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Executing a commercial contract: some FAQs

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01/04/2014

Does a contract have to be signed to be valid?

No. Contracts can be created informally. Often nowadays, for example, they can be created by an exchange of emails. Nonetheless, a signature helps avoid arguments about whether the parties intended to be contractually bound.

Should I execute the document as a deed?

Certain documents must be executed as a deed. These include: transfers of land, grants of leases of more than three years; mortgages, releases; powers of attorney; appointments of trustees; gifts of tangible goods not accompanied by delivery.

It is also sensible to execute as a deed where it is not clear that consideration is passing, or to obtain the benefit of the 12-year limitation period (it is only six years for simple contracts).

Does it matter if the contract is executed “by” a company or should it be executed “on behalf of” the company?

The two concepts are distinct. Where a contract is executed “by” a company the signatory must be a director (or company secretary acting with a director) or someone in whose favour the company has granted a power of attorney. Deeds must always be executed “by” a company.

A contract executed “on behalf of a company” may be executed by anyone authorised to do so. This authority could be express or implied.

How can I tell if someone who is not a director is authorised to sign on behalf of the company?

If in doubt, you should ask for evidence of the signatory’s authority, such as a board minute authorising the signatory to sign the contract.

Can a solicitor sign a contract on behalf of their client?

Only if authorised to do so. A solicitor could only execute a deed for their client pursuant to a power of attorney.

How must a simple contract and deed be executed?

A simple contract need only to be signed by a properly authorised person. There is no need for their signature to be witnessed.

A deed must be signed by two directors, or a director and the company secretary or, and this is becoming increasingly the norm, by a director in the presence of a witness.

Must the witness be independent?

A director of a company that is party to the contract should not witness the signature of the other party, although we are not aware of any case law on the point.

It is best practice for the witness to be independent, but this is not a legal requirement. It is acceptable, for instance, for a signature to be witnessed by a fellow employee.

Can the requirement for a deed to be executed by a director and the company secretary be met by the same person signing in both capacities?

No. You need at least two individuals to sign, albeit that one of them may be as a witness to the director’s signature.

Do I need to check the company’s articles for execution formalities?

A deed will be validly executed provided it complies with the requirements of the Companies Act 2006 so, as far as third parties are concerned, it is not necessary to check the articles of the other party. However, some, particularly older companies may contain provisions regarding execution in their articles and it would be sensible to comply with these as it would be possible – although highly unlikely – for disgruntled shareholders to seek redress against the directors for not following the articles.

What is the position if the other party is overseas?

If executed by the overseas company, this will be valid if it is executed under its common seal or in any manner permitted by the laws of the territory in which it is incorporated. If executed on behalf of the overseas company, the contract will be validly executed if the signatory is authorised to sign in accordance with the local law of the overseas company. It is best practice in these cases to seek the advice of overseas solicitors to confirm that the document has been validly executed in accordance with the laws of the overseas jurisdiction.

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