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SS (Other)     05 September 2011

Conflict of interest

One person signing a contract on behalf of two or more parties usually creates a conflict of interest. What is the legal effect of such conflict? Does the agreement still is legally binding on all parties (including the one signing under a conflict)? Does it become voidable? Does it become a means to avoid contractual obligations on part of the person signing in conflict?



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 1 Replies

Joy Dey (Advocate)     05 September 2011

Originally posted by :SS
"
One person signing a contract on behalf of two or more parties usually creates a conflict of interest. What is the legal effect of such conflict? Does the agreement still is legally binding on all parties (including the one signing under a conflict)? Does it become voidable? Does it become a means to avoid contractual obligations on part of the person signing in conflict?
"

Dear SS,

 

The query is not quite clear, however, let me attempt an answer with the limited understanding that I have had. Please note my observations below are off-hand, without any research, and therefore unsubstantiated with case-laws; and it should not be interpreted as a legal opinion/advise of any sort.

 

"One person signing a contract on behalf of two or more parties usually creates a conflict of interest", is not necessarily a correct statement.

A person may sign on the same contract more than once, i.e. on behalf of more than one person who are parties to the Contract. This may be effected in several scenarios:

  1. If the person is the shareholder, as well as a director of a Company, and both are required to be parties of the contract;
  2. the signatory is signing a contract for himself, as well as on behalf of someone else, like his son/wife/brother/business partner, etc.;
  3. the signatory is signing a contract as the authorised signatory of various parties, e.g. where there are many companies who are parties to a contract, and all the companies have the same person as one of the Directors, or all the companies appoint one individual to act as the authorised signatory of each company.

Apart from the above, there may be many other such scenarios. However, none of the above may actualyl result in a 'conflict of interest' scenario.

 

The issue of 'conflict of interest' is a sensitive one, as well as something which needs to be determined on the basis of facts and circumstances of each case.

 

The above disposition may also illustrate that whether or not there is a conflict of interest, an individual may still sign a contract for mroe than one person, provided always that he has the legal capacity to do so, and his signing of the contract does not otherwise invalidate the contract (there can be several such situations!!). Whether a signatory has misused his position as a signatory (and not necessarily a 'party') to the contract, will determine whether there has been a 'conflict of interest', and in my opinion, merely because he is a signatory does not mean there has been a 'conflict of interest'. I would think, actual damagfe to one, or wrongful gain to another should be established.

 

Therefore, the aggrieved party, in order to repudiate the contract, or call it void, must establish wrongful gain or damage, as discussed above. Further, it is an established legal principle that a person who commits a wrong, shall not beenfit from the same. Therefore, the signatory cannot take advantage of this 'conflict of interest' and avoid his contractual obligations.

 

Hope the above helps.

 


Rgds/Joy

 

 

 


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