Is A Company Signing A Document Just A Formality?

 

Business Image.jpg

“When a company signs a document, it’s just a formality, right?

Wrong.

It is anything but a formality. 

If a document isn’t signed correctly on behalf of a company, it can mean that it is not valid, and is unenforceable against the company.  What this can mean for the director or agent who did sign the document is that they may be exposed to personal liability.

Trust me, you don’t want to be faced with this scenario. 

If you are the other party to the document you should seek confirmation from your business lawyer that the document has been validly signed on behalf of the company.

The 2014 case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103, deals with this exact issue.  In that case, a $1.5 million purchase contract was signed by only one director of the purchaser company. That company had two directors.

The issue was whether there was an enforceable contract with the purchaser company, and, if the contract had not been correctly signed on behalf of the purchaser company, whether the director who did sign the contract was personally liable to pay damages to the seller.

Under sections 126 and 127 of the Corporations Act 2001, there is a difference between execution by the company itself (s127), and execution by an authorised agent on behalf of the company (s126).

Section 127 says that where a company has more than one director, at least two directors or a director and a company secretary need to sign to bind the company.

In this case one director of the purchaser company signed the contract in the execution box as a director and he struck out the words ‘Sole Director/Sole Secretary’. It follows that this meant the company had two or more directors.

There was no second signature. 

In the absence of a second signature by a second director it was clear on the face of the execution page of the contract that it had not been executed by the purchaser under section 127.

There was another execution box on the contract for execution by an authorised agent on behalf of the purchaser company, but it was left blank.

The contract was therefore not validly entered, and not enforceable against the purchaser company.

 

But what about personal liability of the director who signed?

He escaped liability here, for these reasons (according to the Full Court):

·       In signing his name as director of the purchaser as part of an execution clause by the company which specified it was in accordance with s127, the director was not suggesting he was acting as an authorised agent of the company.

·       What the director did was sign one half of the execution clause, which was ultimately incomplete because a second director did not sign.

·       The partial execution by the company was not sufficient to suggest that the company had validly entered the contract.

·       The signing of one half of the execution box could not support a warranty that the director was an authorised agent of the company.  Therefore, the director was not personally liable.

 

The upshot here is that directors need to understand how to sign a document - any document - on behalf of a company.  Other party to such documents need to take care to ensure that the company is legally bound by the document. It’s no help overlooking this important detail and finding out later that the company is not bound, and that there is no recourse against the person (or persons) who signed the document (improperly).”

 

Want to get in touch and find out more?  Click here to enquire now.

 

 
tracey_bio-01.jpg

Tracey Mylecharane - Solictor

Tracey Mylecharane has more than 12 years’ experience in legal practice and has developed considerable knowledge of business and commercial law issues. She has acted for small and medium businesses across several industries and has been able to assist clients with a vast range of issues from start-up structures and systems, supplier and third-party contracts, to partnership break-ups and dispute resolution (both in and out of court).