Unauthorized Representation and Excessive Use of Authority

Unauthorized Representation and Excessive Use of Authority: In Which Situations Does a Business Owner Remain Liable?

In the business world, almost every day, even if the business owner doesn't sign personally, contracts are established, commitments are made, price reductions are offered, and goods are delivered through sales representatives, branch managers, accountants, warehouse managers, technical staff, or any employee who appears to "know the job.".

But what happens if these individuals are unauthorized representatives or exceed the limits of their given authority ? Is the business owner bound by the contract in all cases, or can they absolve themselves of responsibility by saying, "I did not give such authorization"?

This article will examine in detail the concepts of unauthorized representation and excessive use of authority within the framework of the Turkish Code of Obligations and the Turkish Commercial Code, the circumstances under which a business owner is bound by a transaction and the circumstances under which they are not , and the risks encountered in practice

1. The Concept of Representation and Its Importance in Commercial Life

Representation, in its simplest form, is when one person performs legal transactions on behalf of another. When a representative conducts legal transactions with third parties, they act not in their own name, but in the name of the person they represent, and normally, debts and receivables arise in the assets of the represented party.

The concept of representation in commercial enterprises, especially:

Commercial representative
Commercial agent
Salesman
Branch manager
Salesperson / Customer Representative
Accounting or finance officer

This is constantly encountered through auxiliary persons such as these. For commercial life to function quickly, it cannot be expected that the merchant will personally handle every transaction. Therefore, the merchant establishes various representation and authority mechanisms within the organization of the business

However, two major risks emerge at this point:

A representative without any authority (literally, unauthorized representation).
The representative exceeding the scope of their authority (excessive use of authority).

In both cases, whether the business owner is bound by this transaction is a matter of debate.

2. Authorized Representation – General Framework

To better understand the issue , we first need to briefly examine how a valid representational relationship is established

2.1. Source of Representation Authority

The authority to represent a party generally arises from three sources:

Representation authority arising from the law
- parent-child relationship
- Guardian-guardian relationship
- According to the Turkish Commercial Code, the legally authorized bodies to represent joint-stock and limited liability companies are (board of directors, managers)
Contractual (agreemental) power of representation
- Power of attorney agreement
- Granting specific authorizations within the framework of the service contract
- Documents such as internal regulations, signature circulars, and board resolutions
Apparent (de facto) authority
- Business organization and the behavior of a trader can create the perception among third parties that "this person is authorized.".
- In this situation, bona fide third parties may rely on the actions of the representative, even if unauthorized, and the business owner may be held liable.

2.2. Scope of Representation Authority

Scope of representation authority:

General authorization (for all types of transactions)
Limited authority (specific transactions, specific amount, specific duration, contract with a specific person, etc.)

This can be regulated accordingly. Specifically regarding commercial representatives and agents, the law provides for certain presumptions and limitations to protect third parties. For example, it is presumed for third parties that a commercial representative working at the business headquarters is authorized to enter into contracts and collect receivables related to normal commercial transactions .

3. What is Unauthorized Representation?

Unauthorized representation iswhen a person:

Without any representation authority,
Or, even if the previously granted power of representation has been revoked or terminated,
However, of acting on behalf of someone else .

Although there appears to be a "representative relationship" in this case, legally there is no authority to represent.

3.1. Elements of Unauthorized Representation

To speak of unauthorized representation, the following elements are generally required:

The agent is acting on behalf of someone else (not their own)
The power of representation never arose or, if it did, has terminated (e.g., revoked, expired).
The third party believing that they are acting on behalf of the person represented .

In this case, the contract suspended and void . That is, the represented party (the business owner):

the transaction is subsequently approved (ratified), it becomes valid from the beginning, and the business owner becomes bound by the contract.
If the agent does not give their consent, the third party may withdraw from the contract and claim damages from the unauthorized agent.

4. Excessive Use of Authority (Exceeding Authority Limits)

Unauthorized representation doesn't always mean "zero authority." In many cases, the representative is actually authorized but exceeds the limits of the authority granted to them. For example:

the commercial agent authorized to sell up to 10,000 TL , he signed a contract for 500,000 TL.
A dealer representative, while only authorized to sell in certain provinces, can enter into contracts in provinces outside their authorized area
The branch manager sold significant company assets without the approval of the board of directors.

This is an example of excessive use of authority. Its legal consequences differ from classic unauthorized representation because while a representation relationship exists, its scope has been exceeded.

5. Under what circumstances does a business owner remain committed?

Now for the most crucial question: In
cases of unauthorized representation or excessive use of authority, under what circumstances is the business owner bound by the contract?

