A cornerstone of commercial lawyering is looking over current agreements in order to provide advice to the client on their rights and/or obligations. This often arises where a dispute is brewing or the client anticipates that one may be on the horizon.
The starting point in such an analysis generally consists of the following questions:
- Is the document signed?
- Is it executed properly so as to be enforceable?
Determining the answer is relatively straightforward. Nonetheless many businesses fail to appreciate the importance of these two basic questions until it is too late, often resulting in a contract which cannot be relied upon (and an uncomfortable conversation with one’s lawyer).
Enforceability can become an issue in circumstances where an agreement has been signed but (unfortunately) not by the correct person with the role and authority to bind the company.
A common occurrence is where an agreement is entered into with someone who subsequently leaves the organisation and the current management later asserts that the signatory did not have the relevant authority to bind the company and/or that those who do have authority had no knowledge of the agreement.
Whilst not reasonably practicable to do in every situation, a simple yet useful exercise for businesses entering into contracts of substantial value is as follows:
- find out who the other party is proposing will sign the document;
- properly understand the position that this person holds in the company; and
- verify (by online ASIC search or other means) that the person is in fact a director/ officer of the company and does indeed hold the position they claim to hold.
It may also be useful to understand if there are other directors of the company or whether the person signing is the sole director and company secretary. Under the Corporations legislation, if a document is signed by a sole director and secretary, one is entitled to assume that it is validly executed. However, in circumstances where there is more than one director, a document will be required to be signed by at least two directors in order to be validly executed.
In circumstances where the agreement is with an individual (rather than a company), it is always good practice to ensure that the individual’s signature is independently witnessed. The witness should also sign and date the document and provide their full name.
Taking such simple precautions early on, can avoid major headaches down the track. Of course an improperly executed agreement is not always fatal. Contracts can be written, verbally agreed or even implied from conduct and so proper execution is not always vital to proving a contract exists. Nonetheless, where the parties have gone to the trouble of reducing their agreement to writing, it most certainly makes sense for them to ensure that the issue of enforceability will not arise in the future.
Whilst taking the above precautions in executing contracts may help your lawyer sleep at night, the above tips are certainly no substitute for legal advice. If you require professional guidance in respect to execution of your commercial agreements, contact Rankin Business Lawyers for on point, practical legal advice.
Joseph Carneli, Senior Associate