Allocating Fault Ratios for Unauthorized Instrument Execution under Civil Code Principles
PRC Civil Code fault ratios split loss between negligent seal owners and unverified counterparties, capping invalid guarantee liability at fifty percent.
Article 171
Meaning
A statutory rule in civil law dictates the legal consequences when a person acts as an agent without proper authorization. Article 171 of the PRC Civil Code establishes that acts performed by an individual without agency authority, beyond authority, or after authority has expired do not bind the principal unless ratified. This mechanism protects principals from being bound by unauthorized commitments.
Counterparty Right
External parties dealing with an unauthorized agent possess specific statutory remedies to resolve the uncertainty. Under Article 171, a counterparty can demand that the principal ratify the act within thirty days. If the principal fails to respond, ratification is deemed refused.
Agent Liability
Personal liability falls on the unauthorized agent if the principal refuses to ratify the transaction. The good-faith counterparty has the right to demand that the agent perform the obligation or pay compensation for damages. In contrast, if the counterparty knew or should have known about the lack of authority, the counterparty and the agent share the losses according to their respective fault.
This distribution of loss incentivizes due diligence during contract negotiations and ensures that agents do not make reckless promises.
Judicial Remedies
Courts resolve unauthorized agency disputes by determining the subjective state of the parties involved. In applying Article 171, judges assess whether the counterparty acted in good faith and whether the agent acted with negligence. Legal remedies are structured to restore the affected parties to their pre-contractual financial positions whenever possible.