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Tuesday, Jan 25th 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

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  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

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OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 2.3.1

Scope of the section

1. This Section governs the authority of a person (“the agent”) to affect the legal sphere of another (“the principal”) by a contract with a third party, whether the agent acts in the name of the principal or in its own name.

2. This Section does not govern the internal relations between the agent and the principal.

3. This Section does not govern the authority conferred by law to an agent or the authority of an agent appointed by a public or judicial authority.

This Section deals with the regulation of the authority of the agent to affect the legal position of the principal by means of the contracts that the agent may conclude with a third party, that establish direct legal links between the agent and the principal. This Section, therefore, only concerns the relations between the principal and the agent on the one hand, and the third party on the other hand. In other words, it focuses on the external relations of the authority. Internal relations between the principal and the agent are therefore excluded. Information in this regard (rights and obligations between the principal and the agent) will be found in the provisions of their contract and the law applicable to that contract under private international law of the forum. Specific rules must also be considered, such as mandatory rules for the protection of some specific types of agency relationships, for example, independent commercial agents in the OHADAC territories where the European law is applicable, which guarantees the agent certain rights in case of unilateral termination of the contract by the principal. This means that questions concerning the internal as well as external relations of the authority, such as the conditions of granting and termination of authority, conflicts of interest or the replacement of the agent, will be addressed in this section only from the view point of their effects on third parties.

This Section deals only with intermediaries who have authority to conclude contracts. Intermediaries whose task it is to introduce the parties to each other so they can later negotiate and conclude a contract (brokers or state agents, for example), or negotiate contracts with third parties but without the capacity to conclude them, this task being reserved to the person on whose behalf they are acting (employed representatives or independent commercial agents not authorised to conclude contracts) are outside the scope of this Section. None of these instances are cases of representation, although the above-mentioned intermediaries are sometimes incorrectly called “representatives”.

Given the special nature of representation characterised by the intervention of three parties (principal, agent and third party), the application of this Section to the said relations will necessarily require the acceptance of the OHADAC Principles by the three parties involved. In short, a “trilateral” agreement around the application of the Principles will be necessary. Given the absence of a direct link between the principal and the third party, that agreement should be broken down in two phases. The first one, in the cases of express authority of the agent, should correspond to date of granting of the authority, and specify that the principal has given authority to the agent to conclude contracts with third parties “in accordance with the provisions of the OHADAC Principles”. The second one will coincide with the moment of the conclusion of the contract between the agent and the third party, with the inclusion of a clause requiring that the contract be governed by these Principles. This stage will obviously be altered in cases of implied authority, apparent authority or lack of authority, although in such cases, the acceptance by the principal of the application of the Principles will take place, generally, after the conclusion of the contract between the agent and the third party. In the case of lack of authority, this time will coincide with the ratification. This ex post acceptance of the Principles must not necessarily be express. It can be also tacitly carried out, as in cases where the principal proceeds to perform its obligations under the contract agreed on his behalf by the agent without objection to the clause claiming the application of the Principles to the contract.

Moreover, given the non-imperative nature of the rules on representation existing in the different national regulations, the “trilateral” agreement reached by the parties to the representation concerning the application of the OHADAC Principles will necessarily imply the moving aside of the domestic regulations on the matter. Nevertheless, the regime of these Principles is usually in line with domestic regulations, since they are contain principles common to the various national laws.

As mentioned, the OHADAC Principles restrict the scope of application of this Section to the external relations of representation. They therefore differ in this respect from the model followed by most Caribbean civil law systems (Articles 2.142-2.199 of the Colombian Civil Code; Articles 1.251-1.294 Costa Rican Civil Code; Articles 1.984-2.010 Dominican and French Civil Code; Articles 1.686-1.727 Guatemalan Civil Code; Articles 1.748-1.774 Haitian Civil Code; Articles 1.888-1.918 Honduran Civil Code; Articles 3.293-3.389 Nicaraguan Civil Code; Articles 1.400-1.430 Panamanian Civil Code; Articles 1.600-1.630 of the Puerto Rican Civil Code; Articles 1.601-1.661 Saint Lucian Civil Code), which do not distinguish between internal and external relationships of representation, because they consider the authority as a mere effect of the mandate contract. This is also the model followed by the common law systems, where, under the concept of “agency”, the relations between principal and third party and relationship between principal and agent are included.

On the contrary, the OHADAC Principles favour what might be called the “Germanic” model of representation, characterised by establishing a clear difference between authority and the base contract, and therefore, between external and internal relationships of representation. This is also the model followed by the Caribbean countries of Dutch tradition [Articles 3:60-3:67 (representation), 7:414-7:424 (mandate) and 7:428-7:445 (commercial agency) Dutch and Suriname Civil Code], by some countries of Spanish tradition [Articles 56-66 (representation) and 398-422 (mandate) of the Cuban Civil Code; Articles 1.800-1.802 (representation) and 2.546-2.604 (mandate) of the Mexican Civil Code, and implicitly, Articles 274 and 310 of the Mexican Commercial Code; Articles 1.169-1.172 (representation) and 1.684-1.712 (mandate) of the Venezuelan Civil Code, and implicitly, Article 95.2 of the Venezuelan Commercial Code], include the various international instruments of unification of contract law [Articles 2.2.1-2.2.10 UP; Articles 3:101-3:304 PECL; Articles II-6:101-II-6:112 DCFR; Geneva Convention of 17 February 1983 on agency in the international sale of goods (hereon GC, not in force)].

Authors and case law in most legal systems that used to follow the first model have eventually developed the distinction between internal and external relationships of representation [Articles 832-844 (representation) y 1.262-1.339 (mandate) of the Colombian Commercial Code; Articles 731-739 (representation) and 804-825 (commission) of the Honduran Commercial Code; Articles 399 and 436 of the Nicaraguan Commercial Code; Articles 604 and 612 of the Panamanian Commercial Code; Article 200 of the Puerto Rican Commercial Code; Articles 60-68 Draft Reform of the French Law of Obligations 23 October 2013].

Moreover, the OHADAC Principles consider that, to qualify the legal situation in which the agent operates, it is not relevant to specify whether the agent is acting in the name of the principal or in its own name. This makes it possible to use this qualification in both situations. All Caribbean common law systems have the principle that it is irrelevant to establish direct legal relations between the principal and the third party. In these systems the direct link between the principal and the third party is recommended in cases where the agent discloses its position to the third party (disclosed agency), whether or not he has revealed the identity of the principal. That is why the disclosed principal may be named/identified or unnamed/unidentified [Universal Steam Navigation Co v James McKelvie & Co (1923), AC 492; Benton v Campbell, Parker & Co Ltd (1925), 2 KB 410; Sections 6.01 (1) and 6.02 (1) Restatement (Third) of Agency]. But even in those cases where the agent, by contracting with the third party, hides the existence of the representation (undisclosed agency), the possibility of establishing direct links between the principal and the third party is admitted once the third party discloses that the person he was dealing with was actually acting as an agent for another one (undisclosed principal) (Comment on Article 2.3.4).

At this point, it could be said that the OHADAC Principles deviate from the approach followed by the Caribbean systems of Spanish, French and Dutch tradition, where the direct effect of the acts of the agent in the legal position of the principal is conditional upon the acting of the agent in the name of the principal. This differentiates between direct and indirect representation depending on the fact that the agent acts in the name of the principal or in its own name. (Articles 1.505 and 2.177 of the Colombian Civil Code and 832, 833.1, 1.336 and 1.337 of the Colombian Commercial Code; Articles 1.275 of the Costa Rican Civil Code and 273 and 318 of the Costa Rican Commercial Code; Articles 57 of the Cuban Civil Code and 245-247, 284-285 and 287 of the Cuban Commercial Code; Articles 1.984.1° of the Dominican Civil Code and 94 of the Dominican Commercial Code; Articles 1.984 of the French Civil Code and Article L132 -1 of the French Commercial Code; Article 61 Draft project reform of the French law on obligations of 2013; Article 1.686.2 of the Guatemalan Civil Code : Articles 1.748 and 1.762 of the Haitian Civil Code and 90-91 of the Haitian Commercial Code; Articles 3:60.1, 3:66.1 and 7:425-7:427 of the Dutch and Suriname Civil Code; Articles 1.896 and 1.904 of the Honduran Civil Code and 732 Commercial Code; Articles 2.560-2.561 and 2.581 of the Mexican Civil Code and 283-285, 311, 313 of the Mexican Commercial Code; Articles 2.440.1 and 3.331 of the Nicaraguan Civil Code and 408-410, 437 and 439 of the Nicaraguan Commercial Code; Articles 1.110.1 and 1.408 of the Panamanian Civil Code and 606-607, 609 and 612 of the Panamanian Commercial Code; Articles 1.211.1 and 1.608 of the Puerto Rican Civil Code and 163-165, 202-203 and 205 of the Puerto Rican Commercial Code; Articles 1.615-1.616 and 1.627.1 of the Saint Lucian Civil Code; Articles 1.169 of the Venezuelan Civil Code and 96-97 and 376-379 of the Venezuelan Commercial Code). Such systems, indeed, only envisage the basic effect of the agency, that is the direct link between the principal and the third party, in cases of direct agency, in which the agent acts in the name of the principal. It is commonly considered that the agent does so when, at the time of contracting, he reveals expressly the third party, under any formula, apart from its condition of agent, the identity of the principal (indicating, i.e. that it acts for “X”, in the name of “X”, as a representative for “X”, etc.), even if finally it is not included in the contract. Contemplation domini also characterises cases where the agent only declares that it acts in the name of a principal, but it does not initially reveal his identity, assuming the commitment to disclose it at a later moment. It is also possible that none of these extremes are expressly disclosed, but can be easily deduced from the unmistakable behaviour of the agent or due to other elements.

The representative effect does not take place, however, in the cases of indirect representation, in which the agent acts in its own name, concealing his capacity of agent from the third party. In such cases, the agent, and not the principal, will be personally liable to the third party. There is an exception to this rule in certain domestic legal systems in relation to the things belonging to the principal (Article 1.896.2 Honduran Civil Code; Article 2.561.2 Mexican Civil Code; Article 1.408.2 Panamanian Civil Code; Article 1.608.2 of the Puerto Rican Civil Code). How the agent should transfer the principal the rights acquired from the third party on the principal's interest or how the agent should cover the obligations acquired with the third party will be decided within the framework of the internal relationship between the principal and the agent. However, we must not forget that even some civil law systems provide some exceptions to the general rule establishing that the principal is not obliged in cases of indirect representation, and admit the possibility that, in some situations, the principal may claim against the third party directly, or conversely, that the third party may directly claim against the principal (Comment on Article 2.3.4).

