Authority to sign commercial contracts: who can sign, and what are the risks of signing without authority?

When a business manages the risks of entering into contracts, the first check is whether the person signing has legal authority. This decides whether the whole contract is legally valid. The commercial terms may be tight and the remedies clause may be complete. But if the person who signs has no authority, every financial commitment, guarantee and dispute resolution clause is at risk of being declared invalid by a court or an arbitral tribunal.

Many businesses assume that “as long as the company’s red seal is on it, the contract is automatically valid”. Others wrongly believe that a Deputy Director or a Branch Director automatically has the right to sign contracts on behalf of the business. Below we look in detail at authority to sign commercial contracts, the typical cases of signing without authority, and the legal consequences under Vietnamese law and court practice.

1. Who can sign a commercial contract?

Under the Civil Code 2015 and the Law on Enterprises 2020, the people who can enter into and sign contracts on behalf of a legal entity fall into two main groups: the legal representative and the authorised representative.

1.1. Legal representative

The legal representative is the individual who represents the business in exercising the rights and performing the obligations arising from its transactions, as provided by law and the company charter.

• How to identify the legal representative: The name and title of the legal representative are officially recorded on the enterprise registration certificate (ERC) and set out in the company charter. Usually this is the Chair of the Members’ Council, the Chair of the Board of Directors, the General Director or the Director.
• More than one legal representative: Under Article 12 of the Law on Enterprises 2020, a limited liability company or a joint stock company may have more than one legal representative. The company charter sets out the rights, obligations and scope of authority of each one. If the charter does not divide them clearly and the parties do not check, one legal representative may still sign in an area that falls under another legal representative’s exclusive authority.
• Internal limits on authority: Even when a person is the only legal representative, their right to sign is still limited by the company charter and the Law on Enterprises for certain transactions:
  • High-value contracts: for a joint stock company or a limited liability company, sale and purchase or investment contracts worth 35% or more of total asset value (or a smaller percentage set by the charter) must be approved by a resolution of the Board of Directors or the General Meeting of Shareholders.
  • Related-party transactions: contracts between the company and a major shareholder, a member of the Board of Directors, the Director, or their relatives must be approved by the Board of Directors or the General Meeting of Shareholders under Article 167 of the Law on Enterprises 2020.

1.2. Authorised representative

An authorised representative is an individual who is given the right by the legal representative to enter into and perform contracts within a defined scope and period.

• Form of authorisation: Under Articles 138 and 562 of the Civil Code 2015, authorisation to act on behalf of a legal entity must be made in writing (a power of attorney or an authorisation contract), signed by the legal representative and stamped with the legal entity’s seal.
• Authority of a Branch Director or Head of a Representative Office: A branch is a dependent unit and has no separate legal personality (Article 84, Civil Code 2015). So a Branch Director does not automatically have the right to sign business contracts on behalf of the company. A Branch Director can sign only with a valid written authorisation from the legal representative of the parent company.
• Sub-authorisation: Under Article 144 of the Civil Code 2015, an authorised person may only authorise someone else if the legal representative agrees, or because of objective circumstances beyond their control (force majeure). If a deputy (a deputy head of department or a staff member) signs a contract on the basis of an unlawful sub-authorisation, the signing is invalid.

2. Common ways of signing without proper authority

3. Serious legal risks of signing without authority

3.1. The contract is declared wholly or partly invalid

Under Articles 122 and 117 of the Civil Code 2015, the parties to a transaction must have civil legal capacity, and the person entering into the transaction must have lawful authority to represent. When a contract is signed without proper authority:

• Consequence under Article 142 of the Civil Code 2015 (no authority to represent): a transaction entered into by a person with no authority to represent creates no rights or obligations for the business. None of the company’s commitments on delivery, warranty or payment schedule become enforceable.
• Consequence under Article 143 of the Civil Code 2015 (exceeding the scope of representation): the transaction creates no rights or obligations for the company for the part that exceeds the scope of representation. Example: the signing limit is VND 1 billion but the contract signed is worth VND 3 billion. The company is only liable up to VND 1 billion; the excess VND 2 billion does not bind the company.
• Obligation to return property: under Article 131 of the Civil Code 2015, when a contract is declared invalid, the parties must return to each other what they received and restore the original position, and the party at fault must pay compensation for damage. All the costs the counterparty has spent on production preparation, storage and labour may stay tied up for a long time.

