Back to school… Contract execution basics

By Andrea Lim, solicitor, and Marlan Praba, law graduate, at Dentons Kensington Swan

It is often thought that the signing of a contract or agreement (in other words ‘execution’) is just merely formality. The parties have negotiated the terms, reduced it to writing, and now all they have to do is ‘sign on the dotted line’.

However, parties should still be vigilant to ensure basic details are correct before signing. Aspects such as noting the correct names of the parties, accepted signing etiquette and proper execution formalities required by different types of agreement (i.e. simple agreements vs deeds) are matters that need to be checked to ensure that there is a properly binding contract.

This might seem basic but is vitally important. This article briefly examines the formalities of contracting and provides practical tips to ensure that your contracts are properly executed.

The importance of binding contract

As soon as a contract is executed, it becomes a legally enforceable document with the rights and responsibilities attached to the corresponding parties. As a result, effort should be placed to ensure contracts are executed properly. Generally, most contracts will follow the same execution process. Below is a outline of features and details to keep in mind when presented an agreement ready to be signed:

Identifying the correct parties

It is important to ensure that the correct names of the parties are stated on the contract. Companies commonly operate under a name that is different from their registered company name – their trading name. But note: a contract will not be enforceable unless it is in the name of the registered company. To avoid this situation, the Companies Office register can be used to confirm the registered names of companies.

Deeds Vs contracts

One common area of confusion is the different signing formalities associated with deeds and contracts. To understand why a deed has different signing formalities, we must understand what a deed is. Deeds are used in construction contracts such as S3910, in performance bonds, warranties, deeds of novation. A deed does not require consideration from one party to another to become effective and binding, whereas, a standard contract does. Another point to note is that limitation periods are different for warranties signed as deeds. The 10-year longstop in the Building Act 2004 does not apply as the period would be six years under the Limitation Act 2010.

If a company enters into a deed, the signature of two directors are required. Whereas, a contract requires the signature of an authorised representative. This added formality surrounding deeds is required by law (section 180 of the Companies Act 1993).

Parties often find the formalities associated with deeds administratively burdensome as often two directors are required to sign the deed. If two directors are required to sign a deed, amending the constitution can ‘side-step’ this formality. A constitution can be drafted to authorise a single director or ‘other person’ (whose signature must be witnessed) to validly sign a deed.

Witnesses

Most contracts require a witness to authenticate the signing party’s identity. This requirement cannot be dislodged as the role of the witness is for evidentiary purposes (i.e. to stop and prevent forgery or duress).

This leads into the question, ‘how can I witness documents’? Best practice is to have an independent witness to physically observe the execution in person. However, Covid-19 and lockdowns has made this procedure challenging. To recognise these challenges, there has been changes in legislation to allow certain documents be virtually witnessed through the use of online platforms such as Zoom and Skype.

Amendments

Changes made to a contract after the date of execution can only be made if all the parties agree to the new terms. To validate such modifications, a supplementary document can be attached to the contract, detailing the amended terms. Importantly, the supplementary documents must contain the same signatures present on the original executed contract.

The signing of contracts is often the most neglected part of the contracting process as it happens after all the hard work is done negotiating the terms of the contract. While it is often dealt-away with a small scribble, it is a necessary step to put to motion-in a legally effective relationship between parties.