People’s Courts at all levels across the countryCompilation of Judicial Opinions on Project Manager Disputes (Part 1) 1. Supreme People’s Court (4)(1) Supreme People’s Court “Guiding Opinions on Several Issues Concerning the Trial of Civil and Commercial Contract Disputes under the Current Situation” (Fa Fa [2009] No. 40)01. Currently, in industries such as national major projects and the contracting and leasing sector, which are significantly impacted by the global financial crisis and changes in the domestic macroeconomic situation, there have been numerous cases where parties to contracts have engaged in subcontracting, subleasing, and other methods, resulting in contracts being signed or performed in the name of units, departments, project managers, or even individuals. This has led to disputes over apparent agency due to issues with the identification of contract subjects and their validity. In this regard, the people’s courts should correctly apply the provisions of Article 49 of the Contract Law regarding the system of apparent agency and strictly determine the existence of apparent agency actions.02. The system of apparent agency as stipulated in Article 49 of the Contract Law requires not only that the agent’s unauthorized actions objectively create an appearance of authority but also that the other party subjectively believes in good faith and without fault that the actor has the authority to act as an agent. The party claiming the existence of apparent agency bears the burden of proof, which includes demonstrating the existence of objective elements such as contracts, official seals, and signatures that indicate authorized agency, as well as proving that they believed in good faith and without fault that the actor had the authority to act as an agent.03. When determining whether the contract counterpart is subjectively in good faith and without fault, the people’s courts should consider various factors throughout the contract formation and performance process to comprehensively assess whether the contract counterpart has fulfilled their duty of reasonable care. Additionally, factors such as the time of contract formation, the name under which the contract was signed, whether it was stamped with relevant seals and the authenticity of those seals, the method and location of delivery of the subject matter, the materials purchased, the equipment leased, the purpose of the borrowed funds, whether the construction unit was aware of the project manager’s actions, and whether they participated in the contract performance should all be considered in the comprehensive analysis.(2) Minutes of the Fifth Circuit Court Judges’ Meeting04. Should the company bear the repayment responsibility for loans taken out by the project manager in the name of the engineering project department?Party A says: The company should bear the repayment responsibility.The project manager has conducted multiple activities related to the project on behalf of the company with the actual contractor, and as the creditor, the actual contractor knows or should know the identity of the project manager; the loan note is also stamped with the company’s engineering project department seal, thus the creditor has reason to believe that the borrowing entity is the company. The internal restrictions on the project manager’s authority cannot be used against a good faith counterpart, and the creditor cannot ascertain the actual use of the loan. Therefore, it should be recognized that the loan is a company loan, and the company should bear the repayment responsibility.Party B says: The project manager should bear the repayment responsibility personally.The project manager only has the authority to conduct activities related to the engineering project but does not have the authority to engage in personal borrowing unrelated to the project. Although the loan note is stamped with the company’s engineering project department seal, not all actions stamped with the official seal are considered actions recognized by the company; they should be limited to project-related actions. The loan note in question does not specify that the funds are for project security deposits or other project-related purposes, the loan was deposited into the project manager’s personal account rather than the company’s account, and there is no evidence to prove that the loan was actually used for the project. Therefore, it should be recognized that the loan is a personal loan of the project manager, and he should bear the repayment responsibility personally.Judges’ Meeting Opinion: Adopt Party B’s view.The project manager’s borrowing in the name of the engineering project department requires three conditions to be met for the company to bear the repayment responsibility.First, the actor must have an appearance of authority. The project manager has the authority to conduct activities related to the engineering project on behalf of the company. The actor in question has engaged in multiple project-related activities in the capacity of project manager, and the loan note issued bears the signature of the company’s project manager and is stamped with the company’s engineering project department seal, thus the counterpart has reason to believe that the project manager has the authority to act as an agent.Second, the counterpart must be in good faith and without fault. The counterpart knows or should know that the project manager only has the authority to conduct activities related to the project, and borrowing externally generally does not fall within their scope of duties. In the case of external borrowing, the loan note should specify the actual purpose of the borrowed funds; otherwise, it cannot be proven that the counterpart is without fault.Finally, the borrowed funds must actually be used for project construction. The loan note in question does not specify the actual purpose of the borrowed funds, and the loan was deposited into the project manager’s personal account; the counterpart also has no evidence to prove that the loan was actually used for project construction. Therefore, in the absence of proof that the borrowed funds were actually used for project construction, the project manager should bear the repayment responsibility personally.Source of Opinion: Minutes of the 49th Judges’ Meeting of the Fifth Circuit Court of the Supreme People’s Court in 2019Reference Case 1: Gansu Second Construction