Signing Authority: Which Contracts Bind Your Company?

A supplier delivers goods based on a purchase order signed by a junior sales representative using a 'shipping stamp' instead of the corporate seal. When the invoice arrives, the purchasing company refuses to pay, claiming the representative had no authority to buy those materials. This scenario is a frequent source of dispute for small and medium-sized enterprises (SMEs) in Taiwan. At AgreeGold, we observe that many business owners rely on business cards or the presence of any stamp to assume a contract is binding. However, legal signing authority is determined by specific statutes, not by the ink on a page or the title on a card. If the signer lacks representative or delegated power, the contract might not bind the company, leading to expensive litigation. We will examine the statutory requirements to determine which signatures create a binding obligation and how to audit your own contract procedures.

Who holds the legal power to represent a company?

In the legal framework of Taiwan, a company is a 'juridical person.' Because it lacks a physical form, it must act through natural persons. This involves two distinct legal concepts: representation and agency. Under Article 27, Paragraph 2 of the Civil Code, directors represent the juridical person in all its affairs. This means a director, and specifically the chairperson in a company limited by shares, is the statutory representative. Any contract they sign is legally considered an act of the company itself. Article 8 of the Company Act further defines the responsible persons of a company, which includes directors or shareholders who execute business operations.

Beyond statutory representatives, a company can operate through 'agency.' Article 103 of the Civil Code stipulates that a manifestation of intent made by an agent in the name of the principal within the scope of their delegated authority takes effect directly for the principal. This is the foundation for most corporate transactions. A chairperson might delegate the power to sign specific types of contracts to a general manager, a procurement head, or a legal officer. In these instances, the authority of these individuals stems from a 'grant of power' as defined in Article 167 of the Civil Code.

Disputes arise when a signer holds a professional title but lacks the internal authorization to execute a specific agreement. In such cases, Article 107 of the Civil Code becomes the primary focus. This article states that the limitation or termination of the power of agency cannot be set up against a bona fide third party. Unless the company can prove that the other party 'knew' the signer lacked authority at the time of signing, internal restrictions on authority do not affect the validity of the contract toward the outside world. This is why we emphasize requesting a formal power of attorney for high-value transactions.

Does a corporate seal always create a binding obligation?

A common belief among SME owners is that any document bearing the company's seal is automatically the company's responsibility. This is addressed by the legal doctrine of 'apparent agency' (表見代理). Article 169 of the Civil Code provides that a person who, by their own acts, represents that they have granted the power of agency to another, or who knows that another person represents themselves as their agent and fails to express opposition, is liable to third parties as a principal. The purpose of this law is to protect the security of transactions. If a company allows an employee to keep the corporate seal or permits an employee to issue quotes and sign contracts in the company's name over a long period, the law may require the company to honor those commitments even if a specific act was not formally approved.

Two elements must be established for apparent agency to apply. The first is an 'apparent fact,' where the company’s behavior leads the public to believe an individual has authority. For example, providing an employee with blank, pre-stamped contract forms for negotiations. The second is 'reliance by the third party,' meaning the counterparty believed in good faith and without negligence that the signer had authority. According to the proviso of Article 169 of the Civil Code, the company is not liable if the third party knew of the lack of authority or should have known based on the circumstances.

Civil Code Article 169: A person who by his own acts represents that he has granted the power of agency to another, or who knows that another person represents himself as his agent and does not express his opposition, is liable to third parties for the acts of such person as a principal, unless the third party knew of the lack of power of agency or could have known it by the exercise of due care.

To mitigate these risks, we suggest companies implement strict seal management protocols. If a contract is stamped with an 'invoice stamp' or a 'receiving stamp' instead of the 'registered corporate seal' (the 'Big Seal'), the legal effect depends on the historical usage of that stamp and the scope of authority. If the stamp is purely for administrative use and the company did not manifest an intent to authorize its use for contracts, the company may argue the act constitutes 'unauthorized agency' under Article 170 of the Civil Code. In that case, the contract does not take effect against the company unless the company subsequently ratifies it.

What is the legal weight of employee signatures and department stamps?

In daily business, it is impossible for the chairperson to sign every document. The legal effect of signatures by managers or department heads is governed by Article 31 and Article 36 of the Company Act. These provisions state that a manager, within the scope of their authority defined by the articles of incorporation or the contract of employment, has the power to manage affairs and sign for the company. If an individual is registered as a manager in the official government registry, the company is generally bound by the contracts they sign within their functional area.

Regarding the 'Small Seal' (the personal seal of the representative), Article 3, Paragraph 2 of the Civil Code states that a seal has the same legal effect as a signature. In Taiwan’s commercial practice, the combination of the 'Big Seal' (company) and 'Small Seal' (representative) is the standard for high-level verification. If a contract has only the Small Seal or only the Big Seal, its validity depends on the authenticity of the 'manifestation of intent.' If it can be proven that the seal was applied by an authorized person or with the company's consent, the contract is valid. If only an employee's signature appears without any corporate stamps, the analysis shifts to whether the employee had agency under the Civil Code or if apparent agency applies.