The solution adopted by the OHADAC Principles clearly coincides with those on the GC (Article 1.1 and 4) and the UP [Articles 2.2.1 (1), 2.2.3 and 2.2.4 (2)], which also expressly provides the irrelevance of the fact that the agent acts in its own name or in the name of the principal in order to bind this one towards the third party. This solution is not far from that offered by either the DCFR (Articles II-6:105 and II-6:106) or the PECL [Articles 3:102 and 3:301 (2) a 3:304]. Although these instruments are based on the distinction between situations in which the acts of the agent affect the legal position of the principal and those where they do not, that is between direct and indirect representation, they leave the possibility, through a legal rule, that these legal effects actually occur.

Finally, this Section refers only to voluntary representation, that is the representation that has its origin in a voluntary act of the principal intended to authorise the agent to act on his behalf (power),all the while widening his scope of action. In some cases, this voluntary act materialises in a unilateral proxy deed granted on a one-off basis, and in others it is part of a bilateral contract that binds the agent and the principal. This section does not deal with cases of legal representation, where the agent's authority is conferred by law (as in the representation of minors by their parents, holders of parental rights), as well as in those in which the authority derives from a public or judicial authority (as in the representation of disabled people by their tutors). In these cases, determination of the authority of the agent will be done under the domestic law applicable according to private international law. Aside from these two types of representation, the OHADAC Principles follow the line of the two main international instruments of contract law harmonisation: the UP [Article 2.2.1 (3)] and the PECL [Article 3:101 (2)], which also limit their regulation to voluntary representation.

Organic representation, or representation of companies by their organs, is governed by specific rules in company law, which are usually mandatory. This question will be governed by the law applicable to the company, which will prevail on the general rules of representation included in this Section, whose application will be only subsidiary. The provisions of this Section will be applicable, however, to the voluntary representation of the company by those people that the board of directors has dutifully appointed.

Commentary

Article 2.3.2

Grant of the authority

1. The principal´s grant of authority to an agent may be express or implied.

2. A person is to be treated as having granted authority to an agent if the person's statements or conduct induce a third party acting in good faith reasonably to believe that the apparent agent has been granted authority to perform certain acts.

3. Unless the principal explicitly provide otherwise, the agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authority was granted.

The OHADAC Principles coincide with the majority of national regulations in stating that the grant of authority is not subject to any requirement of form, so that it may be express or implied [Articles 2.149-2.150 of the Colombian Civil Code; Articles 2.151-2.152 of the Costa Rican Civil Code; Article 1.985 of the Dominican and French Civil Code; Article 1.749 of the Haitian Civil Code; Article 3:61.1 of the Dutch and Suriname Civil Code; Article 1.889 of the Honduran Civil Code; Articles 2.547.3 and 2.550-2.552 Mexican Civil Code; Articles 3.293.1-3.294 Nicaraguan Civil Code; Article 1.401 of the Panamanian Civil Code; Article 1.601 of the Puerto Rican Civil Code; Articles 1.601 and 1.605 Saint Lucian Civil Code; Article 1.685 of the Venezuelan Civil Code; Section 1.03 Restatement (Third) of Agency; Articles 9.1 and 10 GC; Article 2.2.2 (1) UP; Article 3:201 (1) PECL; Article II-6:103 (2) DCFR].

Authority can, of course be granted expressly, either verbally or orally, for example granting of authority made through a mandate or through a verbal or written declaration by the principal, or, if the principal is a company, by the resolution of the board of directors. The advantage of this kind of granting is clear: it makes it possible to prove both the existence and scope of this authority.

Example 1: X grants a power of attorney to Y, so that Y can conclude with Z, at Z's country, the sale of a property belonging to X in such country.

Authority can also be implied, as it happens in cases where the principal's intention to confer authority on the agent can be inferred either from the principal's conduct (e.g. assigning of a specific task to the agent that implies the granting of certain representative powers), or from the circumstances of the case (as in the cases in which the attribution to the agent of representative powers derives from a practice between the parties or trade usages).

Example 2: X appoints Y as the manager of a complex of touristic apartments belonging to X. Y will have the implied authority to conclude contracts of short-term lease of apartments with third parties.

Only a few countries refuse the possibility of granting implied authority, requiring the written - and particularly, the notary - form at all times (Article 414.3 of the Cuban Civil Code and Article 1.687.1 of the Guatemalan Civil Code), with certain exceptions (Article 415 of the Cuban Civil Code and Article 1.687.2 of the Guatemalan Civil Code).

Some of the domestic legal systems, which in principle do not subject the grant of authority to any condition of form, demand that when authority is granted for acts for which the observance of certain formalities are required, it must be made expressly and observe the same formal requirements required for the act to be performed (Article 836 of the Colombian Commercial Code; Section 3.02 Restatement Third of Agency; Article 1.169.2 of the Venezuelan Civil Code). In other systems, the grant of some types of authority is subject to a specific form, generally a deed (Articles 1.251.2 and 1.226.2 Costa Rican Civil Code; Article 1.892 Honduran Civil Code; Articles 2.555-2.557 Mexican Civil Code; Articles 2.483.5 and 3.293.3 Nicaraguan Civil Code).

The OHADAC Principles, follow, in this respect, the Caribbean systems of Dutch tradition (Article 3:61.2 Dutch and Suriname Civil Code), and common law systems [Summers v Solomon (1857), 7 E&B 879; Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd (1964), 1 All ER 630; The Shamah (1981), 1 Lloyd´s Rep 40; judgment of the Court of Appeal of Trinidad and Tobago in Johnstone v Ritchie (1983), Civ App No 16 of 1979 (Carilaw TT 1983 CA 20); judgment of the Supreme Court of Bahamas in Clean-Away Ltd v St Tropez Marina Bahamas Ltd (1993), No 1755 of 1990 (Carilaw BS 1993 SAC 21); judgments of the High Court of Trinidad and Tobago in Speedy Service Liquors Ltd v Airports Authority of Trinidad and Tobago (2002), No 586 of1984 (Carilaw TT 2002 HC 106) and in Raymond and Pierre Ltd v HCU Communications Ltd (2010), No 1064 of 2009 (Carilaw TT 2010 HC 126); Section 1 of the 1889 Factors Act of England; Sections 2.03, 2.05, 3.03 and 3.11 Restatement Third of Agency], as well as some from different legal traditions (Article 842 of the Colombian Commercial Code; Article 736 Honduran Commercial Code; Articles 1.630 Saint Lucian Civil Code and 241 Saint Lucian Commercial Code), also envisage the possibility of a third type of authority: apparent authority. This is the authority purported to have existed although it was never granted expressly or implicitly. However, the declarations or conduct of the principal (for example enabling an agent who carried out duties that have granted authority to continue acting on the principal's account even when he has left that position) leads a bona fide third party to reasonably believe that the agent has the authority to act on behalf of the principal. This kind of authority is also admitted by authors and case law in French overseas territories (judgment of the Cour de Cassation of 13 December 1962, where apparent authority is recognised, even in the absence of fault on the part of the principal; also, Article 63.1 Draft project Reform of the French law on Obligations of 2013), and in different international instruments of unification of contract law [Article 14.2 GC; Article 2.2.5 (2) UP; Article 3:201(3) PECL; Article II-6:103(3) DCFR].

The idea of apparent authority is a clear manifestation of the application of the principle of good faith and of estoppel and takes on special relevance in cases where the principal is a company. The third party, in fact, usually finds it difficult to determine whether or not the individual acting in the name of a company has actual authority to do so, and it may therefore prefer to rely on their apparent authority. It will only have to demonstrate that it was reasonable for it to believe that the person purporting to represent the company was authorised to do so, and that this belief was caused by the conduct of those who were actually authorised to represent the company (board of directors, administrators, etc.). In any case, the final decision about whether or not the belief on the part of the third party was reasonable will depend on the circumstances of each particular case (position occupied by the apparent agent in the organisation of the company, type of transaction, acquiescence of the organisation's representatives in the past, etc.).

Example 3: Y, director of a branch of the company X, though lacking actual authority to do so, engages company Z to redecorate the premises of Y. Z will be able to rely on the fact that the director of a branch would normally have authority to enter into such a contract and, hence, it was reasonable for Z to think that Y had actual authority to enter into the contract concluded with Y which binds X.

This Article finally refers to the question of the scope of authority, linking it to the scope of the authority granted by the principal to the agent: unless the principal expressly states otherwise, the agent will have the authority to carry out all acts that may be necessary for the accomplishment of his duties. Consequently, the broader the scope of the assigned tasks for the agent, the wider will be the scope of the authority conferred by the principal. That will be so, even in the case of express authority: the scope of authority will not be a priori limited by its literal form, unless the principal expressly deprives the agent of some faculties.

Example 4: X asks Y to buy from Z, at Z's country, certain goods. If, according to the contract agreed with Z, transport from Z´s country to X´s country is on the buyer, Y will be considered as authorised to contract that transport.

For the question on the scope of authority, these Principles provide the same solution as other international instruments of unification of contract law [Article 9.2 GC; Article 2.2.2 (2) UP; Article 3:201 (2) PECL; Article II-6:104 (1) y (2) DCFR)]. Besides, they include a common principle to the current rules in OHADAC territories. In such systems, indeed, apart from some specific features and with the exception of those instances where the authority of the agent is granted by law (certain categories of commercial assistants), it is considered that the scope of the authority will be that dictated by the principal. In some cases, it is provided that the authority given to the agent will be interpreted ‘in the broad sense” when it is not possible to consult the principal (Article 2.174 of the Colombian Civil Code; Article 3.330 of the Nicaraguan Civil Code).