Group Co., Ltd. v. Wuwei Jin Manyuan Agricultural Technology Development Co., Ltd. Construction Engineering Contract Dispute Re-examination Civil JudgmentCase Number: (2019) Supreme Court Min Re 277Reference Case 2: China Ten Metallurgy Group Co., Ltd. v. Xia Mouju Construction Engineering Contract Dispute Re-examination Civil JudgmentCase Number: (2019) Supreme Court Min Re 1992. Henan Courts (12)(1) Minutes of the Civil Fourth Tribunal of the Henan Provincial High People’s Court on Issues Related to Actual Contractors (2020)05. How to determine apparent agency in construction engineering contracts?Answer: Accurately determining apparent agency in construction engineering contracts should focus on the following points:ⅠAccording to Article 172 of the Civil Code, when hearing construction engineering contract dispute cases, it is essential to examine whether the party claiming apparent agency has fulfilled their burden of proof, which includes strictly examining whether the agent’s unauthorized actions have objectively created an appearance of authority and whether the counterpart subjectively believes in good faith and without fault that the actor has the authority to act as an agent. In judicial practice, the party claiming apparent agency is often the contractor, who should be aware of the existence of issues such as borrowing qualifications, subcontracting, and illegal subcontracting in the construction engineering field, and should bear a higher duty of care and examination. Therefore, judicial practice should avoid merely examining whether an appearance of apparent agency has been formed objectively while neglecting to examine whether the party claiming apparent agency is in good faith and without fault.ⅡIn cases where the (general) contractor has not authorized the borrowing of qualifications, subcontractors, or illegal subcontractors to represent them in external contracting, the actions of the “project manager” or “engineering project department” constitute unauthorized agency; the counterpart claiming apparent agency should bear the burden of proof. The project manager is the project manager responsible for the entire engineering project on behalf of the construction enterprise and should obtain authorization or appointment when signing contracts. In judicial practice, it is essential to focus on whether the appointment of the project manager was obtained at the time of signing the contract, rather than before or during the litigation, to determine whether apparent agency has been formed. The engineering project department is a temporary institution that does not require registration and whose seal does not need to be filed with the public security organs; it can only be used internally within the engineering project for activities such as reviewing drawings, applying for payments, engineering visas, and transferring construction materials, and cannot be used to sign contracts externally. In the evidence proving apparent agency, signing contracts externally in the name of the “project manager” or “engineering project department” does not constitute exclusive evidence of apparent agency. According to Article 172 of the Civil Code, the counterpart should also provide evidence to prove that they have reason to believe that the “project manager” or “engineering project department” has the authority to contract externally on behalf of the (general) contractor, that is, to prove their good faith and lack of fault.ⅢThe actions of the “project manager” as a职务代理 (official agent).Article 170 of the Civil Code stipulates that personnel executing tasks for a legal person or an unincorporated organization, when implementing civil legal acts within their scope of authority, act in the name of the legal person or unincorporated organization, which is effective for the legal person or unincorporated organization. The agent of official agency is a staff member of the principal, who has a stable and continuous labor legal relationship and internal subordinate relationship, and implements legal acts within their scope of authority without the need for special authorization from the legal person or unincorporated organization. The project manager is often the actual contractor, usually involved in borrowing qualifications or subcontracting relationships, and does not have a labor contract or subordinate relationship with the contractor, enjoying the right to manage people, finances, and materials, and independently enjoying the benefits of project funds. In judicial practice, once it is determined that the “project manager” is the actual contractor, simply determining that the actions of the “project manager” constitute official actions based on the usual understanding of the project manager concept not only does not match the facts but also leads to conceptual confusion.(2) Judicial Opinions from the Henan Provincial High People’s Court on Construction Engineering Case Trials (September 14, 2022)06. Regarding the determination of apparent agency in construction engineering contract disputesParticipants believe that the “Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the General Principles of Civil Law” stipulates in Article 28 that “the people’s court may recognize that the counterpart has reason to believe that the actor has agency rights if the following conditions are met simultaneously: (1) there is an appearance of agency; (2) the counterpart does not know that the actor does not have agency rights and is without fault. According to the above provisions, in disputes over whether apparent agency exists, the counterpart should bear the burden of proof regarding the appearance of agency rights in the actor’s unauthorized agency; the principal should bear the burden of proof regarding the counterpart’s failure to meet the conditions of not knowing that the actor does not have agency rights and being without fault.” Therefore, the apparent agency system should be applied cautiously, and when examining whether apparent agency exists, it is necessary to strictly examine whether the agent’s unauthorized actions have objectively created an appearance of authority and whether the counterpart subjectively believes in good faith and without fault that the actor has the authority to act as an agent. It is important to avoid merely examining whether the actor has an appearance of agency rights objectively while neglecting to examine whether the