3.2. The arbitration agreement is invalid (loss of access to arbitration)

This is one of the most serious procedural risks for large commercial transactions that provide for disputes to be resolved by arbitration (VIAC, SIAC, ICC):

• Statutory ground for invalidity: Clause 2, Article 18 of the Law on Commercial Arbitration 2010 provides that an arbitration agreement is invalid when “the person who entered into the arbitration agreement had no authority as provided by law”.
• Judicial guidance: under Clause 2, Article 3 of Resolution No. 01/2014/NQ-HĐTP of the Council of Judges of the Supreme People’s Court, a person who entered into an arbitration agreement without authority is a person who is not the legal representative and not a lawfully authorised person, or who acted beyond the scope of authorisation.
• When the arbitration agreement is declared invalid, the arbitral tribunal loses jurisdiction to hear the case. The parties must take the case to the People’s Court. This removes commercial confidentiality and makes the dispute last longer, through first-instance and appeal hearings.

3.3. A foreign arbitral award is refused recognition and enforcement

In international trade, a common reason why an international arbitral award cannot be enforced in Vietnam is that the Vietnamese party signed a sale and purchase contract with a foreign partner through a person who did not have authority to represent it:

• Under point (a), Clause 1, Article 459 of the Civil Procedure Code 2015 (which brings the New York Convention 1958 into domestic law), a Vietnamese court may refuse to recognise and enforce a foreign arbitral award if “the parties to the arbitration agreement did not have capacity to enter into that agreement under the applicable law”.
• In practice, many foreign arbitral awards (for example awards of the International Cotton Association (ICA) or GAFTA in London) have been refused enforcement by high-level courts in Vietnam because the contract on the Vietnamese buyer’s or seller’s side was signed only by a department-level officer, without a power of attorney from the legal representative.

3.4. Personal liability of the person who signed without authority

A person who signs a contract without proper authority does not walk away free after putting the business and its counterparty into a legal crisis:

• Under Clause 2, Article 142 and Clause 2, Article 143 of the Civil Code 2015, a person who has no authority to represent, or who signs beyond their authority, must perform the obligations to the counterparty personally, unless the counterparty knew or should have known that the person had no authority and still went ahead.
• Liability to pay compensation: the person who signed without authority must compensate the counterparty for all actual material damage.
• Joint liability: if the signatory and the counterparty colluded and deliberately signed a contract without authority to make a profit or to dispose of assets, causing damage to the company, both must be jointly liable to compensate the company (Clause 4, Article 142 and Clause 4, Article 143, Civil Code 2015). Where there are signs of deceit or personal gain, the signatory may face criminal liability for abuse of power or fraudulent appropriation of property.

4. Exceptions: when is a contract signed without authority still valid?

Vietnamese law does not automatically declare every contract signed without authority invalid. It protects legal certainty and third parties acting in good faith through the exceptions in Articles 142 and 143 of the Civil Code 2015 and through court practice.

Exception 1: the person with authority has accepted or performed the transaction

Under point (a), Clause 1, Article 142 and point (a), Clause 1, Article 143 of the Civil Code 2015, the contract still creates full rights and obligations for the company if the legal representative has accepted the transaction. Acceptance can be given in a later written approval, or shown indirectly through conduct, for example:

• The company has paid an advance or received goods delivered by the other party.
• The company has issued a value-added tax (VAT) invoice or reconciled the accounts payable and receivable.
• The company has used the goods or equipment in its business without objecting.

Exception 2: the person with authority “knew and did not object within a reasonable time”

Point (b), Clause 1, Article 142 and point (b), Clause 1, Article 143 of the Civil Code 2015 provide that the contract still binds the company if the representative with authority knew about the transaction but did not object within a reasonable time. Clause 2, Article 3 of Resolution No. 01/2014/NQ-HĐTP also confirms that if the person with authority to enter into the arbitration agreement knew about it and did not object, the arbitration agreement is not considered invalid.