In civil law systems, there is a distinction between general and especial authority, depending on the fact that the authority enables the agent for the performance of all businesses of the principal, or just of one or some of them in particular (Articles 2.156 of the Colombian Civil Code and 840 of the Colombian Commercial Code; Article 401 of the Cuban Civil Code; Article 1.987 of the Dominican and French Civil Code; Article 1.690 of the Guatemalan Civil Code; Article 1.751 of the Haitian Civil Code; Article 1.891 of the Honduran Civil Code; Article 2.553 of the Mexican Civil Code; Article 1.403 of the Panamanian Civil Code; Article 1.603 of the Puerto Rican Civil Code; Article 1.603.1 of the Saint Lucian Civil Code; Article 1.687 of the Venezuelan Civil Code; Article 62 Draft project reform of the French law on Obligations of 2013). In some cases a difference is made between three different categories of authorities: universal, general and special authority (Articles 1.253-1.257 of the Costa Rican Civil Code; Articles 3.295-3.298 of the Nicaraguan Civil Code). There is also a distinction between “acts of administration” and “acts of disposal”, and it is commonly considered that the general authority allows the performance of acts of administration, but not acts of disposal, which require the grant of special authority [Article 2.158 of the Colombian Civil Code; Articles 1.253-1.257 of the Costa Rican Civil Code; Article 401 of the Cuban Civil Code; Article 1.988 of the Dominican and French Civil Code; Article 1.693 of the Guatemalan Civil Code; Article 1.752 of the Haitian Civil Code; Article 1.892 of the Honduran Civil Code; Articles 3.295-3.298 of the Nicaraguan Civil Code; Article 1.404 of the Panamanian Civil Code; Article 1.604 of the Puerto Rican Civil Code; Article 1.603.2 and 3 of the Saint Lucian Civil Code; Article 1.688 of the Venezuelan Civil Code. The exception can be found in Mexico, where there general authorities take on the administration of goods, and also perform disposal acts, and where special authorities are qualified as those granted for specific acts, whether of administration or of disposal (Article 2.554 Civil Code)].

However, the underlying principle is always the same: it is the principal who determines the scope of the authority. Nevertheless, the agent will be considered to be authorised to perform as many acts as necessary to perform the assigned task (expressly, Article 1.604, second paragraph, Saint Lucian Civil Code).

Lastly, regarding the cases where principal has not specified the type of authority, as well as in the case of implied authority, it is provided that the scope of authority will depend on the purpose for which it has been granted (expressly, Article 399 Cuban Civil Code).

Commentary

Article 2.3.3

Disclosed agency

1. Where an agent acts within the scope of its authority and discloses to the third party that he is acting as an agent, the acts of the agent shall directly bind the principal and the third party. No legal relation is created between the agent ant the third party.

2. However, the acts of the agent shall bind the agent and the third party where the agent, with the consent of the principal, undertakes to become a party to the contract.

3. Where an agent acts in the name of a principal whose identity is to be revealed later, but fails to reveal that identity within a reasonable time after a request by the third party, the agent itself is bound by the act.

The OHADAC Principles follow the GC (Article 12) and the UP [Article 2.2.3 (1)] on this issue, by directly linking the effects of the acts of the agent to the legal position of the principal. In addition to the existence of authority and the actions of the agent within the limits of this authority, it also links the fact that the third party knew that the agent had the authority to act. They refer to this situation under the expression “disclosed agency”. This situation covers both cases of disclosed agency of the common law systems and those of direct representation of the systems of civil tradition, embracing a broad interpretation of the contemplation domini.

The agent can reveal to the third party the existence of an agency and the identity of the principal. But it may also happen that the agent only discloses his position to the third party without initially identifying the principal. In both cases (provided the agent finally discloses the identity of the principal) a direct legal link is established between the principal and the third party, leaving the agent on the side of the relationship. That is why, in order to avoid any risk of being personally bound, it is advisable in practice for the agent, not only to clearly disclose his position, but also to indicate expressly the identity of the person on whose behalf he is acting, making sure that the third party knows about his role as agent.

Example 1: Y is a commercial agent for X, authorised to promote and conclude contracts of sale of X's products in Y's country. Complying with the commercial agency contract between X and Y, Y concludes a sale contract with Z, whom it informs of its position of commercial agent of Y. The sale contract signed by Y under these conditions directly binds X and Z, being X, and not Y, who is responsible for delivering the goods and who is entitled to claim from Z the payment of the agreed price.

Example 2: This is the same situation described in Example 1, except that Y, when contracting with Z, only reveals its position of commercial agent, without identifying the person on whose behalf it is acting. The identification takes place at a later time. In this case the sale contract signed by Y directly binds X and Z.

In most cases, the third party knows of the position of agent of the person with whom he is concluding the contract because the disclosing of such circumstance by the agent himself, regardless of whether it is accompanied by the identification of the principal. But it may not be so. For example, when the agent does not disclose its condition at all, but the third party is aware of it through other means. In such instances there will not be a situation of “disclosed representation”, so that the effects will not be the typical ones of this kind of representation, but those described in the provisions on “undisclosed representation” in Article 2.3.4. National laws consider this situation as a case of undisclosed agency or indirect representation, depending on whether they are common or civil law systems.

Example 3: X, through a commission contract, asks Y to buy from Z a certain good, asking to remain anonymous. Even if Z knows the condition of Y as a commissioner, if the latter contracts with Z without disclosing that it is acting on behalf of X, the typical effect of the representation will not take place, and the sale contract concluded between Y and Z will only bind them, without affecting the legal position of X.

The OHADAC Principles leave no doubt about the effects of the disclosed agency: the contract concluded by the agent will create a direct legal relationship between the principal and the third party. But they also add that no legal relationship will be created between the agent and the third party, reflecting another principle common to both Caribbean systems [Article 2.582 Mexican Civil Code; Robins v Bridge (1837), 3 M & W 114; Boyter v Thomson (1995), 2 AC 629, 632; Lucas v Beale (1851), 109 CB 739; Fairlie v Fenton (1870), LR 5 Ex 169; Section 6.01 (2) Restatement (Third) of Agency] and international instruments of unification of contract law [Article 12 GC; Article 2.2.3 (1) in fine UP; Article 3:202 PECL; Article II-6:105 in fine DCFR].

Nonetheless, the OHADAC Principles envisage two instances of disclosed agency in which the acts of the agent generate a legal relationship between the agent himself and the third party. In the first one, the agent, with the consent of the principal, takes on the position of a contracting party [Article 1.904 of the Honduran Civil Code; Article 1.416 of the Panamanian Civil Code; Article 1.616 of the Puerto Rican Civil Code; Southwell v Bowditch (1876), 1 CPD 374; Montgomerie v United Kingdom Steamship Association (1891), 1 QB 370; Section 6.01 (2) Restatement (Third) of Agency; Article 12 in fine GC; Article 2.2.3 (2) UP; Article 3:202 PECL)]. It is the case in which the third party, knowing the identity of the principal, specifies that it will conclude the contract only with the agent. The agent, with the principal's consent, agrees to be just himself who becomes bound by the concerned contract. In such case, and in accordance with the provisions of the internal agreement between agent and principal, the agent, after having acquired the rights deriving from the contract signed with the third party, will transfer them to the principal. The same applies to the case where the third party and the agent, and also with the consent of the principal, agree that agent becomes a co-obligor or a simple guarantor of the principal's obligations. This situation must not be confused with the possibility offered by some legal systems (Article 2.178 of the Colombian Civil Code or Article 3.332 of the Nicaraguan Civil Code), whereby the agent, through a covenant, guarantees the principal for the solvency of the third parties it is contracting with, or assumes the uncertainty of the collection. The reason is that such obligation is within the scope of the internal relations between the agent and the principal and does not create a legal relation between the principal and the third party. Lastly, it may also be the case in which the agent, with the knowledge of the third party, acts at the same time on his own behalf and on behalf of the principal, whether or not this is reflected in the contract [Basma v Weekes (1950), AC 441; The Sun Apiñes (1984), 1 Lloyd´s Rep 381]. In any case, depending on whether or not the agent, acts exclusively when it takes on the role of contracting party, it will be considered that the agent is binding himself alone or together with the principal. In this respect, the OHADAC Principles differ from the other international instruments, which either provide the exclusive obligation of the agent (GC and UP) or impose in any case its obligation together with the principal (PECL).

The second case occurs in situations of “unidentified principal”, which is when the agent acts on behalf of a principal whose identity he does not reveal at the time of concluding the contract, but commits to reveal that identity later. If the agent does not reveal the identity of the principal within a reasonable time after being asked to do so by the third party, it will be treated as if he had acted on his own behalf, being as a result directly bound to the third party by the contract they both concluded. The solution provided in the systems of Dutch tradition (Article 3:67.2 Dutch and Suriname Civil Code) and in common laws systems [The Virgo (1976), 2 Lloyd's Rep135, C.A.] is precisely the establishment of a direct legal relationship between the agent and the third party, although it is considered that the personal liability of the agent will only take place insofar as the third party can prove the agent had some contractual will that justifies such responsibility [The Santa Carina (1977), 1 Lloyd's Rep 478, CA]. It is even understood that until the disclosure of the identity of the principal, the third party may question the status of agent of the person purporting to act as such, and may hence sue it personally [Dores v Horne and Rose (1842), 4 D 673; Gibb v Cunnigham & Robertson (1925), SLT 608]. This rule also exists in some Romanist legal systems (Article 739 of the Honduran Commercial Code), in the PECL (Article 3:203) and in the DCFR (Article II-6:108).

Common law systems envisage other situations in which the rule of non-obligation of the agent in the instances of disclosed agency can be excluded. It is possible, for example, that the agent's liability towards the third party in a case of disclosed agency derives from a custom between individuals or related to a particular type of agent [Raiffeisen Zentralbank Österreich Attorney-General v China Marine Bunker (Petrochina) Co Ltd (2006), All ER (D) 37, 33], a local commercial usage [Fleet v Murton (1871), LR 7 QB 126; Cory Brothers Shipping Ltd v Baldan Ltd (1997), 2 Lloyd´s Rep 58) or a legal provision (e.g. Sections 44.1 (a) y 44.1 (b) of the United Kingdom Insolvency Act 1986, amended on Section 2 of the Insolvency Act 1994). The link of the agent to the third party is also supported in those instances where the agent, despite having acted for a named principal, has in fact done it on his own behalf. In such a case, the agent will be able to perform the contract after having informed the third party that he acted on his own behalf [Bickerton v Burrell (1816), 5 M & S 383], unless such a performance can damage the third party; this will be so, for example, when the third party has agreed regarding the solvency of the principal or other circumstances related to it, or when the agent, once the contract is concluded, comes to know that, for some personal reason, the third party did not want to contract with him [Fellowes v Gwydyr (1829), 1 Russ & M 83; The Remco (1984), 2 Lloyd´s Rep 205]. This relation also exists in cases where the agent declares that he is acting on behalf of a principal, which does not actually exist; such is the case in contracts done by a company that, at the time of the contract, was not yet incorporated [Kelner v Baxter (1886), LR 2 CP 174; Phonogram Ltd v Lane (1982), QB 938]; however, it is not the case of a contract concluded on behalf of a company that did exist, but was dissolved before the contract was actually concluded; such a contract will be void. In all cases where the agent, in a situation of disclosed agency, becomes bound by the contract, there are two possible interpretations: on the one hand, that only the agent is liable, so that it is obliged only to the third party, but not the principal [Scrace v Whittington (1823), 2 B & C 11]; on the other hand, that both, agent and principal, are bound by the contract [The Swan (1968), 1 Lloyd´s Rep 5, 12; The KurniaDewi (1997), 1 Lloyd´s Rep 553, 559]. In this last instance, once the third party has decided to sue the either the agent or the principal, he will lose the possibility of suing the other party [Debenham v Perkins (1925), 113 LT 252, 254]. At any event, none of the situations mentioned above are included in the exceptions to the general rule of non-obligation of the agent in cases of disclosed agency set out in the OHADAC Principles. Hence, in those cases where the disclosed agent wishes to contract with a third party in a common law country, to avoid the risk of the agent being bound to the third party, it is advisable to include a clause in the contract expressly excluding any kind of personal liability derived from that contract.

