In its Judgment File No. 27 Cdo 4056/2017 dated 26 March 2019, the Czech Supreme Court commented on the consequences of unauthorized representation or a representative acting beyond the scope of a power of attorney.

According to the Supreme Court, an unauthorized representative, or a representative acting beyond the scope of their authorization, creates by their actions obligations only for themselves, unless the principal subsequently approves their actions. This rule applies regardless of whether the contract concluded by the representative through such action is valid or not. If the agreement is invalid, the representative must return any unjust enrichment generated by the contract or pay any resulting damages. The Supreme Court further pointed out that, according to the former Section 33(1) of the old Civil Code, the principal tacitly approved the actions of the representative by remaining silent. On the other hand, the “unauthorized representative” rule demands an active approval by the principal (i.e., if the principal remains silent, the principal is not bound by the representative’s actions). Such subsequent approval of the representative’s actions may be carried out explicitly (orally or in writing) or in any other way unambiguously indicating the principal’s intention. The same is true even when the law demands that the approved transaction must be done in writing.

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