The answer to this question rests on both the provisions of the law and the Supreme Court's precedents based on the principles of relying on appearances and commercial custom . Let's examine the main criteria one by one below.

5.1. Granting of Authorization – Subsequent Approval

In a transaction involving unauthorized or excessive authorization, the business owner subsequently:

Clearly in writing/with approval, or
implicitly through their actions

If the signatory expresses a desire to say, "I accept this transaction, this contract is binding on me," the contract becomes valid from the outset

For example:

If goods are received, an invoice is processed in accounting, and payments are scheduled under a sales contract signed without authorization,
If the business owner demands performance from a third party based on a contract,

These actions are often consent , and the business owner becomes bound by the contract.

5.2. Principle of Reliance on Appearance – If the Appearance of Authority is Created by the Merchant

In business, protecting third parties is of paramount importance. If a business owner, through their own actions or the organization of their business, creates the impression among third parties that "this person is authorized," in most cases:

A well-intentioned third party who trusts this appearance is protected.
The business owner can be held bound by a transaction even if it was done without authorization or exceeded limits .

This principle comes into play especially in the following situations:

If a person on the company's business card, website, or signage,
If the person has been registered with the Commercial Registry as an authorized person, their signature is included in the signature circular, but this authorization has been effectively revoked and not announced to the public,
This person has been carrying out similar transactions on behalf of the business for a long time, and the business owner has not intervened.

In these cases, the good faith of the third party is taken into account. If the third party, even while exercising reasonable business acumen, cannot ascertain that the other party is unauthorized, the business owner is generally considered bound by the transaction.

5.3. Commercial Representative and Commercial Agent – Presumption in Favor of Third Parties

In the business world, the law provides special regulations to protect third parties in relation to certain auxiliary personnel frequently used . For example:

A commercial agenthas broad powers to manage a business and represent the merchant.
A commercial agent appointed for a head office or branch is considered to be bound by the business owner in ordinary commercial transactions.
A commercial agent has more limited authority, but represents the merchant in transactions within their field of responsibility.

The important point here is that
many limitations may be placed on the internal relationship, that is, on the contract between the merchant and the agent. For example:

"You will not sign for anything above this amount."
"You will not enter into a contract with that person."
"You will not offer installment sales for this product group."

However, if the third party is unaware of these limitations and cannot be expected to know them , in most cases the business remains bound by the contract signed by that person . While sanctions such as compensation or termination may be applied against an agent who exceeds their authority internally , the third party is often protected.

5.4. The Role of Commercial Registry Records and Announcements

Specifically, persons authorized to represent companies are registered and announced in the Commercial Registry. Third parties:

They conduct their transactions relying on registry records and announcements in the Turkish Trade Registry Gazette.
The law also protects third parties who rely on information recorded in the registry.

In this context:

If the authority granted to a person to represent the company is subsequently restricted or revoked, this change must also be registered and published .
If no announcement is made, liability may arise towards a bona fide third party as if the authority still existed.

Therefore, in cases of unauthorized representation or excessive use of authority, the business owner's defense of "I had withdrawn the authorization" often proves ineffective in the face of commercial registry records and the good faith of the third party.

5.5. Company Organization and Custom – De Facto Authority

For some individuals, even without a written authorization document, de facto authorization is accepted due to the actual operation of the business and commercial practices. For example:

A sales representative who has been taking orders and negotiating prices for years,
Project manager who prepares contracts with regular clients,
An accounting employee who collects receivables.

A third party who has previously dealt with these individuals numerous times may assume that the same authority and scope will be applied. In this case, the business owner may not always be able to escape punishment by later claiming, "Actually, this person was not authorized."

6. In what situations is a business owner not liable?

Of course, the business owner is not always bound by the transaction. In particular, the trader may be relieved of liability in the following cases:

6.1. Bad Faith or Gross Negligence of a Third Party

Third party:

If he knows the representative is unauthorized ,
Or, if they had paid a little more attention to the specific situation , they would have been able to understand it clearly .

Good faith is no longer a factor.

For example:

If an employee whose name doesn't appear in the signature circular attempts to sign a very high-value contract, and a third party proceeds with the transaction "without seeing the authorization document,"
Even though the business has repeatedly provided written notices stating "we will only give our consent with the signature of Attorney X," if the third party relies on the signatures of other employees,

In such cases, it is more difficult to hold the business owner accountable. The courts meticulously assess whether the third party fulfilled their duty of care

6.2. Clear and Timely Objection to Unauthorized Representation

When an unauthorized representative signs a contract, the business owner, upon learning of this, should not remain silent but should inform the third party clearly and within a reasonable time:

"This transaction was not done in my name, I did not authorize this person, and I do not accept the contract."