party claiming apparent agency is in good faith and without fault.In practice, the effectiveness of the seals of the contracting unit’s project department affixed to contracts should also adhere to the principle of “recognizing the person, not the seal,” focusing on whether the personnel involved in signing the contract or affixing the seal have the corresponding authorization from the contracting unit, and whether affixing the seal on the contract represents the true intention of the contracting unit, and determining the effectiveness of the contract based on the relevant rules of representation or agency, rather than simply determining the contracting unit’s actions based on the affixing of the project department’s seal. If the signing personnel or those affixing the seal are representatives or agents of the contracting unit, it is binding on the contracting unit; if the signing personnel or those affixing the seal do not have representation or agency rights from the contracting unit, it should be examined whether it constitutes apparent representation or apparent agency. It should be particularly noted that affixing the project department’s seal is only one of the external characteristics of apparent agency and is not a sufficient condition for determining the existence of apparent agency. In addition to strictly examining whether there is sufficient appearance of agency rights, it is also necessary to meet the subjective requirements of the counterpart being “in good faith and without fault”; it cannot be determined that apparent agency exists solely based on the affixing of the project department’s seal.(3) Judicial Opinions from the Henan Provincial High People’s Court on Difficult Issues in Construction Engineering Contract Disputes (2022)07. Can the engineering quantity reconciliation statement affixed with the technical data special seal be directly adopted? In practice, does the contract affixed with the contracting unit’s project department seal bind the contractor? Can it be determined to constitute apparent agency?Answer: First, the technical data special seal has a specific purpose and is usually used on design drawings, meeting records, and other relevant engineering materials, and generally cannot be used for signing contracts or settling accounts externally. Therefore, the engineering quantity reconciliation statement affixed with this seal should adhere to the principle of recognizing the person, not the seal; in the absence of certainty regarding the identity or authority of the seal affixer, it generally cannot be used as a basis for confirming the engineering quantity. However, if both parties have used it multiple times in the course of engineering construction and it conforms to the trading habits of both parties, the documents and materials affixed with this seal may also be recognized as effective.Second, regarding the effectiveness of the contracting unit’s project department seal affixed to contracts and the contracting unit’s seal, it should also adhere to the principle of recognizing the person, examining whether the personnel involved in signing the contract or affixing the seal have the corresponding authorization from the contracting unit, and whether affixing the seal on the contract represents the true intention of the contracting unit, and determining the effectiveness of the contract based on the relevant rules of representation or agency, rather than simply determining the contracting unit’s actions based on the affixing of the seal. If the signing personnel or those affixing the seal are representatives or agents of the contracting unit, it is binding on the contracting unit. If the signing personnel or those affixing the seal do not have representation or agency rights from the contracting unit, it should be handled according to whether it constitutes apparent representation or apparent agency.Finally, affixing the project department’s seal is only one of the external characteristics of apparent agency and is not a sufficient condition for determining the existence of apparent agency. To cautiously determine apparent agency, in addition to strictly examining whether there is sufficient appearance of agency rights, it is also necessary to meet the subjective requirements of the counterpart being in good faith and without fault; it cannot be determined that apparent agency exists solely based on the affixing of the project department’s seal.(4) Judicial Opinions from the Huai’an Intermediate People’s Court on Several Issues Related to Construction Engineering Contract Disputes (Huai Zhong Fa [2013] No. 124)26. The determination of apparent agency should be strictly controlled and cautiously recognized.When considering the elements of apparent agency, it should be based on the objective appearance at the time of contract formation and performance. Evidence collected or discovered after the transaction that proves the identity of the actor cannot be used as a basis for claiming the establishment of apparent agency.27. If the counterpart claims that the actions of the actual contractor constitute apparent agency, the counterpart should bear the burden of proof regarding “the actions of the actual contractor objectively forming an appearance of agency rights” and “the counterpart being in good faith and without fault.” The construction enterprise claiming that the actions of the actual contractor do not constitute apparent agency should bear the burden of proof regarding the existence of subjective malice or gross negligence on the part of the counterpart.28. To determine whether apparent agency exists, the following aspects should be comprehensively examined:(1) Whether the actual contractor signed and performed the contract in the name of the construction enterprise;(2) The reasonableness of the counterpart’s recognition of the actual contractor’s identity during the transaction, that is, whether the counterpart is in good faith and without fault;(3) Whether the construction enterprise has any fault, and whether its own actions have led the counterpart to believe that the actual contractor has agency rights;(4) Whether the subject matter has been actually used at the construction site;(5) The effectiveness of the seals on the contracts, settlement statements, delivery notes, or related debt certificates held by the counterpart.29. In relationships involving engineering borrowing, subcontracting, and illegal subcontracting, agreements between the parties that the construction enterprise does not bear responsibility for the debts related to the construction project are only binding internally and cannot be used against good faith counterparts.After the construction enterprise assumes responsibility based on the determination of apparent agency, it may seek recourse against the actual contractor based on its agreement with the actual contractor or according to Article 13 of the Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the Contract Law.