What makes a validly signed contract?
When a contract is signed, it becomes a legally enforceable document and all parties are expected to fulfil their obligations. However where a contract is signed invalidly, the agreement may no longer be legally binding and this can result in unnecessary disputes between parties.
As an Individual
Signing a contract as an individual is quite straightforward. If the requirements to form a contract are satisfied (offer, intention and consideration) and the person is 18 years or older, they will be able to sign a contract.
Generally, most legal documents do not require a witness, but this is dependent on the type of document being signed (e.g. a deed requires a witness). However, it is always good practice to have a witness present even if one is not required to add an extra layer of security in confirming that an agreement has been made.
Who can be a Witness?
To have a legitimate witness, they must:
- be over 18 years of age;
- be of sound mind;
- not be under the influence of alcohol or drugs;
- not be a party to the document or have any financial interests in the document; and
- have known you for at least one year or have taken reasonable steps to verify your identity
The witness is not required to fully understand the contents of the document or agreement, they are only there to witness that the document has been signed.
As a Company
A company can sign a document in different ways. The way in which a company chooses to sign a document will require them to comply with certain requirements. The following are the four ways a company can legally sign a document.
If a company is signing by way of signature, the requirements are as follows:
- Two directors must sign the document or;
- A director and company secretary or;
- In the circumstance where there is only a sole director, they must appoint themselves as a company secretary tol be able to sign on behalf of both roles
2. Common Seal
A common seal can be used to execute documents and represent a company’s intention to be bound by the terms of the agreement. They must contain the company’s name and ACN, however this method of signature is not as common in practice anymore. A common seal needs to be witnessed by either:
- Two directors of the company or;
- A director and company secretary or;
- The sole director/company secretary (can be the same person)
3. Company Constitution
A company’s constitution can also outline the procedures for signing documents. A common practice here is to appoint a person to sign documents on behalf of the company. An appointed person is given either express or implied authority by the company to sign contracts. The benefit of appointing someone is that it is a more efficient way of signing documents because company directors do not need to physically be present each time.
4. Power of Attorney
A power of attorney is similar to an authorised person however they are also able to determine who can sign what documents and how many signatures are required. In NSW, a power of attorney must be registered with the NSW Land Registry Services to legally perform their role (this may differ in other States).
An electronic signature is one that is executed electronically as opposed to physically with pen and paper. Examples of electronic signatures include:
- Ticking a box
- Typing your name
- Pasting your signature
- Using a third party software such as DocuSign or Adobe Sign
Generally, the law recognises electronic signatures as valid. However in the context of company signatures, there is uncertainty over the validity of signing a document electronically. This is because there is no current law that recognises this type of signature as valid for companies and this leaves open the risk that a document can be deemed invalid or unenforceable.
Until the law becomes more clear in this area, it is good practice for companies to sign documents physically in addition to electronically if they choose to do so. This will limit any risk of invalidating a contract.
Why is it Important to make sure a Contract is Validly Signed?
By ensuring that a contract is validly signed, all parties to an agreement can have confidence that the agreement is legally binding and that all contractual obligations will be fulfilled. In the case where a document is signed by a person who does not have authorisation, and the other parties rely on this signature, disputes can arise regarding the enforceability of the agreement – which can be costly and time-consuming.
In order to validly sign a contract, both individuals and companies must ensure that the necessary requirements are complied with. Failure to do so will mean that the document is invalid and the agreement unenforceable.