What happens to an agreement executed by a General Manager without official powers of attorney or exceeding the limits listed at the local Chamber of Commerce? Consolidated case law and eminent scholars have traced the perimeter that could be used to avoid major errors.
Who is a general manager and what are the differences with directors?
The title “Direttore Generale”, roughly translated as General Manager and often confused with a director, comprises under Italian law and business practice a hybrid role, holding managerial powers but not in charge of the direction of the company.
A director is generally the person who manages the company, represents it and acts in its name and on its behalf, alone or in accordance with the other directors or the board (if existing). A General Manager is however the employee positioned at the highest ranking of the internal hierarchy, but nonetheless subject to the instructions and commands of the director(s).
The two roles may coincide in limited cases but usually the two positions differ: most often the General Manager is the right-hand man of the director, a senior employee instructed to manage certain aspect of the company in accordance with the strategic guidelines provided by the director(s).
Express authority and ex lege powers of attorney
Even though some scholars theorized the possibility of a General Manager holding internal powers only, usually General Managers manage the company externally and internally (under the direction of the director(s)) and are conferred official powers of representation, registered with the local Chamber of Commerce and publicly accessible.
When authority is expressly given, either registered or not, a third party contracting with the company has to check if the General Manager is granted the powers to enter into the contract or perform the activity under negotiation. If the act or agreement falls outside the powers granted, then the signature of the General Manager usually does not bind the company except in the cases discussed below.
Furthermore, it is to be noted that if an officer is qualified and/or works as “institore” (i.e. that person entrusted with the direction of a going concern) or commercial attorney (i.e. that person who holds express or inherent powers of attorney), the law grants authority to act in name of the company even if nothing is specified in the excerpt from the local Chamber of Commerce, provided that a power of attorney as institore or commercial attorney was given even if not registered.
Implied powers of representation
What if the excerpt from the Chamber of Commerce or other documents conferring powers do not prove existence of any authority?
Generally speaking, the Italian High Court (Corte di Cassazione) in several decisions stated that all senior officers entrusted with dealing with third parties (e.g. Head of Procurement) have implied powers of representation associated with the extension of their role, because if the company demanded them to carry out certain activities it surely also intended to give them the powers to comply. In these cases the employees might be qualified as “institore” or commercial attorney by operation of law.
The same reasoning applies to General Managers; if their commitment included relating with third parties, then they will have implied powers of representation and their agreement will be binding to the company.
Asking for evidence
Evidently, the weak point of the aforementioned case law is that the third party contracting with the General Manager might not have sufficient information about the latter’s employment agreement or other express authorizations.
This is where the general principles of good faith and reasonable effort intervene, demanding such third party to do whatever reasonable to ascertain the powers of the other party.
It surely includes asking for evidence of the powers that the General Manager assumes existing, for instance a written authorization of the director(s), the employment agreement, the organizational chart or evidence of a consolidated similar practice.
Generally speaking, the company cannot object the lack of powers to nullify the agreement where all reasonable information lead to the conclusion that the General Manager was acting for the company, and such acts were inside the perimeter of his natural behavior, provided of course that the third party acts reasonably, is not malicious and that s/he is not or should not be aware of the absence of powers.
Implied powers in absence of evidence
Sometimes, however, there may be the case of a General Manager willing to bind the company, but having no evidence of his powers. What then? Can the third party be rightfully confident that the company will have to stick to the commitment entered into by the General Manager?
In this case the third party already did what was reasonably expected from him, duly checking official sources and asking for evidence, but could not retrieve any sure information except for the fact that the other person is the General Manager of the company.
In such a case some scholars have spoken of implied powers associated with the mere corporate title; more precisely some expressed the theory of the “commonly known implied powers”, according to which any corporate role brings along all powers that are commonly associated with such title by third parties in good faith (e.g. the HR Director typically have the power to conclude contracts with head hunters).
Other scholars specified that, if the company has created reasonable confidence in the third parties, the contract executed by the apparent attorney is to be held valid in order to protect the third party in good faith (for instance, a company always in the past executing agreements entered into by the General Manager creates an expectation also for the future, thus legitimating apparent powers).
Although such theories are not globally accepted, they could constitute a solid ground to invoke protection for the third party contractor in good faith.
As regards companies, Italian law and case law state that powers of representation can be expressly conferred, implied by operation of law for certain subjects (usually senior officers), and implied by matter of fact for anyone if her/his internal role and/or the behavior of the company let third party in good faith presume that the action was implicitly authorized by the company.
Consequently, it is advisable that third parties assess the powers beforehand by doing whatever reasonable, but they could however be reasonably confident in the commitment of the company if all clues lead to an implied attribution of powers.
On the other hand, it is also possible to suggest a company to always consider both officially limiting the powers of all of its senior officers engaging in external relations, and setting up a structured system of constant internal review in order to check and prevent any encroachment that could be enforced in current relations and used as precedent in the future.