If they send a written notification in this form:

The third party can no longer bind the business owner to the transaction
The responsibility must be placed directly on the unauthorized representative.

What's important here is that the merchant timely and clear manner. Prolonged silence can be interpreted as "tacit approval."

6.3. Transactions Clearly Outside of Authority

Some actions are clearly outside the scope of authority, even from the perspective of a reasonable third party, considering the nature of the business and the position of the individual . For example:

The warehouse manager signing a contract to sell the company building,
For an employee whose only job is taking sales orders to commit to millions of liras in loans from the bank,
Simple field personnel signing a contract regarding the transfer of company shares.

In such extreme cases, the third party could reasonably foresee that "this transaction might exceed the limits of their authority." Therefore, it can be assumed that the business owner is not bound by this.

7. Consequences of Unauthorized Representation and Excessive Use of Authority

The consequences of unauthorized representation or excessive use of authority differ for the parties involved.

7.1. From the Perspective of the Represented Party (Business Owner)

If consent is given:
The contract becomes valid from the outset, and all debts and receivables belong to the business owner.
If permission is not granted and the third party acts in bad faith:
The business owner is largely not bound by the contract, and the third party cannot claim any rights.
While it does not grant authorization, if a third party is protected by the principle of reliance on appearances:
within the framework of judicial precedents, especially in commercial life, the business may still be bound by the contract; subsequently, it may seek recourse against the representative.

7.2. Regarding Unauthorized Representatives / Employees Exercising Excessive Authority

The situation of an agent acting without authorization or exceeding their authority:

If the business owner does not give permission,
If the third party is also acting in good faith,

representative, against a third party:

liable for damages arising from the non-performance of the contract .
In such cases, liability is often of a "reliance-based" nature.

Also in internal relations (between the company and the employee/representative):

Termination of the employment contract,
Compensation claim,
Disciplinary sanctions

It may come up on the agenda.

7.3. From the Perspective of a Third Party

Possible scenarios from a third-party perspective:

The business owner gives their consent → The contract is valid between the business and the third party; the agent withdraws.
The business owner does not give authorization, but is bound by the principle of trust based on appearances → A third party can contact the business owner directly.
The business owner does not give permission and is not considered bound by it → A third party can file a compensation claim against the unauthorized representative.

8. Common Examples in Practice

To illustrate this point, let's look at examples from everyday business life.

8.1. Sales Personnel Signing the Contract

At a furniture store, a sales representative uses the store stamp to sign a high-value contract with a customer; the delivery date, assembly conditions, and installments are determined.

The customer had previously shopped at the same store through the same staff member.
The contract was drawn up on letterhead, stamped and signed.
The store receives the goods, issues an invoice, or collects part of the payment.

In this case, even if the business owner argues that the employee was not authorized, they will be considered bound by the contract due to the principle of reliance on appearances and their own conduct (delivery, invoicing, collection) .

8.2. Branch Manager's Credit Commitment

A branch manager of a company signs a letter of commitment for a high-value banking transaction without obtaining approval from the head office.

The manager is registered as a branch manager in the commercial registry.
He has previously signed similar, but lower-value transactions.
The bank checked the signature circular and saw the manager's signature.

In this case, the bank, as a third party, has exercised reasonable care , and due to the principle of relying on appearances, it can be assumed that the company will adhere to the terms in most situations . The company may impose liability on the director within the internal relationship.

8.3. Former Official Continues to Take Action

A company may revoke the authority of a partner who has been authorized to represent the company for many years, by a decision of the board of directors, however:

The decision is not registered or published in the commercial registry
No separate notification is given to banks or their main customers with whom they have contracts.

This former authorized person then signs the contract on behalf of the company. The third party trusts this signature based on the registry or past practice.

In this case, if the third party is acting in good faith:

The company is often considered bound by contract.
The company will pursue all necessary legal avenues against the former executive.

9. Risk Management: Practical Tips for Business Owners

Unauthorized representation and excessive use of authority often result from management deficiencies and incomplete/inaccurate reporting to the outside world . Business owners can take the following measures to mitigate these risks

9.1. Written Authorization Documents and Signature Circulars

Decisions regarding individuals authorized to represent the company and sign documents must be put in writing.
A signature circular must be prepared and registered/published in the trade registry .
Internal guidelines should clearly define authorization limits (maximum amount, transaction type, duration, requirement for joint signature, etc.).