Commentary

Article 2.3.4

Undisclosed agency

1. When an agent acts within the scope of its authority but does not disclose to the third party that it is acting as an agent, the acts of the agent shall bind only the agent and the third party.

2. The acts of the agents shall not affect the legal position of the principal in relation to the third party unless this is specifically provided for by the applicable law.

Under the title “Undisclosed agency”, OHADAC Principles refer to cases where the agent acts on behalf of the principal, within the limits of his authority, but does not disclose his condition to the third party, stating that the acts of the agent in such instances will only bind the very agent towards the third party, without affecting a priori the legal position of the principal [as in Articles Article 2.2.4 (1) UP and 13.1 (a) GC]. The agent will acquire the rights derived from the contract closed with the third party, and only later, according to what was agreed in the internal relations with the principal, he will he be able to transfer those rights to the principal.

Example: Y buys a certain good from Z, who does not know that Y acts on behalf of X. The contract entered into between Y and Z only binds these two parties and does not generate any legal relation between X and Z.

The category of “Undisclosed agency” covers both situations of undisclosed agency of the Caribbean common law systems, as well as situations known as “indirect agency” of Roman-Germanic systems. In the two situations, the existence of an agency and the identity of the principal are not disclosed to the third party, either because the agent acts in his own name, or because he does it in such a way that it is impossible for the third party to know that the person with whom he´s contracting has the intention of affecting with his acts the legal position of another person. But, as indicated in the comment to the previous provision, under this category of representation are also covered those other situations in which the agent, when contracting with the third party, does not disclose its condition nor acts in such a way that it can be inferred, but the third party, through other means, has knowledge of that condition. It is considered that the behaviour of the agent in such instances leaves no place for doubt: he only wants to be liable himself, and not affect the legal position of another person [Article 13.1 (2) GC].

The rule that the acts of the undisclosed agent only bind the agent and the third party and do not produce any legal relation between the principal and the third party also constitutes a common rule to all domestic systems applicable to OHADAC territories, whether they are civil or common law systems.

All domestic systems also accept exceptions to this rule, and provide for the possibility that, under certain circumstances, of establishing a direct relationship between the principal and the third party. For example, in the overseas French territories, the third party has the right to sue the principal directly. In French Law, indirect representation, in cases where the third party does not know that the agent is acting on someone else´s behalf, is considered a special case of simulation, and it is provided that if the third party acquires knowledge of the fact that the party he contracted with was acting on a principal's behalf, it may bring a declaratory action for a judicial statement of simulation. After obtaining this declaration, the third party can choose either to sue the principal, relying on the hidden contract or sue the agent on the basis of the simulated contract. The third party cannot sue both principal and agent at the same time.

The right of the third party to sue the principal is also recognised in Spanish tradition systems, but only in the presence of a commercial agent. The agent is usually obliged to act in the name of his principal, who is directly bound by his acts (Article 1.336 of the Colombian Commercial Code; Article 287 of the Cuban Commercial Code; Article 267 of the Guatemalan Commercial Code; Article 358 of the Honduran Commercial Code; Article 311 of the Mexican Commercial Code; Articles 435.1, 437 and 439 of the Nicaraguan Commercial Code; Article 606-607 of the Panamanian Commercial Code; Articles 202-203 of the Puerto Rican Commercial Code; Article 96 of the Venezuelan Commercial Code). However, it is also specified that, if the factor acts on his own name, his acts may end up binding the principal and the third party in certain circumstances (Article 1.337 of the Colombian Commercial Code; Article 287 of the Cuban Commercial Code; Article 267 of the Guatemalan Commercial Code; Article 359 of the Honduran Commercial Code; Article 314 of the Mexican Commercial Code; Article 440 of the Nicaraguan Commercial Code; Article 609 of the Panamanian Commercial Code; Article 205 of the Puerto Rican Commercial Code; Article 97 of the Venezuelan Commercial Code).

Systems based on Dutch law recognise both the right of the principal to sue the third party, and the right of this party to sue the principal, giving a complete relation of circumstances and conditions that in the cases of indirect representation must concur to enable the establishment of a direct legal relation between the third party and the principal (Articles 7:420 and 7:421 of the Dutch and Suriname Civil Code).

Lastly, also common law systems provide for the possibility that, in undisclosed agency instances, direct legal relations between the principal and the third party are established. In such instances, of course, the agent may be contractually bound to the third party [Sims v Bond (1833), 5 B & Ad 389, 393; Boyter v Thomson (1995), 2 AC 629, 632). But also, and as an exception to the doctrine of privity of contract of the common law, it is admitted, for reasons of commercial convenience, that a direct legal relation is established between the principal and the third party, as long as the agent has acted within the scope of its authority [Pople v Evans (1969), 2 Ch 255; Siu Yin Kwan v Eastern Ins Co Ltd (1994), 2 AC 199, 209; Section 6.03 Restatement (Third) of Agency].

There are, however, different regulations in the various domestic systems with regard to the scope of the effects of undisclosed representation. For this reason, OHADAC Principles restrict themselves to providing that the legal position of the undisclosed principal may be affected against a third party depending on whether the domestic legal system will be applied in accordance with Private International Law of the forum. The solution chosen is the same as that provided by Article II-6:107 of the DCFR and the other international instruments of unification of contract law were rejected. This solution consists in stating, based on the model of certain domestic systems, the instances in which the general rule of the principal's obligation towards the third party will be excepted [Article 22.4 (2) UP; Articles 3:302 to 3:304 PECL; Article 13.2, 3, 4 and 5 GC].

Principals who wish to exclude the possibility of a direct relationship with the third party, should demand their agent, when contracting with third parties (without disclosing his condition), to include in the contracts a clause declaring that they “exclusively” assume the rights and obligations arising from such contracts. Otherwise, the principal will have to assume the risk, pursuant to the national law designated by Private International Law rules of the forum, of being sued by the third party. In addition, the inclusion of such a clause will also be of interest to the third party, since it will exclude the possibility that, in accordance to the applicable domestic law, the principal, initially unknown, may directly sue the third party in performance of the contract concluded with the agent.

Commentary

Article 2.3.5

Agent acting without or exceeding its authority

1. When an agent acts without authority or exceeds its authority, its acts shall not affect the legal position of the principal, unless those acts are ratified by the principal according to Article 2.3.9.

2. The agent that acts without authority or exceeds its authority, shall be liable to the third party and shall pay damages that will place the third party in the same position as if the agent had acted with authority and not exceeded its authority. However, the agent shall not be liable if the third party knew or ought to have known that the agent had no authority or was exceeding its authority.

The first Section of this rule reflects a shared principle: the non-establishment of a direct legal relation between the principal and the third party. In those cases where the agent acts without authority, including apparent authority (it does not matter whether the authority has never existed or if it had existed, but had been extinguished), or exceeding its limits [Articles 833.2 and 1.266.2 of the Colombian Commercial Code; Article 1.998.2 of the Dominican and French Civil Code; Article 1.762.2 of the Haitian Civil Code; Article 737 of the Honduran Commercial Code; Article 3:66 of the Dutch and Suriname Civil Code; Xenos v Wickham (1866), LR 2 H.L. 296; Hopkinson v Williams (1993), 8 CL 581; Article 14.1 GC; Article 2.2.5 (1) UP; Article 3:204 (1) PECL; Article II- 6:107(1) DCFR; Article 63.1 Draft project reform of the French law on Obligations of 2013; implicitly: Article 1.703 Guatemalan Civil Code; Article 2.583 Mexican Civil Code; Article 2.440.2 Nicaraguan Civil Code; Article 1.110.2 Panamanian Civil Code; Article 1.211.2 of the Puerto Rican Civil Code; Article 1.617 of the Saint Lucian Civil Code].

Contracts that an agent may conclude under these circumstances will be invalid or void, although their nullity will be relative, because, as provided in Article 2.3.9, the possibility of a ratification of the contract by the principal remains open. Besides, in cases of partial lack of authority, nothing prevents total or partial nullity of a concluded contract, depending on whether it is divisible or not and, therefore, it cannot exist without the part that was not authorised [Section 6.05 (1) Restatement (Third) of Agency].

Example 1: X asks Y to buy a certain good, and sets a maximum price for such purchase. Y ends up contracting the purchase with Z, but doing so for a higher price than the one set by X. Having exceeding its authority, the contract between Y and Z does not bind X and has no effect between Y and Z either.

For the cases of lack or excess of authority, unless ratification by the principal, the different national systems also agree to establish the responsibility of the agent towards the third party, forcing the agent to compensate the third party for damages. However, they differ in regard to the extent of such compensation.

In some legal systems, the responsibility of the agent is limited to the so-called “negative interest”, with the only obligation of paying the third party for damage that take it back to the situation prior to contracting. Except for cases where the agent, expressly or tacitly, had guaranteed its authority, it is considered here that the agent is responsible for all damage caused to the third party (Article 1.097 Dominican and French Civil Code).

Other systems, however, consider that the responsibility of the agent is extended to what is known as “positive interest”, so that the third party is made to pay for damage that place the agent in the position in which it would have been if the agent had acted with proper authority or without exceeding its limits. This will allow the third party to obtain as compensation the benefit he would have obtained if the contract concluded with the false agent would have been valid [Article 841 of the Colombian Commercial Code; Article 3:70 of the Dutch and Suriname Civil Code; Collen v Wright (1857), 8 E&B 647; Dickson v Reuter´s Telegram Co (1877), 3 CPD 1; V/O Rasnoimport v Guthrie & Co Ltd (1966), 1 Lloyd´s Rep 1; judgement of the Supreme Court of Bahamas in Stubbs v Souers (1986), No 196 of 1985 (Carilaw BS 1986 SC 28); Section 6.10 Restatement (Third) of Agency]. Under most legal systems, the agent's liability arises from the breach of an implied warranty of authority. The agent guarantees the third party its authority to conclude the contract, and if it deals without authority, whether consciously or unconsciously, it incurs in breach of that warranty, so that it becomes liable for all damage caused to the third party. In any case, the agent's liability for breach of warranty is a strict liability, as well as contractual, because it concerns a contract that is collateral to the main contract and unilateral by nature, which is accepted by the third party when it concludes the contract with the agent.