(6) Judicial Opinions from the Nantong Intermediate People’s Court on Issues Related to the Responsibility of Actual Contractors Engaging in Commercial Activities30. Project managers or other staff members with an administrative subordinate relationship to the construction unit, when engaging in commercial activities such as buying, leasing, or borrowing in the name of the construction unit within their scope of authority, constitute official agency, and the consequences of their actions should be borne by the construction unit according to the provisions on entrusted agency.31. In cases where actual contractors engage in commercial activities such as buying, leasing, or borrowing in the name of the construction unit, and the relevant parties sue to require the construction unit to assume responsibility, the determination of the responsible party should be made according to Article 49 of the Contract Law. However, if the actual contractor has obtained authorization from the construction unit or the construction unit has ratified the commercial activities conducted by the actual contractor in their own name, this should be excluded.32. To distinguish between administrative subordinate relationships and borrowing, subcontracting, or illegal subcontracting relationships, the following factors can be comprehensively analyzed: whether there is a property relationship between the construction unit and the actual construction party, whether there is unified financial management between the construction unit and the actual construction party, and whether there are legal personnel movements, appointments, and social insurance relationships between the construction unit and the main engineering management personnel (project accounting personnel, technicians, safety officers, quality supervisors) at the construction site.33. If the counterpart does not know the existence of borrowing, subcontracting, or illegal subcontracting, and the actual contractor engages in commercial transactions in the name of the construction unit, constituting apparent agency, the consequences of their actions should be borne by the construction unit.According to the preceding paragraph, after the construction unit assumes responsibility, it may seek recourse against the actual contractor based on its agreement with the actual contractor or according to Article 13 of the Supreme People’s Court’s Interpretation on the Contract Law.34. When hearing commercial disputes related to construction engineering, the provisions of Article 49 of the Contract Law and the Supreme People’s Court’s “Guiding Opinions on Several Issues Concerning the Trial of Civil and Commercial Contract Disputes under the Current Situation” should be strictly applied, referring to the relevant provisions of the Jiangsu Provincial High People’s Court’s “Discussion Minutes on Several Issues Concerning the Application of the Contract Law” (Part 1).35. The following circumstances should be recognized as actions of the actual contractor objectively forming an appearance of agency rights:(1) The actual contractor affixes the relevant seals of the construction unit or project department when signing contracts externally;(2) The actual contractor affixes seals that have not been proven to be authorized by the construction unit when signing contracts externally, but the counterpart can prove that the seal has been used normally in the construction process or that the construction unit knew or should have known that the actual contractor was using the seal without making a public denial;(3) The actual contractor does not affix the relevant seals when signing contracts externally but does so in the name of the construction unit, project department, or construction site, and the counterpart can prove that they knew the actual contractor’s identity at the time of signing the contract;(4) The actual contractor and the counterpart do not sign a written contract, but the counterpart can prove that the actual contractor was acting in the name of the construction unit, project department, or construction site at the time of signing the contract, and they knew the actual contractor’s identity;(5) Other circumstances in which the actions of the actual contractor objectively form an appearance of agency rights.36. When assessing whether the counterpart is in good faith and without fault, the provisions of Article 14 of the Supreme People’s Court’s “Guiding Opinions on Several Issues Concerning the Trial of Civil and Commercial Contract Disputes under the Current Situation” should be comprehensively analyzed.37. If the construction unit proves that the actual contractor is indeed acting without authority, the counterpart claiming that the actions of the actual contractor constitute apparent agency should bear the burden of proof regarding “the actions of the actual contractor objectively forming an appearance of agency rights” and “the counterpart being in good faith and without fault.” The construction unit claiming that the actions of the actual contractor do not constitute apparent agency can rebut the counterpart’s claims by proving the existence of subjective malice or gross negligence.38. The application of Articles 12, 14, 15, and 16 in determining whether apparent agency exists still presents significant disputes, making it difficult to accurately determine whether the construction unit bears responsibility. The purpose of the contract should be an important reference factor for examination; if the materials purchased, equipment leased, and borrowed funds are actually used for project construction, the construction unit can be determined to bear responsibility.39. The counterpart bears the burden of proof regarding “the purpose of the contract subject matter.” If the counterpart proves that the borrowed funds were delivered to the construction unit or project department