Exception 3: the company’s fault created reasonable reliance

Under point (c), Clause 1, Article 142 and point (c), Clause 1, Article 143 of the Civil Code 2015, if the represented party was at fault, so that the counterparty did not know or could not have known that the signatory had no authority (or exceeded it), the contract still binds the legal entity. Examples:

• The company let the Head of its Representative Office use the seal and sign similar business contracts for a long time, and the company kept paying under them.
• The business kept poor control of its seal and let staff stamp the company’s round seal on contracts and transaction documents on their own.

Exception 4: loss of the right to object to authority (Precedent No. 69/2023/AL)

Under Article 13 of the Law on Commercial Arbitration 2010 and Precedent No. 69/2023/AL of the Council of Judges of the Supreme People’s Court:

• If a party finds that the person who signed the arbitration agreement had no authority, but still files its statement of defence and takes part in the arbitration without objecting to authority within the time limit, that party loses its right to object (waiver of right to object).
• Once the arbitral tribunal issues its award, that party cannot ask the court to set aside the award on the ground that the person who signed the original contract had no authority.

5. A 5-step process for checking signing authority (checklist)

To remove the risk of a contract being signed without authority, the legal team and the contract negotiation team should strictly follow this process for checking the parties’ documents:

• Step 1: Search the national portal. Look up the counterparty’s tax code on the National Business Registration Portal to confirm the exact name and title of the legal representative on the signing date.
• Step 2: Check the company charter. Read the provisions on the powers of the Director or General Director carefully. Find out whether the representative has a contract signing limit (for example, only contracts under VND 5 billion).
• Step 3: Verify the authorisation document. If the signatory is a deputy (Deputy General Director, Head of Department, Branch Director):
  • ask for the original or a certified copy of the power of attorney;
  • check that the scope of authorisation specifically covers the type of contract being signed;
  • check the validity period of the authorisation;
  • for a foreign counterparty: the power of attorney must be notarised, certified and consularly legalised at a Vietnamese diplomatic mission.
• Step 4: Ask for the internal approval resolution. For contracts worth more than 35% of the company’s total assets, or transactions involving a related party, require the counterparty to attach an extract of the Board of Directors’ resolution or the minutes of the General Meeting of Shareholders approving the contract.
• Step 5: Verify the signature and seal, or the digital signature. The person with authority must sign personally (or sign digitally with a valid business digital certificate issued by a licensed certification authority (CA)). Never accept a pre-made signature stamp, or signing on someone’s behalf (“K/T”, signing for the head of the organisation) without a written authorisation.

6. Summary table: risks and controls

7. Documents and sources cited in this article

I. Legal instruments

1. Civil Code 2015 (Law No. 91/2015/QH13)

• Article 3: basic principles of civil law (freedom, voluntariness, goodwill, honesty).
• Articles 84 and 85: branches, representative offices and representation of a legal entity.
• Articles 117 and 122: conditions for a civil transaction to be valid, and invalid civil transactions.
• Article 131: legal consequences of an invalid civil transaction.
• Articles 134 to 138: representation, legal representatives and authorised representatives.
• Article 142: consequences of a civil transaction entered into and performed by a person with no authority to represent.
• Article 143: consequences of a civil transaction entered into and performed by a representative beyond the scope of representation.
• Article 144: scope of representation and conditions for sub-authorisation.
• Articles 562 and 569: authorisation contracts and grounds for terminating an authorisation contract.

2. Law on Enterprises 2020 (Law No. 59/2020/QH14)

• Article 12: the legal representative of an enterprise, and enterprises with more than one legal representative.
• Articles 86, 162 and 167: internal limits on the representative’s authority; conditions for approving high-value contracts and related-party contracts by the Members’ Council, the Board of Directors and the General Meeting of Shareholders.

3. Commercial Law 2005 (Law No. 36/2005/QH11)

• Article 11: freedom of contract in commercial activities.
• Articles 292, 300, 301 and 302: commercial remedies, the 8% cap on contractual penalties, and liability to pay damages.