Finally, a third group of legal systems simply states the personal liability of the agent in relation to the third party and impose the obligation to compensate the third party for damages (Article 1.507 of the Colombian Civil Code; Article 422 of the Cuban Civil Code; Article 1.703 of the Guatemalan Civil Code; Article 1.904 of the Honduran Civil Code; Articles 1.802.2 and 2.568 of the Mexican Civil Code; Articles 3.323 and 3.333 of the Nicaraguan Civil Code; Article 1.416 of the Panamanian Civil Code; Article 1.617 of the Puerto Rican Civil Code).

In any case, we must not forget the existence in the Caribbean scope of certain domestic laws, such as Costa Rican or Honduran laws, in which the third party is recognised as having the right to performance of the contract. The first one, namely, recognises the third party the right to claim the performance as long as it is feasible, and only when this is not possible it has the right to claim damages (Article 1.027 of the Costa Rican Civil Code). However, Honduran law gives the third party the possibility to choose between the performance of the contract or damages (Article 737.2 of the Honduran Commercial Code).

The OHADAC Principles, as well as other international instruments of unification of contract law [Article 16.1 GC; Article 2.2.6 (1) UP; Article 3:204 (2) PECL; Article II.- 6:107 (2) DCFR], provides that the agent who acts without or exceeds its authority is liable for damages to the third party. This liability extends to positive interest, imposing on the agent the obligation to compensate the third party until it is in the position in which it would have been if the agent had acted with authority or within its limits. As international texts [Article 16.2 GC; Article 2.2.6 (2) UP; Article 3:204 (2) PECL; Article II-6:107 (3) DCFR] and other Caribbean legal systems [Article 2.180 of the Colombian Civil Code; Article 422 of the Cuban Civil Code; Article 1.997 of the Dominican and French Civil Code and judgement of the Cour de Cassation 16 June 1954; Article 1.761 of the Haitian Civil Code; Article 3:70 of the Dutch and Suriname Civil Code; Article 1.904 of the Honduran Civil Code; Article 2.584 of the Mexican Civil Code; Article 3.333 of the Nicaraguan Civil Code; Article 1.416 of the Panamanian Civil Code; Article 1.617 of the Puerto Rican Civil Code; Beattie v Ebury (1872), LR 7 Ch App 777, 800; Halbot v Lens (1901), 1 Ch 344; Section 6.10 (3) Restatement (Third) of Agency], the Principles provides that the agent will not be liable towards the third party if he knew, or should have known that the agent had no authority or was exceeding its limits. At any event, the burden of proof is on the agent.

The agent will also not be held liable, in the presence of an authority that has duly bound the third party, the agent demonstrates that the principal has been unable to perform the contract or to pay the corresponding damages (for example, in case of insolvency) This second exception, characteristic in common law systems [Habton Farms v Nimmo (2003), 1 All ER 1136], is also expressly referred to in the comment on Article 3:204 PECL.

Example 2: Y, who has no authority to do so, sells Z, on behalf of X, a consignment of goods belonging to X. These goods are bought by Z to be distributed on the market. Z ignores the lack of authority of Y. In the absence of ratification of the contract by X, Z will be able to obtain from Y the difference between the price set for the goods and their market value.

Example 3: The case is the same as in example 2, except that Z, when contracting with Y, does so knowing that Y has no authority. In this case, lacking ratification by X, Z could not obtain any compensation from Y.

Commentary

Article 2.3.6

Conflict of interest

1. If a contract concluded by an agent involves the agent in a conflict of interests with the principal, the principal may avoid the contract according to the provisions of Section 5 of Chapter 3, unless the third party legitimately did not know of that conflict of interests.

2. There is presumed to be a conflict of interests where the agent has assumed the situation of the other contract party or it is entitled under two or more grants of authority to conclude the contract by itself.

3. The principal may not avoid the contract if it had consented to the agent´s involvement in the conflict of interests or if the principal knew or ought to have known it and had not objected within a reasonable time.

The agent, in the exercise of the agency entrusted to it, must always act in the interests of the principal, and not in its own interests or in the interests of any other person.

The most frequent cases of conflict of interests are, firstly, where the agent concludes a contract entrusted to it by the principal, with itself (or a company in which it has an interest) and, secondly, the case where the agent acts simultaneously on behalf of two principals. However, there is not necessarily a conflict of interest in these cases. For example, the agent's acting for two principals can be consistent with the uses of a specific trade commercial sector, or the principal could confer on the agent such a mandate that is so strict that there is no room to create a conflict of interests. The OHADAC Principles, aligned with the PECL [Article 3:205 (2)] and the DCFR [Article II-6:109 (2)], opt for establishing a general iuris tantum presumption of conflict of interests on the mentioned instances, admitting evidence to the contrary by the agent.

Most legal systems provide for situations of conflict of interests, even if some of them address this issue, only to make the self-contract conditional upon the principal's assent [Articles 838-839 and 1.274 of the Colombian Commercial Code; Article 317 of the Costa Rican Commercial Code; Article 288 of the Cuban Commercial Code; Article 270 of the Guatemalan Commercial Code; Articles 365 and 734-735 of the Honduran Commercial Code; Articles 299 and 312 of the Mexican Commercial Code; Articles 3335 of the Nicaraguan Civil Code and 424 and 438 of the Nicaraguan Commercial Code; Articles 611 and 650 of the Panamanian Commercial Code; Articles 185 and 206 of the Puerto Rican Commercial Code; Article 1.606 of the Saint Lucian Civil Code; Articles 1.171 of the Venezuelan Civil Code and 98 and 388 of the Venezuelan Commercial Code; Hambro v Burnand (1904), 2 KB 10; Reckitt v Burnett, Pembroke and Slater Ltd (1929), AC 176; Article 68 Draft project reform of the French law on obligations of 2013]. The OHADAC Principles provides the same solution as the rest of international instruments of unification of contract law [Article 2.2.7 (1) UP; Article 3:205 (1) PECL; Article II-6:109 (1) DCFR]. They specifically state that, in case of conclusion of a contract by the agent in conflict of interests with the principal, the principal shall have the right to avoid the contract. When the agent has acted within the scope of its authority, the effects of the representation shall take place, establishing a direct legal relation between the principal and the third party under the contract concluded by the agent. Thus, by leaving to the principal to decide whether or not avoid the contract concluded by the agent, the protection of its interests will be duly guaranteed.

The Principles take also into account the need to protect the interests of the bona fide third party in preserving the contract that has been concluded. To this effect, they condition the principal's right to avoid the contract on the fact of the third party could not legitimately not know the existence of this conflict. This condition concurs, obviously, when the agent has concluded the contract with itself, and it is, at the same time, agent and third party.

Example 1: X asks Y to sell an estate belonging to X and located in Y's country. Y, acting on X's behalf, sells the estate to Z, who has also asked Y to buy a property in such country, and on whose behalf it is also acting at the sale transaction. X will be able to avoid the contract concluded by Y as long as he can prove that Z knew or ought to have known the conflict of interests. Z will also be able to avoid the contract as long as he can prove that X knew or ought to have known the conflict of interests.

Example 2: X asks Y to sell an estate belonging to X and located in Y's country. Y, himself, is interested in the property, and ends up buying it. X will be able to avoid the contract made by Y.

The solution reflected in the OHADAC Principles completely coincides with that offered for these situations by the Colombian and Honduran laws, where it is considered that the contract concluded by the agent shall be voidable at the request of the principal if the third party knew or ought to have known the conflict (Article 838 Colombian Commercial Code; Articles 365.2 et 734.2 Honduran Commercial Code). It is also in line with the solution provided for these situations by the common law systems, where the principal is bound by all contracts concluded by the agent within its authority, even if it has acted solely in its own interest (Hambro v Burnand), admitting one only exception to this rule: when the third party knew or ought to have known the existence of such a conflict (Reckitt v Burnett, Pembroke and Slater Ltd). The Principles, however, differ from other national systems, such as Costa Rican, Cuban, Guatemalan and Venezuelan laws in relation with “mercantile factors”: if self-contracting takes place without authorisation of the principal, the benefits will go to the principal and the losses will go to the commercial agent (Article 317 of the Costa Rican Commercial Code; Article 288 of the Cuban Commercial Code; Article 270 Guatemalan Commercial Code; Article 98 of the Venezuelan Commercial Code). They also differ from Article 68 of the Draft project reform of the French law on obligations of 2013, where it is stated that whatever the agent might do in conflict of interest with the principal will be void.

If the principal chooses, within the frame of the OHADAC Principles, to avoid the contract concluded by the agent in conflict of interests, the procedure of avoidance will be that regulated in Articles 3.5.1 to 3.5.3 of the Principles.

The Principles, however, provides for two cases in which the principal loses its right to avoid the contract: the first one is when the principal has previously authorised the implication of the agent in the conflict of interests, and the second one when the principal knew that the agent was acting in conflict of interests (either because the agent itself would have revealed it, or because the principal would have known it otherwise) or when such a conflict could not be unknown, and the principal did not make any objection. There is also similar rules in other International texts, where exceptions to the right of avoidance of the principal are also provided [Article 2.2.7 (2) UP; Article 3:205 (2) PECL; Article II-6:109(3)].

Example 3: The case is the same as in Example 2, except that X, being aware of Y's interest in his estate, authorises it to proceed to the sale at the same time as he authorises it to acquire it for himself, if he decides to do so. X does not have the right to avoid the contract concluded by Y with itself.

Example 4: The case is same as in example 1, except that Y, before selling X's estate to Z, informs to X that he is also acting on behalf of Z, and to Z that he is also acting on behalf of X. If they make no objection, they will lose the right to avoid the contract concluded by Y acting as agent of both X and Z.

Commentary

Article 2.3.7

Sub-agency

1. Unless otherwise stated, the agent shall have authority to appoint a subagent to perform acts which are not of a personal character.

2. The rules of this Section shall apply to the acts of the subagent.

In carrying out the mandate conferred on it by the principal, an agent may find it convenient, or even necessary, to avail itself of the services of other persons, who are considered as sub-agents. This is the case, for example, where certain tasks are to be performed in a place which is far away from the agent's place of business, or if a more efficient performance of the agent's mandate requires distribution of work.

