When executing agreements, there are legal rules, as well as best practices, which are important to understand. ‘Executing’ refers to the signing and completing of legal agreements. An agreement may be deemed invalid and unenforceable if it is not executed correctly. 

This article will set out how to correctly execute agreements for:

Why is it Important to Execute Agreements Properly?

A legal agreement or contract occurs where there is:

  • an intention between the parties to create legal relations;
  • offer and acceptance of the terms of the agreement; and
  • consideration provided (i.e. the exchange of something valuable such as money). 

It is important to note that agreements are different from deedsDeeds have different execution requirements to agreements.

Although a signed contract or agreement isn’t essential, executing them correctly is crucial to avoiding disputes down the line.  

Someone may argue that an agreement is executed incorrectly and unenforceable if they want to avoid their obligations. Therefore, ensuring that you have signed the agreement correctly is a simple way of avoiding a lengthy debate about a small formality.

Individuals

The execution of general or common agreements by individuals is straightforward and there are no particular rules. Execution will simply require your individual signature. The agreement should also state your name below the signature line as well.

It is best practice to sign the agreement in the presence of a third-party witness. The witness should also sign the agreement for evidentiary purposes to avoid future disputes. The agreement should allow the witness to state their name and to sign their signature. An example of this is below:

Note: It is also important to be aware that some specific transactions will have particular legal requirements. These requirements set out how to correctly execute agreements. For example, this will be the case in certain property transactions and in the creation of wills.

Partnerships

The correct execution of agreements by partnerships is governed by the Partnership Acts of each state and territory, as well as the partnership agreement (if the partnership has one).

The Partnership Acts of each state and territory allow an individual partner to sign agreements on behalf of the partnership in most cases. However, it is important to check the partnership agreement if there is one. It may restrict the ability for individual partners to execute agreements that bind the whole partnership.

The execution block should have the signature of the partner, as well as the name of the partnership they are binding. Where an individual partner is signing on behalf of the partnership, it is best practice to have a third-party witness signing, not the other partner.

Companies

Signature of Directors and Company Secretaries

The most common way that companies execute agreements is to have the agreement signed by the directors and secretaries of the company.

The Corporations Act provides methods of correct execution of agreements by the signatures of directors and company secretaries.

It states that a company can execute an agreement through the signature of either:

  • two directors of the company;
  • one director and one company secretary; or
  • for proprietary companies only, the sole director who is also the company secretary.

Executing agreements in accordance with the Corporations Act is the most common method because it is straightforward, reliable and allows all parties to the agreement to assume that the document has been executed correctly.

Less commonly, a company’s constitution may explicitly set out alternative methods of executing agreements.

Common Seal

Another method that is now less common is the execution of agreements using the company’s common seal. The seal is an ink stamp pressed onto a document, symbolising the company’s acceptance of the agreement. The use of the common seal must also be witnessed by either:

  • two directors of the company;
  • one director and one company secretary; or
  • for proprietary companies only, the sole director who is also the company secretary.

There are cases in which a company may appoint agents or authorised representatives to execute agreements on behalf of the company. This is most common in large companies that engage in a high volume of transactions where directors and company secretaries cannot personally execute all agreements.

The companies and the agent or authorised representative must be certain that the signatory has the required authority to sign on behalf of the company. Usually this authority is provided for under a board resolution or a power of attorney.

There are circumstances in which none of the methods set out above are appropriate. For example, you may be the sole director of a company and have not appointed yourself or anyone else as a company secretary.

In cases such as this, you can still execute agreements on behalf of the company. However, you will be relying on common law rules regarding the intention to enter legal relations and the authority of individuals to enter agreements on behalf of companies. Using the previous example of the sole director, common law would generally accept the authority of a sole director to bind their company and deem the agreements correctly executed.

However, it is safest to structure your company in a way that allows you to take advantage of the methods of execution set out in the Corporations Act.

Trusts

Trustees will execute agreements on behalf of trusts. The appropriate method of execution will depend on whether the trustee is an individual or a corporate trustee.

Subject to the trust deed stating any different, individual trustees will execute agreements similarly to how individuals generally do. Similarly, corporate trustees will execute agreements similarly to how companies generally do.

However, the main difference is that the execution block should explicitly state that the signatory is executing the agreement in its capacity as trustee, or “as trustee for” (ATF) the trust.

The trust and any party entering an agreement with a trust should check the trust deed to ensure that trust is properly set up and the agreement can be executed on behalf of the trust by the purported trustee. 

Key Takeaways

The presentation of the execution page of an agreement may seem like an administrative formality with little significance. However, it forms a crucial part of the enforceability of an agreement.

Parties to an agreement should make sure that they understand:

  • the capacity in which they’re executing the agreement (i.e. as an individual or on behalf of a business entity);
  • who they are binding; and
  • if they have the authority to enter that agreement.

This is a useful guide on how to correctly execute agreements, however if you need any help or advice you can contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Sophie Mao
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