through transfers, cash payments, or bills, it can be determined that the borrowed funds were used for the engineering project. If the construction unit or actual contractor denies that the borrowed funds were actually used for the engineering project, they should prove the exact destination of the borrowed funds or bear the burden of proof regarding the source, amount, and required funds for the project.Large amounts of borrowed funds that do not enter the construction unit or project department’s accounts and are directly paid in cash to the actual contractor should not be directly determined as being used for the engineering project. The actual contractor bears the burden of proof regarding whether the borrowed funds were actually used for the engineering project, and the evidence presented should form a tight chain of evidence, essentially proving that the borrowed funds are the same funds used for project expenses.If the counterpart proves that the subject matter of the sales or leasing contract was delivered to the relevant personnel at the project department and the construction site, it can be determined that the subject matter of the sales or leasing contract was used for the engineering project. If the construction unit or actual contractor denies that the subject matter of the sales or leasing contract was actually used for the engineering project, they should prove the exact destination of the subject matter or bear the burden of proof regarding the source, quantity, and required quantity of the subject matter for the project.40. The following circumstances should not be recognized as constituting apparent agency:(1) The construction unit has clear authorization, and the counterpart knows that the actual contractor is acting beyond their authority;(2) The establishment and performance of the contract clearly harm the interests of the construction unit;(3) The contract is established after the completion and settlement of the project;(4) The counterpart knows or should know the existence of illegal subcontracting, illegal subcontracting, or borrowing, yet still agrees to engage in transactions with the actor in the name of the construction unit;(5) Borrowed funds are directly paid to the borrower, and the counterpart has no evidence to prove that the funds were used for the project;(6) The actual contractor signs contracts without affixing the construction unit or project department’s relevant seals, or affixes forged (or counterfeit) seals, and engages in transactions in the name of the construction unit, while the counterpart has no other evidence to prove that the actual contractor presented an appointment letter, authorization letter, or other public identification; nor is there evidence to prove that the seal was used normally in the construction process or that the construction unit knew or should have known that the actual contractor was using the seal for related actions;(7) The actual contractor engages in transactions in their own name, signing and performing contracts.If the debt certificate or written contract is signed with the personal name of the project department head, such as “Borrower: ***”, “Today Borrower: ***”, “Debtor: ***”, etc., or directly signed with a personal name without the name of the construction unit or project department, it should be recognized as being in a personal capacity.(8) Other circumstances that should not be recognized as constituting apparent agency.(7) The legal effect of guarantees provided by the project department.If the project department and the construction unit have a subordinate relationship, the project department, as an internal institution of the enterprise, does not have the capacity to bear civil responsibility externally, and the guarantee actions are invalid. The legal consequences should be handled according to the principles regarding the functions of the legal person’s departments providing guarantees.If the actual contractor provides guarantees in the name of the construction unit or project department without authorization, it should be recognized that the guarantee contract between the construction unit and the counterpart is not established, and the guarantee contract directly binds the actual contractor to the counterpart, with the actual contractor bearing the guarantee responsibility to the counterpart.53. Branches established by construction enterprises engaging in civil and commercial activities should have written authorization from the enterprise; otherwise, the guarantee contract is invalid. The legal consequences should be handled according to the principles regarding the guarantees provided by the branches of legal persons.54. The effectiveness of seals used beyond their scope should be determined by examining the function and usage range of the seal itself. For uses within the functional scope of the seal, its effectiveness can be directly recognized, as the counterpart has reason to believe that the holder of the seal has the authority to affix it and handle related business. For contracts affixed with contract-specific seals or financial seals on reconciliation statements, the effectiveness should not be directly recognized for uses that exceed the functional scope of the seal, as the counterpart should be aware of the usage range of the seal. Uses that exceed the scope of the seal’s usage are considered actions beyond the authority or scope of power, and do not automatically bind both parties. The determination of the effectiveness of such seals should be based on the identity and authorization of the contract signers, as well as the trading habits of both parties, and should be strictly determined.55. The legal binding force of documents issued by the project manager after leaving their position.Generally, these cannot be regarded as official agency or apparent agency. Unless the counterpart has sufficient evidence to prove that the project department head previously had the authority to represent the construction unit in civil and commercial transactions and did not know or should not have known that the project department head had left their position.56. The legal effect of documents issued by the project manager and other relevant personnel after the completion of the project.These cannot be directly recognized as constituting official actions. However, they can be used as evidence to prove the authenticity and amount of the debt.