A first group of domestic legal systems, except in cases where the principal has expressly or impliedly authorises it or when the very nature of the assignment requires it, does not allow the appointment of sub-agents [Articles 1.264 of the Costa Rican Civil Code and 277 of the Costa Rican Commercial Code; Article 1.994 of the Dominican and French Civil Code; Articles 1.707 of the Guatemalan Civil Code and 277 of the Guatemalan Commercial Code; Article 1.758 of the Haitian Civil Code; Article 3:64 of the Dutch and Suriname Civil Code; Articles 2.574 of the Mexican Civil Code and 280 of the Mexican Commercial Code; Articles 3.313 of the Nicaraguan Civil Code and 405 and 452 of the Nicaraguan Commercial Code; Articles 1.611 of the Saint Lucian Civil Code and 248.2 of the Saint Lucian Commercial Code; Section 3.15 (2) Restatement (Third) of Agency]. A second group of legal systems grants agents the authority to name a sub-agent as long as the principal has not forbidden it, or asked the agent to personally perform the contract [Article 2.161 of the Colombian Civil Code; Article 407.1 of the Cuban Civil Code; Article 1.900.1 of the Honduran Civil Code; Article 1.412.1 of the Panamanian Civil Code; Article 1.612.1 of the Puerto Rican Civil Code; Article 1.695 of the Venezuelan Civil Code (implicitly), although the opposite principle is sometimes followed with the commission agent and/or the commercial agent (Article 261 and 296 of the Cuban Commercial Code; Article 645 of the Panamanian Commercial Code; Articles 179 and 214 of the Puerto Rican Commercial Code; Article 387 of the Venezuelan Commercial Code)]. We must also bear in mind that some of the countries that do not support in principle the delegation of authority establish, however, some exceptions to this generic rule. This is the case of legal authorities, where the agent delegates its authority to a sub-agent when it lacks the necessary capacity to perform the act that has been assigned, or where the law does not allow it to do so, the delegation becoming therefore indispensable [Article 3:64 (b) of the Dutch and Suriname Civil Code]. It is also the case where the principal has no especial interest in a personal intervention of the agent in the conclusion of the contract, the task assigned by the principal refers to goods that are located outside the agent's country of residence [Article 3:64 (c) of the Dutch and Suriname Civil Code], or the delegation of authority is justified by usages [De Busseche v Alt (1878), 8 ChD 286, 310-311; Article 3:64 (a) of the Dutch and Suriname Civil Code]. At any event, all legal systems require that the terms of the authority conferred by the principal be strictly complied with.

The OHADAC Principles, in the first Section of Article 2.3.7, clearly opt for the solution given by the second group of systems, providing that, except in those cases where the principal states otherwise (either because it expressly excludes from the authority of the agent the possibility of designating sub-agents or because it is conditional upon prior approval by the principal), it may be understood that the agent has the authority to appoint sub-agents. This is fully in line with the other international instruments on contract law [Article 2.2.8 UP; Article 3:206 PECL; Article II-6:104 (3) DCFR]. Like these instruments, it also establishes a limit to the implicit authority of the agent to name sub-agents. The only limitation is that the agent may, under no circumstances, entrust a subagent with tasks that the principal may expect the agent to perform itself. This is the case of acts requiring the agent's personal expertise. Moreover, the agent, as it is expressly stated in the Guatemalan Civil Code (Article 1.702), shall not be able to delegate to the sub-agent an authority wider than the one conferred upon it.

Example 1: X asks Y to buy an estate in another country. Y has an implied authority to name a substitute, S, who resides in that country, to buy the estate on X's behalf.

Example 2: X entrusts Y, an expert in Russian contemporary art, with the selection and the purchase of a painting in Russia, to complete his collection of paintings from that country. As X expects Y, as an expert in the matter, to be the one who personally makes the selection and the purchase, Y cannot designate S, resident in Russia, to proceed with the purchase on X's behalf.

The general provisions contained in this Section will be applicable to the validly appointed sub-agent. The acts that will be performed between the replaced agent and a third party within the scope of its authority and of that of the agent who has appointed it establish a direct legal link between the principal and the third party. However, in cases where substitution is not authorised, the appointment of a sub-agent by the agent will be ineffective, and the sub-agent and its actions will be regulated by the rules related to the agent without authority (Article 2.161 of the Colombian Civil Code; Article 296 of the Cuban Commercial Code; Article 277 of the Guatemalan Commercial Code; Article 1.412.2 of the Panamanian Civil Code; Article 1612.2 of the Puerto Rican Civil Code).

Example 3: The case is the same as in Example 1. The purchase of the estate performed by S on behalf of X shall directly bind X, to the extent that it will be in line with the authority conferred by X to Y and the authority conferred to S by Y.

Commentary

Article 2.3.8

Joint authority

1. Where an authority is jointly granted by two or more principals to an agent to perform one or more acts, the principals shall be jointly and severally liable to the third party with whom the involved act or acts have been performed.

2. Where an authority is jointly granted by the principal to two or more agents, each of them may perform the involved act or acts separately, unless the principal provide otherwise.

In this provision the OHADAC Principles refers to the effects of what it may be called “joint authority”, that covers, firstly the situation in which, under the same instrument, two or more people grant authority to another person to perform one or more acts, and, secondly, the situation in which various individuals are empowered by the same principal through a single authority. Among the various international instruments only the DCFR (Article II-6:110) refers to these situations, which are however found in many national legal systems.

The OHADAC Principles follow the rule shared by national systems, consisting in binding all the principals for the acts that, in the exercise of its authority, may be carried out by the agent, responding jointly and severally towards the third party (Article 1.276 of the Colombian Commercial Code; Article 2.002 of the Dominican and French Civil Code; Article 1.716 of the Guatemalan Civil Code; Article 1.766 of the Haitian Civil Code; Articles 1.910 of the Honduran Civil Code and 361 of the Honduran Commercial Code; Article 2.580 of the Mexican Civil Code; Article 3.344 of the Nicaraguan Civil Code; Article 1.422 of the Panamanian Civil Code; Article 1.622 of the Puerto Rican Civil Code; Article 1.626 Saint Lucian Civil Code; Article 1703 of the Venezuelan Civil Code).

Example 1: X1 and X2 grant a joint authority to Y; Y, on behalf of X1 and X2, hires a musical performance of Z in X1 and X2's country. The contract between Y and Z shall directly bind X1 and X2 to Z, being X1 and X2 jointly and severally liable for the payment of the remuneration agreed with Z.

The OHADAC Principles equally coincide with most national legal systems when they state that in case of plurality of agents, these may act independently, binding the principal by their actions, unless the principal has stated otherwise, either by imposing a successive action of the agents or by assigning them different tasks [Articles 2.153 of the Colombian Civil Code and 1.272 of the Colombian Commercial Code; Article 1.259 of the Costa Rican Civil Code; Article 1.995 of the Dominican and French Civil Code; Article 269 of the Guatemalan Commercial Code; Article 1.759 of the Haitian Civil Code; Article 3:65 of the Dutch and Suriname Civil Code; Article 1.902 of the Honduran Civil Code; Article 2.573 of the Mexican Civil Code; Article 3.300 of the Nicaraguan Civil Code; Article 1.414 of the Panamanian Civil Code; Article 1.614 of the Puerto Rican Civil Code; Article 1.612 of the Saint Lucian Civil Code; Re Liverpool Household Stores (1890), 59 LJ Ch. 616; Brown v Andrew (1849), 18 LJQB 153; Guthrie v Armstrong (1822), 5 B & Ald 628; Article II-6:110 DCFR]. In cases where agents act in contravention to what the principal may have established in the authority, the provisions of Article 2.3.5 of the Principles concerning the “agent acting without or exceeding its authority” shall be applied.

Example 2: X, through a single authority, grants authority to Y1 and Y2 to sell a certain good, belonging to X, which is located in Y1 and Y2's country. Either of them may, exercising the authority granted by X, conclude the sale contract with Z. X will be directly bound by this contract.

Example 3: Same case as in example 2, except that X, in granting of the authority to Y1 and Y2, specifies that both must act together. If any of them individually sells X's good to Z, it shall exceed its authority and the contract with Z shall not bind X and Article 2.3.5 will be applied.

Some Caribbean legal systems adopt a different solution from the one set out in the Principles, either because they refer exclusively to the stipulations of the principal (Article 402 of the Cuban Civil Code) or because they impose the joint action or the action by the majority of agents, unless the principal authorises them to act separately (Article 1.701 of the Guatemalan Civil Code; Article 362 of the Honduran Commercial Code). In those instances where, under a single authority, various agents are authorised to perform a representative act in the territory of any of those countries, it is advisable for the principal to clearly specify in the authority the way in which he expects the agent to act with third parties.

Commentary

Article 2.3.9

Ratification

1. An act performed by an agent that acts without authority or exceeds its authority may be ratified by the principal. Upon ratification the act produces the same effects as if it had initially been carried out with authority and not exceeded the authority.

2. The third party may by notice to the principal specify a reasonable period of time for ratification. If the principal does not ratify within that period of time, it can no longer do so.

3. The third party that, at the time of contracting with the agent, neither knew nor ought to have known of the lack of authority, may, at any time before ratification, by notice to the principal indicate its refusal to become bound by a ratification.

The first Section of this provision includes a common principle: the acts performed by an agent without authority or exceeding its limits may be authorised later by the principal by ratification [Articles 1.507 and 2.186 of the Colombian Civil Code and 844 and 1.266.2 of the Colombian Commercial Code; Articles 1.027-1.029 and 1.275 of the Costa Rican Civil Code; Articles 420-422 of the Cuban Civil Code; Article 1.998 of the Dominican and French Civil Code; Articles 1611-1612 and 1.712 of the Guatemalan Civil Code; Article 1.762.2 of the Haitian Civil Code; Article 3:69 of the Dutch and Suriname Civil Code; Articles 1.906 Honduran Civil Code and 738 of the Honduran Commercial Code; Articles 1.802, 2.565 and 2.583 of the Mexican Civil Code and 289 of the Mexican Commercial Code; Articles 2.440 and 3.339-3.341 of the Nicaraguan Civil Code and 414 of the Nicaraguan Commercial Code; Articles 1.110 and 1.418 of the Panamanian Civil Code; Articles 1.211 and 1.618 of the Puerto Rican Civil Code; Article 1.627.2 of the Saint Lucian Civil Code; Article 1698.2 of the Venezuelan Civil Code; Bird v Brown (1850), 4 Ex786, 789; Wilson v Tumman (1843), 6 Man & G 236; Section 4.01 (1) Restatement (Third) of Agency); Article 63.3 Draft project reform of the French Law on obligations of 2013; Article 15.1 GC; Article 2.2.9 (1) UP; Article 3:207 (1) PECL; Article II-6:111 (1) DCFR].

