A company that owns a rental property discovered that the signatories changed the rental contract and reduced the rent by more than 50% without obtaining the approval of the general meeting of the company, as required.
The Court rejected the company's claims due to the lack of bad faith or negligence in the actions of the lessee. While an action performed by an agent in deviation from the authorization granted does not bind the principal, when we are dealing with companies, an action performed in deviation from the authorization will be valid if the counterparty did not actually know and need not have known about the deviation. Thus, the more significant a transaction is or the more it deviates from the ordinary course of business, the more the counterparty will be required to examine the set of authorizations within the company, and vice versa. Here, about it is two authorized signatories who are most closely involved in the activity of the lessor. Both also served as the sole directors of the lessor, both had a significant percentage of its shares and also, and most importantly, both were the representatives who signed the original lease agreement on the lessor’s behalf. Under the circumstances, the lessee, which approved the amendment to the lease agreement, did not act in bad faith or negligently in view of the representations presented to it by the lessor's authorized signatories and thus the amendment to the lease agreement binds the lessor company.