News

Hungary: Signing and representation rights II

15.04.2021

Our clients often ask whether one person can sign a contract on behalf of both parties. This dilemma has particular relevance if the contract is signed on behalf of two parties within the same group of companies (e.g. between a parent company and a subsidiary) and the two members of this group of companies are represented by one person who is an authorized representative (e.g. the managing director, the CEO) of both companies.

Certain jurisdictions expressly prohibit such treatment; in other words, if a contract is signed on behalf of both parties by the same person (even in that person's capacity of holding different positions), the contract may be deemed invalid. The previous Hungarian Civil Code (Act IV of 1959) contained a similar rule, i.e. a representative who also represented the counterparty was not allowed to act.

The “new” Hungarian Civil Code (Act V of 2013) changed this and introduced the rule that a contract signed by a representative on behalf of a principal can be challenged by that principal if there is a conflict of interest between the representative and principal. Accordingly, Hungarian law does not expressly prohibit the signing of a contract on behalf of both parties by the same person (and therefore, this situation does not lead to automatic invalidity); however, careful steps must be taken (e.g. by passing internal approvals and acknowledgments) to avoid creating grounds for any right to challenge the contract.