However, we must take into account that the possibility of ratification by the principal of the acts of the agent is limited to the cases of disclosed agency. In civil law systems the possibility of ratification is limited to cases where the agent has acted on behalf of the principal. The ratification, by the principal, of the acts of an unauthorised agent under any other formulation is not accepted (Article 2.186 of the Colombian Civil Code; Article 1.275 of the Costa Rican Civil Code; Article 738 of the Honduran Commercial Code; Articles 1.802 and 2.583 of the Mexican Civil Code; Articles 2.440 and 3.339 of the Nicaraguan Civil Code; Article 1.110 of the Panamanian Civil Code; Article 1.211 of the Puerto Rican Civil Code). Likewise, in common law countries, the possibility of ratification of the acts of the agent in the case of an undisclosed principal is excluded, since it is considered that if the principal was not known at the time of the conclusion of the contract with the third party, it cannot ratify it later on [Keighley Maxsted & Co v Durant (1901), AC 240; Siu Yin Kwan v Eastern Ins (1994), 2 AC 199]. In these countries, the principal can only ratify the contract concluded by the agent if the concluded the contract as an agent duly appointed by the named principal or, at least, if it had discovered the existence but not the identity of the principal (unnamed principal) [Hagedorn v Oliverson (1814), 2 M & S 485; Eastern Construction Co Ltd v National Trust Co Ltd (1914), AC 197, 213; Southern Water Authority v Carey (1985), 2 All ER 1077, 1085; Sections 4.01 (3) (a) and 4.03 Restatement (Third) of Agency]. This also includes cases when the agent has tried to defraud the principal [Re Tiedemann & Ledermann Frères (1899), 2 QB 66].

The possibility of ratification by the principal of the acts of the agent is also subject to other conditions: it is necessary that the principal is personally and validly able to perform the act at the time it is performed. The act to ratify must not be prohibited by law or be a void act, since the ratification of an act of this kind will never make it valid.

Ratification, like the provisions established for the authority in Article 3.3.2 (1) of the Principles, is not subject to any requirement as to form [Article 2.186.2 of the Colombian Civil Code; Article 1.275.2 of the Costa Rican Civil Code; Article 422 of the Cuban Civil Code; Article 1.998.2 of the Dominican and French Civil Code; Articles 1.612 and 1.712 of the Guatemalan Civil Code; Article 1.762.2 of the Haitian Civil Code; Articles 1.906.2 of the Honduran Civil Code and 738 of the Honduran Commercial Code; Articles 3.339.2 and 3.340 of the Nicaraguan Civil Code; Article 1.418.2 of the Panamanian Civil Code; Article 1.618.2 of the Puerto Rican Civil Code; Article 1.627.2 of the Saint Lucian Civil Code; Article 1.698 of the Venezuelan Civil Code; Cornwall v Henson (1750), 1 Ves Sen 509; Section 4.01 (2) Restatement (Third) of Agency; Article 15.8 GC; Article 3:207 PECL]. Ratification may be performed by express declaration communicated to the agent or the third party, this being the most usual formula in practice. But there also exists the possibility of an implied ratification inferred from the acts of the principal, when these unequivocally demonstrate that the intention of the principal is to adopt the contract concluded by the agent; such is the case, for example, when the principal accepts the benefits derived from the contract or it voluntarily performs its obligations towards the third party. Mere passive acquiescence, itself, does not imply a tacit ratification (to the contrary, Article 3.340.2 Nicaraguan Civil Code), but it may have such an effect in the case of being combined with other circumstances: for instance, when the principal is aware that the third party thinks that it has accepted the act made by the agent without authority and it does not take the necessary steps within a reasonable time to repudiate the transaction [Moon v Towers (1860), 8 CB (NS) 611; Michael Elliott & Partners v UK Land (1991), 1 EGLR 39). Some systems do not support the freedom of form for the ratification, and impose the adoption of a specific form, in the form of a ratification contract (Article 1.802.1 of the Mexican Civil Code, in contradiction with Article 2.583 of the Mexican Civil Code; Article 844 of the Colombian Commercial Code) or the form required for the granting of the authority (Article 3:69.2 of the Dutch and Suriname Civil Code).

Example: Y agrees with Z, on behalf of X, the purchase of goods, but he does so for a higher price than that which Y had been authorised to pay. When X receives the invoice from Z he makes no objection, proceeding to the payment by a bank transfer of the sum that appears in the mentioned invoice. Even if X has not expressly declared its intention of ratifying, nor has informed Y and Z about the payment, once Z learns of the transfer through the bank, the payment of the sum specified in the invoice is a tacit ratification of the contract concluded between Y and Z.

Ratification by the principal has retroactive effect [Article 844 of the Colombian Commercial Code; Article 1.029 of the Costa Rican; Article 1.611 of the Guatemalan Civil Code; Article 3:69.1 of the Dutch and Suriname Civil Code; Article 3.341 of the Nicaraguan Civil Code; Bolton Partners v Lambert (1888), 41 ChD 295; Boston Deep Sea Fishing and Ice Co Ltd v Farnham (Inspector of Taxes) (1957), 1 WLR 1051; judgement of the High Court of Trinidad-Tobago in Drew v Caribbean Home Insurance Co Ltd (1987), No 2993 of 1985 (Carilaw TT 1987 HC 94); Section 4.02 (1) Restatement (Third) of Agency; Article 15.1 GC; Article 2.2.9 (1) UP; Article 3:207 (2) PECL; Article II-6:111(2) DCFR]. Therefore, the act of the agent, once ratified, shall produce the same effect as if it had been carried out by the agent by virtue of an authority: direct legal relation between the principal and the third party and release of the agent of any liability towards the third party.

In case of the partial ratification of the act performed by the agent, the third party may reject it, as such ratification will constitute a proposal of modification by the principal of the contract concluded between the agent and the third party [Article 3:69.4 of the Dutch and Suriname Civil Code; Article 15.4 GC]. However, in common law systems if the principal ratifies a part of the contract it is understood that he is ratifying the hole [Cornwal v Wilson (1750), 1 Ves Sen 509; Re Mawcon Ltd (1969), 1 WLR 78]. The requirement of ratification of the whole act is expressly stipulated in Sections 4.01 (3) d) and 4.07 of the Restatement (Third) of Agency.

Once the third party knows that the act performed by the agent has been ratified, the principal will no longer be able to revoke the ratification, because this revocation would suppose a unilateral withdrawal of the principal from the contract that already binds it to the third party (Article 15.5 GC). Therefore, only a revocation by the principal of the act of ratification will be possible, and only if the ratification in question is not yet known to the third party.

The retroactive effect of the ratification has, however, some limitations. Thus, in cases in which the principal, at the time of the agent's act, did not exist or was unidentified and after its determination or identification it ratifies the act of the agent, it will only be responsible to the third party from the time of its determination or identification (Article 3:207 PECL). This happens, for example, in the case of ratification by a company of the acts made in its name before its incorporation, whenever it is possible according to the law governing the company. Such acts, once ratified, will only have effect from the date of incorporation of the company. The same can be said where the act that has been ratified is subject to a form of constituent publicity, as in mortgages, because such act will not be able to be registered until after the ratification

The ratification by the principal will take effect even in the case that the ratified act cannot be effectively performed at the time of ratification (Article 15.6 GC).

The OHADAC Principles do not regulate the effects that the principal's ratification may have on the rights that the agent may have constituted in favour of third parties in the time elapsed between the act of the agent and the principal's ratification. Such is the case of the conflict that occurs when the principal sells to a third person goods that have previously been sold by the false agent to another third party, and also ratifies the contract concluded by the false agent. The conflict arising in such a case between the third person and the third party who agrees with the false agent, not being regulated by the Principles, will have to be solved according to what it is provided in the law governing the ratified contract. At this point The OHADAC Principles adopt the same approach as the UP, which do not regulate this question either, differing from the one followed by other systems [Article 844 of the Colombian Commercial Code; Article 1.338.3 of the French Civil Code; Article 3.341 of the Nicaraguan Civil Code; Smith v Henniker-Major (2003), Ch 182, 71, 73; The Borvigilant (2003), 2 Lloyd´s Rep 520, 70; Article 3:207 (2) PECL; Article II-6:111(2) DCFR].

Ratification by the principal, except in those cases where a legal term is provided, may take place at any time within a reasonable period of time as from the time the principal learnt about the completion of the unauthorised act [Re Portuguese Consolidated Copper Mines (1890), 45 Ch D 16; Bedford Ins Co Ltd v Instituto de Ressaguros do Brasil (1985), QB 966, 987]. It does not matter that the third party, when contracting with the agent, knew that he lacked authority or was acting outside its limits, or that it was informed of these circumstance at a later date. In both cases, it is in the third party's interest to remove all doubt as to whether or not the principal intends to ratify the act of the agent as soon as possible. That is why the OHADAC Principles, adopt at this point the approach followed by certain systems: recognise the third party's right to question the principal in order to find out whether or not it intends ratify, leaving it reasonable time to take a decision [Article 420 of the Cuban Civil Code; Article 3:69.4 of the Dutch and Suriname Civil Code; Metropolitan Asylums Board v Kingham (1890), 6 TLR 217; Dibbins v Dibbins (1896), 2 Ch 348; Section 4.05 (3) Restatement (Third) of Agency; Article 2.2.9 (3) UP; Article II-6:111 (3) DCFR]. The right of interpellation of the third party is also recognised in PECL, although in a more restrictive way, because its Article 3:208 limits the faculty of the third party to demand a confirmation of the authority or the ratification to those instances where, by the declarations or the conduct of the principal, an apparent authority may be inferred, but the third party remains doubtful that such authority exists, providing as well that the principal's answer in such cases must be immediate.

The ratification by the principal within the period of time specified must be notified to the third party. If the deadline passes without ratification by the principal, this shall be considered as denied, and the principal shall lose the possibility of doing it later. On this last point, the Principles also provide the solution provided in legal systems that recognise the third party the faculty of interpellation, which is also the solution taken by the UP and the DCFR, differing from the PECL, where the silence of the principal before the demand of ratification made by the agent is considered as an authorisation of the agent´s act.

