Apparent agency in overlapping criminal and civil cases

In recent years, overlapping criminal and civil cases has become common as civil and commercial disputes and cases of economic crime have tended to rise year by year. Most of these cases involve company employees entering into contracts in the company’s name by making the company’s official seal without approval.

Such cases have aroused extensive concern. Disputes, however, arise regarding whether the act of the offending employee does not constitute apparent agency, and whether the company involved should be bound by the contract concerned, and assume corresponding civil liability after the offending employee is investigated for criminal liability.

Impact of criminal procedures on civil procedures. According to the Civil Procedure Law and other applicable laws and regulations, overlapping criminal/civil cases are treated in the principle of either criminal procedures preceding civil procedures, or parallel application of criminal and civil procedures. Different principles will apply depending on the court’s decision on whether the facts suspected of criminal offence have direct impact on the nature, effect, and the responsibility of and for the civil case.

If the facts suspected of criminal offence do have an impact on the civil case, the court should rule suspension of hearing and resume the hearing after the end of criminal procedures. If the facts suspected of criminal offence do not have direct impact on the civil case, the hearing of the civil case, independent from the criminal procedures, may proceed.

Criminal liability of the offending employee and civil liability of the company involved. The civil law and criminal law have their own rules and systems. Concurrent application of the norms of civil law and criminal law will result in coexistence of civil liability and criminal liability. The criminal liability functions by punishing and preventing crimes, while the civil liability remedies damages by regulating the property relation and personal relations among equal subjects. These two types of liabilities differ in content, function and applicability. Even if the subjects of the criminal liability and civil liability are one and the same, these two types of liabilities may coexist without conflicting each other.

For this reason, the civil law is the only law applicable to determine whether the offending employee’s act of entering into a contract without approval constitutes apparent agency, whether the contract concerned is effective, and whether the company involved is required to assume civil liability.

The criminal procedures may at most be applied to produce related evidence for civil procedures with the help of the powerful criminal investigation means of the state. They, however, will not be applied for a civil trial in the place of civil procedures. This thinking is reflected in some cases decided by the Supreme People’s Court (SPC).

Judgment rules of apparent agency. In accordance with the provisions on apparent agency in the General Provisions of the Civil Law, the Contract Law, and the SPC Guiding Opinions on Several Issues Concerning Hearing of Disputes over Civil and Commercial Contracts under the Current Situation, apparent agency in essence is a type of unauthorized agency.

Its constitutive conditions include subjective and objective ones. The objective conditions refer to the conditions under which the agent is not granted the power of attorney, but the counterparty has reason to believe that it is. The counterparty should bear the burden of proof for “reasonable belief”. The subjective conditions refer to that the counterparty should be in good faith without any fault.