4. Law on Commercial Arbitration 2010 (Law No. 54/2010/QH12)

• Article 6: the court declines jurisdiction where there is an arbitration agreement.
• Article 13: loss of the right to object (waiver of right to object).
• Article 18: cases where an arbitration agreement is invalid (including where the person who entered into it had no authority).
• Article 19: independence of the arbitration agreement from the main contract.
• Articles 68 and 71: grounds and court jurisdiction for setting aside a commercial arbitral award.

5. Civil Procedure Code 2015 (Law No. 92/2015/QH13)

• Article 459: grounds on which a Vietnamese court refuses to recognise and enforce a foreign arbitral award (including where the signatory had no capacity or authority to enter into the arbitration agreement).

6. Resolutions of the Council of Judges of the Supreme People’s Court

• Resolution No. 01/2014/NQ-HĐTP dated 20 March 2014: guidance on the Law on Commercial Arbitration; Article 3 gives detailed guidance on arbitration agreements that are invalid because the person who entered into them had no authority.
• Resolution No. 01/2019/NQ-HĐTP dated 11 January 2019: guidance on interest, interest rates and contractual penalties.

7. Circular No. 61/2024/TT-NHNN of the State Bank of Vietnam

• Rules on bank guarantees, authority to sign and issue guarantees, and the independence of the guarantee undertaking.

II. International treaties and trade practice

1. New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards: Article V(1)(a), on refusal of recognition because a party lacked capacity or the arbitration agreement is not valid under the applicable national law.
2. United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG, Vienna): Articles 1(1)(a), 25, 74 and 78, on international sale of goods contracts, fundamental breach and damages.
3. Uniform Customs and Practice for Documentary Credits (UCP 600) and Uniform Rules for Demand Guarantees (URDG 758) of the International Chamber of Commerce (ICC).

III. Precedents of the Supreme People’s Court of Vietnam

1. Precedent No. 09/2016/AL: adopted by the Council of Judges of the Supreme People’s Court on 17 October 2016; no late-payment interest is charged on contractual penalties and damages.
2. Precedent No. 13/2017/AL: adopted on 14 December 2017; a letter of credit (L/C) under UCP 600 is independent and does not lose effect when the underlying sale contract is rescinded.
3. Precedent No. 21/2018/AL: adopted on 17 October 2018; determining fault and damage when a contract is unilaterally terminated contrary to the agreement.
4. Precedent No. 42/2021/AL: adopted on 24 February 2021; protects a consumer’s right to choose a court when a standard-form contract contains a foreign arbitration agreement (SIAC).
5. Precedent No. 69/2023/AL: adopted on 18 August 2023; confirms the rule that a party loses its right to object to arbitral jurisdiction (waiver of right to object) when it takes part in the proceedings without objecting in time.

IV. Notable court judgments and arbitral awards

1. Judgment No. 02/2022/KDTM-ST dated 16 March 2022 of the People’s Court of Binh Duong Province: an international sale of goods dispute between Vietnamese and Chinese traders; the court accepted the case because the arbitration clause was incapable of being performed, and applied the CISG directly.
2. Commercial appeal judgment of 2022 of the People’s Court of Ho Chi Minh City: recognised as lawful a clause on pre-estimated damages (liquidated damages, LD) in a construction contract.
3. Decision No. 08/2019/QĐ-PQTT dated 25 July 2019 of the People’s Court of Hanoi: considered a request to set aside a VIAC arbitral award on the ground that it conflicts with the fundamental principles of Vietnamese law (point (dd), Clause 2, Article 68, Law on Commercial Arbitration).
4. Decision No. 459/2009/DS-GĐT dated 25 September 2009 of the Civil Court of the Supreme People’s Court: considered whether the person who signed a contract had lawful authority and the grounds for finding a transaction invalid.
5. Award No. 063 of the Vietnam International Arbitration Centre (VIAC): an award on the conditions for rescinding a contract for fundamental breach.
6. Toepfer v. Sao Mai: a judicial precedent in which a Vietnamese court refused to recognise and enforce an award of GAFTA international arbitration (London).