9.2. Timely Notification of Authorization Changes

In the event of any authorization being revoked, restricted, or granted:
- Commercial Registry,
- Banks,
- Main suppliers and customers with whom a continuous contractual relationship is established
  should be informed in writing and, if possible, via registered electronic mail/email.
Otherwise, liability may continue for actions taken by former authorized persons or those exceeding their authority.

9.3. Internal Audit and Double Signature System

For high-value transactions in particular, double signatures or board approval may be made mandatory.
The internal audit unit conducts periodic audits:
- Their contracts,
- Collection and payment processes,
- how staff use their authority
  .

9.4. Staff Training and Written Procedures

Sales, marketing, accounting, warehouse and branch staff:
- What powers does he/she have?
- Which actions you absolutely cannot perform,
- They must be provided with written information regarding rules such as "not making major commitments without showing authorization documents."
The commitment forms signed upon hiring should clearly state that employees will be held accountable if they exceed their authority.

9.5. Authorization Management in Electronic Environments

Today, a significant portion of transactions are conducted electronically:

Who has the e-signatures and KEP addresses?
Which users can perform online banking , e-invoicing , and e-delivery note transactions within which limits ?
Clearly defined user profiles and limits on the system,

It reduces the risk of unauthorized representation.

10. Frequently Asked Questions (FAQ)

Question 1: Am I still responsible for a contract my employee signed without authorization?

Answer:
There is no single answer to this question. The following factors must be considered together:

Does the employee really have no authority at all?
Do your behavior, business card, website, and criminal records create the impression in a third party that "this person is authorized"?
Did the third party act in good faith, or were they clearly aware of their lack of authority and proceed with the transaction anyway?

If you have ostensibly created authorization and the third party, despite acting with reasonable care, fails to notice the lack of authorization, in most cases the business owner becomes liable.

Question 2: What should I do when I discover an unauthorized signature?

Answer:
First, immediately assess the situation and notify in writing :

This person is unauthorized,
You stated that you do not accept the contract that was made
You did not give any permission

You need to report it. Then:

If possible, a disciplinary process should be initiated within the company
Up-to-date information regarding authorization status must be provided to the trade registry and other relevant parties.

Otherwise silencecan often be interpreted as "tacit approval."

Question 3: Am I liable to a third party if my authorized representative exceeds their authority?

Answer:
Generally yes. Especially with regard to commercial agents and commercial representatives, the limitations you impose in the internal relationship (e.g., “signing for amounts exceeding 100,000 TL”) do not bind the third party. If the third party was unaware of this limitation and could not have been expected to know about it, the business is responsible. You also reserve the right of recourse against the agent.

Question 4: Are the records in the Commercial Registry sufficient? Is additional notification required?

Answer:
Registration and publication in the commercial registry creates a very strong presumption against third parties. However:

Banks,
Your major suppliers with whom you work regularly,
Strategic business partners

Sending written notices to actors such as these is also important for proof and risk management in any future disputes .

Question 5: Is saying "I don't know that person at all" sufficient on its own?

Answer:
No. This defense would not be convincing, especially for someone who has long been associated with your business, whose business card includes your company name, whose photo and title appear in the "our team" section of your website, and who has had numerous contact with the customer. In judicial evaluation, not only the official power of attorney but also the actual circumstances and the legitimate reliance of the third party are considered.

11. Conclusion: A Strategic Approach for the Business Owner

Unauthorized representation and excessive use of authorityare not just a "signature issue"; they affect the business in the following ways:

Organizational structure,
Internal control mechanisms,
Trade registry and external notifications,
Staff training and contracts

It is a complex risk area closely linked to...

Business owners should not overlook these facts:

In commercial life, third parties are generally protected.
Authorization documents, registration records, business cards, websites, and actual operations create trust in the third party. This right to trust has strong legal protection.
Saying "I didn't authorize it" isn't always a solution.
Especially in commercial disputes where the principle of relying on appearances applies, it's common for a business owner to be held liable due to their own flawed organization.
The solution in preventative measures.
Written delegation of authority, up-to-date trade registry records, regular notifications, personal and electronic signature management, internal regulations, and training can prevent disputes from arising in the first place.
When a dispute arises, swift and professional action is necessary.
Upon learning of an unauthorized action, the third party notified in writing without delay , and a strategic decision must be made regarding whether or not to grant consent, if required.

In conclusion, business owners should view unauthorized representation and excessive use of authority not merely as personnel errors, but also as part of their management responsibility. They should establish preventative mechanisms and seek professional legal support in any disputes that arise. This will allow them to protect both their commercial reputation and financial structure, building a reliable and sustainable network of business relationships.

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