Civil Code Article 3: If a person is required by law to use a writing, he shall sign it himself. If he uses a mark such as a thumbprint or a cross in place of a signature, such mark shall have the same effect as a signature provided that it is witnessed by the signatures of two other persons. If a seal is used in place of a signature, the affixing of such seal has the same effect as a signature.

When 'unauthorized agency' occurs, Article 170 of the Civil Code provides that a legal act performed by a person without the power of agency in the name of a principal is not effective against the principal unless ratified by the principal. This gives the company an option. If an employee signs an unauthorized contract that is beneficial, the company can ratify it. If it is detrimental, the company can refuse. However, the counterparty can set a reasonable deadline for the company to decide. If the company fails to respond within that timeframe, it is deemed a refusal to ratify under Article 170, Paragraph 2.

FAQ

Is a contract valid if it only bears the company’s invoice stamp?

An invoice stamp is typically designated for tax purposes and issuing receipts. If an employee uses it to sign a contract without authorization, the company can argue unauthorized agency. However, if the company has historically allowed this stamp to be used for agreements, or if the company has already partially performed the contract (such as accepting payment or delivering goods), this may be viewed as implied ratification. In such cases, the company cannot later refuse to perform by claiming the stamp was incorrect.

Must the company honor contracts signed by employees after they have left?

This depends on whether the company fulfilled its duty to notify. If the employee was previously an authorized agent, Article 107 of the Civil Code states that the termination of agency cannot be used against a bona fide third party. If the company fails to recover the employee’s stamps or business cards, or fails to notify long-term clients of the departure, and the client believes in good faith that the employee still has authority, the company may remain liable under apparent agency. Revocation of authority and external notification are vital during the offboarding process.

Does a manager’s signature automatically represent the company?

Under Article 36 of the Company Act, a manager has the power to sign within their scope of authority. If the manager is legally registered, their signature on a document related to their department (e.g., a procurement manager signing a purchase order) is directly attributed to the company. Unless the company can prove the counterparty knew the manager’s authority was restricted, the company is bound by that signature.

Is the official registered seal (Big Seal) mandatory for a contract to be valid?

No. The law does not require contracts to use the 'registered seal' used for government filings. Any stamp used by the company (such as a 'Contract Only' stamp) is valid if the signer had authority to use it. The advantage of the registered seal is its public nature, making it easier to prove representation in court. Using non-registered stamps increases the burden of proof if a dispute arises regarding whether the stamp actually belongs to the company.

What is the effect if a contract has the representative’s signature but no company seal?

The chairperson or director is the statutory representative of the company. Under Article 27 of the Civil Code, their signature represents the juridical person. Therefore, even without a corporate seal, as long as the representative signs in their capacity as the head of the company, the contract is fully binding. Stamping is a customary practice in Taiwan for double verification but is not a mandatory legal requirement for validity.

A three-stage verification process for signing validity

To prevent situations where a contract cannot be enforced or where a company is dragged into an unauthorized agreement, we suggest following a specific sequence of actions before execution. This process filters out most authorization risks and ensures every agreement sits under a protective legal umbrella.

First, verify the identity and authority of the counterparty. When contracting with a company, check the Department of Commerce’s registry system to identify the registered responsible person. If the signer is not the responsible person, examine their title. For high-value or long-term contracts, a business card is insufficient evidence of authority. You should require the signer to state their position in the contract and confirm whether that position typically carries the power to sign such agreements.

Second, request a formal power of attorney. When the signer is not the statutory representative, the safest method is to ask for a 'Letter of Authorization.' This document should bear the company’s Big Seal and the representative’s Small Seal, clearly stating the scope of authority (e.g., 'authorized to sign the procurement contract for Project X'). Under Article 167 of the Civil Code, this establishes a clear legal source for the agency. If the counterparty refuses to provide this, it may indicate that the signer has not obtained formal internal approval.

Third, maintain comprehensive written evidence and communication records. Throughout the negotiation, save all emails and messaging app logs. If you interact with multiple employees, these records can prove the company 'knew' of and 'did not oppose' the signer’s actions, which is essential for claiming apparent agency under Article 169 of the Civil Code. Finally, insist on the use of the corporate seal and, if possible, request a seal certificate or take a photo of the representative signing the document to ensure the manifestation of intent is authentic.

The presence of a corporate seal does not guarantee validity

A common misconception in the business community is that the physical presence of a corporate seal on a document is the final word on its validity. In reality, the seal is merely a tool used to express intent; it is not the intent itself. If a seal was stolen, forged, or used by an employee who had no access to it under normal circumstances, the company can still challenge the contract as an act of unauthorized agency under Article 170 of the Civil Code. The burden of proof in such cases often shifts to the party claiming the contract is valid to show that the seal is genuine and was applied by someone with authority. Simply seeing a familiar red stamp is not a substitute for verifying the person holding the stamp. A contract's strength comes from the underlying authority granted by the Civil Code and the Company Act, not just the ink left on the paper.