It is not possible for the principal to ratify the act of the agent after having told the third party, verbally, that his intention is not to ratify. The same will occur if the third party does not use his right of interpellation to the principal and the intention of not ratifying may be inferred from the course of a reasonable period of time since the principal had knowledge of the performance of the unauthorised act or of the principal's behaviour itself. This will be so when he remains silent for a reasonable period of time after having been notified by the third party of its intention to withdraw from the contract [McEvoy v Belfast Banking Co (1935), AC 24].

The OHADAC Principles, like the GC (Article 15.2, first incise) and the UP [Article 2.2.9 (3)], recognise another right to the third party if at the time of contracting with the agent, the third party neither knew nor ought to have known of the lack of authority. In this case, the bona fide third party will take action against the principal, before he ratifies the agent's act, informing the principal of its refusal to become bound by a ratification. This prevents situations where the principal can speculate by deciding whether or not to ratify, depending on the market trend.

In this way, the OHADAC Principles openly opt in favour of the interests of the third party, and more particularly, the bona fide third party, in an issue that divides Caribbean legal systems: the possibility for the third party to withdraw from the contract concluded with a false agent. There are two main groups of legal systems. On the one hand, those that grant the third party the option to revoke or reject the contract before its ratification by the principal. This group is limited, in principle, to cases where the third party was not aware at the time of contracting of the lack of authority of the agent [Article 3:69.3 of the Dutch and Suriname Civil Code; Article 738 of the Honduran Commercial Code; Article 1.802.1 of the Mexican Civil Code; Article 2.440.2 of the Nicaraguan Civil Code; Article 1.110.2 of the Panamanian Civil Code; Article 1.211.2 of the Puerto Rican Civil Code; Section 4.5 (1) Restatement (Third) of Agency]. Other systems refuse, in principle, this possibility to the third party, whether or not it acts in good faith. There are some qualifications though [Bolton Partners v Lambert (1889), 41 Ch D 295]. Given that the ratification by the principal, when there is no specified legal time limit, has to be performed within a reasonable period of time, we must also point out the right of the bona fide third party, in cases where the principal ratifies the act within an unreasonable period of time, to refuse to be bound by the ratification, by promptly notifying the principal (Article 15.2, section 2 of the GC).

Commentary

Article 2.3.10

Termination and restriction of authority

1. Termination or restriction of authority is not effective in relation to the third party unless the third party knew or ought to have known of it.

2. Even if the party knows of them, neither termination nor restriction of authority is effective in relation to third party, and the authority of the agents continues, where the principal is under an obligation to the third party not to end or restrict it.

3. Notwithstanding the termination of its authority, the agent remains authorised for a reasonable time to perform those acts that are necessary to protect the interests of the principal or of the principal´s successors.

This provision does not regulate the causes of termination of authority, because it is a question that falls under the internal relations between the agent and the principal, and such relations, as stated in Article 2.3.1 (2), are not included in this Section. The determination of the causes, which may vary from one system to another, shall be made in the light of the law applicable to the internal relation. The OHADAC Principles, at this point, follow the approach of the UP [Article 2.2.10 (1)] and the DCFR [Article II-6:112 (1)], which do not refer to the causes of termination of authority, differing openly from the PECL, which, as well as the GC, incorporate a relation of reasons or causes for termination [Article 3:209 (1) PECL].

The OHADAC Principles regulate the external dimension of termination, that is, its enforceability against the third party, providing that the termination of authority (for whatever reason) shall be effective in relation to the third party only if it knew or ought to have known of it. The same principle is applicable to the cases of restriction or limitation of authority by the principal [Article 1.170 of the Venezuelan Civil Code; Article II-6:112 DCFR]. The agent's authority continues, regardless of its termination or restriction, until the third party has been informed thereof or can be expected to know of the termination. Until then, the acts carried out by the agent shall be valid and shall have full effect between the third party and the principal. Nevertheless, the third party will be able to decide whether or not demand that the principal performs the obligations that the agent had undertaken on its behalf before learning about the termination or the restriction of authority. The agent must have had knowledge of these termination or restriction of authority. In such situations, the express or implied authority of the agent subsists vis-à-vis the third party in the same way as an apparent authority.

Example 1: Y is a salaried representative of X in Y's country, having been assigned the task of concluding contracts on behalf of X. After X becomes bankrupt, Y concludes a contract with Z, who is not aware of the bankruptcy. Although X's bankruptcy marks the termination of Y's authority, this authority will continue with respect to Z, who will be bound to X by the contract concluded with Y.

The OHADAC Principles follow a rule common among national systems [Articles 2.199 of the Colombian Civil Code and 843 of the Colombian Commercial Code; Articles 2.005 and 2.008-2.009 of the Dominican and French Civil Code; Articles 1.769 and 1.772-1.773 of the Haitian Civil Code; Article 3:76 of the Dutch and Suriname Civil Code; Article 1.628 of the Saint Lucian Civil Code; Blades v Free (1829), 9 B & C 167; Scarf v Jardine (1882), 7 App Cas 345; Overbrooke Estates Ltd v Glencombe Properties Ltd (1974), 1 WLR133)], although some systems only maintain the subsistence of authority in cases where the termination or restriction of authority is also unknown by the agent, and in general in cases of revocation notified to the agent [Articles 1.287 of the Costa Rican Civil Code and 320 of the Costa Rican Commercial Code; Articles 66 of the Cuban Civil Code and 279 and 291 of the Cuban Commercial Code; Articles 2.205 and 2.008-2.009 of the Dominican and French Civil Code; Articles 1.719 and 1.723 of the Guatemalan Civil Code and 266.2 and 272 of the Guatemalan Commercial Code; Articles 1.913 and 1.917 of the Honduran Civil Code and 356.2 and 360 of the Honduran Commercial Code; Articles 2.597 and 2.604 of the Mexican Civil Code and 307 and 319-320 of the Mexican Commercial Code; Articles 3.349-3.350 and 3.355 of the Nicaraguan Civil Code and 433, 445 and 447 of the Nicaraguan Commercial Code; Articles 1.425 y 1.429 of the Panamanian Civil Code and 614 of the Panamanian Commercial Code; Articles 1.625 y 1.629 of the Puerto Rican Civil Code and 197 and 208-209 of the Puerto Rican Commercial Code; Articles 1.170, 1.707 and 1.710 of the Venezuelan Civil Code and 106 and 406 of the Venezuelan Commercial Code; Sections 3.07 (2), 3.08 (1), 3.10 (1) Restatement (Third) of Agency; Article 19 GC; Article 2.2.10 (1) UP; Article 3:209 (1) PECL; Article II-6:112 (1) DCFR].

It will be considered that the third party is aware of the termination or restriction of the authority in cases where the principal or the agent has notified them. In the absence of notice, the decision on whether or not the third party ought to have known the extinction or restriction of the authority will depend on the circumstances of the case. It will be understood that the third party ought to have known them when they have been made public by the same means by which it knew about the granting of authority, or when they have been recorded in a register. That is clearly provided by the DCFR [Article II-6:112 (3)].

Example 2: X opens a branch of its company in a foreign city, advertising in a local newspaper, aside from the opening of the branch, the designation of Y as the director of the branch, with full authority to act on behalf of X. When X revokes the authority granted to Y, the announcement of the revocation in the same local newspaper will be enough to make it effective in relation to the clients of X in this city.

Only in one case the extinction or restriction of authority will be ineffective against the third party, even if it is aware of this circumstance. This is the case when a principal is under the obligation to the third party not to revoke or restrict the agent's authority. In this case, if the authority is finally revoked or restricted, it will subsist against the third party even if the third party is aware of termination or restriction [Section 3.10 (2) Restatement (Third) of Agency; Article II-6:112 (2) DCFR]. However, this situation, expressly envisaged in OHADAC Principles, is not very common in practice because of the exceptional nature of irrevocable authority in most systems. Given the revocable nature of the authority in all the legal systems, irrevocable authorities are allowed only exceptionally. In fact, most legal systems admit them only under certain conditions [Article 1.279 of the Colombian Commercial Code; Article 3:74 of the Dutch and Suriname Civil Code; Gaussen v Morton (1830), 10 B & C 731, 734; Frith v Frith (1906), AC 254; Sections 3.12 y 3.13 Restatement (Third) of Agency; Article II-6:112.2 DCFR], apart from some cases where the law provides for an irrevocable authority [Sections 4 y 5.3 Powers of Attorney Act 1971; Sections 9, 11 y 13 Mental Capacity Act 2005; Article 1705 of the Venezuelan Civil Code).

The OHADAC Principles, lastly, relates to what is known as “authority of necessity”, which extends the agent's authority after termination or restriction of this authority, to perform all those acts that may be necessary to avoid damages to the interests of the principal or his heirs [Articles 2.193-2.194 y 2.196 of the Colombian Civil Code; Articles 1.283-1.285 of the Costa Rican Civil Code; Article 412 of the Cuban Civil Code; Articles 1.991.2 and 2.010 of the Dominican and French Civil Code; Articles 1.722 and 1.724 of the Guatemalan Civil Code; Articles 1.755.2 and 1.774 of the Haitian Civil Code; Article 3:73.1 and 2 of the Dutch and Suriname Civil Code; Articles 1.897.2, 1.916 and 1.918 of the Honduran Civil Code; Articles 2.600-2.603 of the Mexican Civil Code; Articles 3.351-3.353 of the Nicaraguan Civil Code; Articles 1.409.2, 1.428 and 1.430 of the Panamanian Civil Code; Articles 1.609.2, 1.628 and 1.630 of the Puerto Rican Civil Code; Articles 1.609.2, 1.629, 1.658 and 1.660 of the Saint Lucian Civil Code; Articles 1.711-1.712 of the Venezuelan Civil Code; Article 20 GC; Article 2.2.10 (2) UP; Article 3:209 (3) PECL; Article II-6:112 (4) DCFR].

The OHADAC Principles, like other international instruments, provides for the continuity of the authority, regardless of the reason that had determined its extinction. And like these other instruments, they also materially restrict this continuity, admitting only the performance of the acts that are necessary to protect the interests of the principal and his heirs. Lastly, the duration of this authority of necessity is not indefinite, being only maintained for a reasonable time after the termination of authority conferred by the principal. This temporary limitation can also be found in the PECL and the DCFR, but not in the UP.

Example 3: X grants Y an authority to purchase, on behalf of X, a consignment of perishable goods. After the purchase, Y is informed of X's death. In spite of the termination of authority as a consequence of X's death, Y remains entitled to proceed to, either the resale of the purchased goods, or the storage of them at an appropriate warehouse.

Commentary

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