts to be performed by the incorporators on behalf of the company in formation are ratified by the company under the suspensive condition that the company is registered in the Commercial Register so that rights and obligations for the company arise from the date of said registration.’

The question at hand was whether (or not) with this deed of incorporation, a legally valid ratification was performed. If so, then as a result the purchase agreement must be deemed valid from the beginning. This would mean that by this ratification, the company was able to give the purchase agreement the same legal effect as if it had been entered into on the basis of a power of attorney.

The Supreme Court ruled that ratification requires that the (ratification) statement must be addressed to the other party and must have been received by this other party. The undirected statement in the deed of incorporation did therefore not result in the desired ratification, and also as a legal consequence did not remove any possible liability of the incorporators for unauthorized representation.