Questions regarding the applicability of the general legal framework of voluntary representation in relation to the corporate representation of legal entities are often brought up both in theory and in practice. The absence of explicit rules governing the latter has resulted in divergent views and inconsistent judicial practice in various scenarios.
It is precisely due to this accumulated case law on the matter, that on 9 October 2025 the Supreme Court of Cassation (the “SCC”) initiated Interpretive Case No. 4/2025 of the General Assemblies of the Civil and Commercial Colleges (“GACCC of the SCC”) in order to adopt an official interpretation on the question whether Article 40 of the Obligations and Contracts Act, concerning representation to the detriment of the represented party, is applicable to the corporate representation of a commercial company.
The SCC has already had the grounds to rule on the nature of corporate representation of legal entities. In Interpretive Resolution No. 3/2013 of 15 November 2013, the GACCC of the SCC distinguished such representation from that governed by the Obligations and Contracts Act, defining it as a “manner of forming and expressing will”, as the body itself is a part of the legal entity. It is emphasized that the corporate representative does not make a declaration as a separate legal subject – rather, he acts in accordance with the statutory competence given to the body, and his representative functions are an integral part of the body’s powers. Consequently, any act performed by the corporate representative that is addressed to third parties constitutes act of the legal entity itself — the representative merely expresses the unified will of the entity.
Given this established understanding of the legal institution, conflicting approaches have emerged in case law regarding the applicability of the rules of the Obligations and Contracts Act on agreements concluded to the detriment of the represented party. Under Article 40 of the Act, such agreement shall be deemed void if it is established that it was concluded with the purpose of bringing harm to the represented party. According to the interpretative practice of the SCC, this particular ground for invalidity may be invoked solely by the represented party, that has suffered damage.
- One of the supported views, in cases where such agreements are concluded by a corporate representative of a legal entity, is based on the fundamental principle under the Commerce Act that the corporate representative is legally empowered to expresses the will of the commercial company to third parties. Accordingly, although the representative acts as the legal entity itself and directly expresses its will, there still exists an expression of will of one person (the legal entity) through another (the corporate representative). In the absence of an explicit rule governing the liability of corporate representatives toward the legal entity itself in situations where they conclude agreements to its detriment, this legislative gap should be filled by way of analogy through the application of the general civil-law framework — namely, Article 40 of the Obligations and Contracts Act. For the provision to apply, it must be established that the agreement concluded by the body with a third party has objectively caused damage to the represented legal entity. It is also necessary, from a subjective standpoint, that at the time of concluding the agreements, both the representing body and the third party have been aware of or have intended the occurrence of such harmful consequences contrary to the interests of the legal entity. If these elements are at hand, the agreement should not produce any legal effect for the represented party.
- In numerous other cases, however, courts have adopted the opposite view. The reasoning in such cases is based on the conclusions set forth in the aforementioned Interpretative Resolution No. 3/2013 of the SCC, and in particular on the definite recognition that the corporate representative is not distinct form the represented legal entity, and hence that corporate representation itself “is not genuine representation based on a legally-based representative relation”. This leads to the absolute rejection of the applicability of Article 40 of the Obligations and Contracts Act to the corporate representation of legal entities.
This inconsistency in judicial practice continues to generate uncertainty in commercial and civil transactions, thus determining the significance of the upcoming ruling of the SCC. We therefore await with interest the development of the interpretative case and the implications that will follow upon the adoption of the Supreme Court’s decision.
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