Liability of a Corporation for Unlawful Acts of a Corporate Officer

Facts

On January 27, 1975, on behalf of Honeywell Bull (Switzerland) AG, Zurich, a promissory note was issued to the order of The Merban Corporation, New York, in the amount of DM 3,000,000.- payable on July 28, 1975 at the New York branch of Dresdner Bank AG. The document bore, in addition to the company stamp of the issuer, the signatures of its Director S. and the authorized signatory R., who were both authorized to sign collectively. The note was endorsed without recourse by the Merban Corporation to the Allgemeine Finanz- und Waren-Treuhand AG, Vienna. When the latter presented the note for payment at maturity, the issuer refused payment because the signature of R. was forged and there was also a lack of an underlying transaction.

In late September 1975, the Allgemeine Finanz- und Waren-Treuhand AG filed a claim against Honeywell Bull (Switzerland) AG based on the law of negotiable instruments, or alternatively on tort, seeking payment of DM 3,000,000.- plus interest at 9 3/8% from July 28, 1975. On February 6, 1979, the Commercial Court ordered the defendant to pay DM 2,864,958.97 plus interest at 5% from January 29, 1975.

The defendant appealed and requested the annulment of the Commercial Court's judgment and the remission of the case to the lower instance, or alternatively the dismissal of the claim. The Federal Supreme Court dismissed the appeal.

Considerations

The Federal Supreme Court held that the defendant is liable for the tortious conduct of its Director S., even though he was only authorized to sign collectively. Pursuant to Art. 718 para. 3 CO, the legal entity is not only bound by the conclusion of legal transactions by its corporate bodies, but also by their other conduct, insofar as it falls within the scope of their corporate authority. The liability does not depend on whether the corporate person also had the power of representation.