In this overview of commercial areas of law, I will talk about brief practical guidance, look at the steps that need to be taken, and consider any commercial issues that need to be considered.
Let us look at the first overview of contract execution.
Only some contracts need to be in writing. They help to provide clarity, resolve any concerns brought up by the parties throughout the negotiation process, and lay out the parameters of the agreement. It is usually preferred to execute certain types of agreements formally.
Initial considerations
Before executing a contract, check that all the required elements for the formation and execution of the contract are present. For more information, see: Execution toolkit and, in particular, Practice Note: Executing documents—initial considerations.
Formation of contracts
Verify that the following four essential conditions have been met for the contract to be established:
- There must have been an offer.
- The offer must have been accepted.
- Consideration must be given to the promises made.
- There must be an intention to create a legal relationship between the parties.
Form of the document that needs to be executed
It is possible to make contracts:
- orally
- in writing, or
- by deed
In some cases, the law requires a written contract (rather than an oral one) or is required to meet registration criteria.
I will not go into his subject area now.
Verify if the execution of your document requires a deed. One particular type of written document needed for some transactions is a deed. For a deed to be enforceable and legal, it must be completed in compliance with specific statutory and common law requirements that go beyond merely being signed for this agreement to be enforceable and legitimate.
Authority
If the party carrying out a contract lacks the necessary authority, it could be deemed invalid. The capacity to enter into a contract is distinct from authority.
- Legal capacity refers to an individual’s or entity’s ability to engage in a contract that is recognised by law as having legal personality.
- The question of authority concerns whether a person or organisation is authorised to sign a contract on behalf of another party.
Capacity
According to the law, everyone has the capacity to enter into contracts.
To challenge that assumption, a person must unequivocally demonstrate that they fall into one of three categories of individuals:
- A minor—anyone under the age of eighteen is considered a “minor” for the purposes of contract law.
- An individual lacking mental capacity.
- A drunk person.
When it comes to corporations, nothing in the corporation’s governing document must restrict it from entering into a contract.
What does a contract’s valid execution require?
Simple contracts are often carried out through dating and signing. A basic contract’s execution mode will change based on the kind of legal entity carrying it out (such as an individual, business, or legal representative).
Formalities associated with execution
The kind of legal body executing a basic contract determines exactly how it might be carried out.
Signature
A document must comply with several statutes, yet only one party must sign it. Others demand that both or all of the participants sign the written document. In reality, it is typical for both parties to sign documents that contain reciprocal responsibilities.
The parties may alternatively sign using a facsimile, a mechanically duplicated signature that is nevertheless legally recognised for document execution. But keep in mind that a statute can call for a personal signature in some situations.
Dating
A date is only necessary if a document needs to be in writing, but if it is, it will serve as proof of the parties’ planned binding date. The date the last party signed a basic contract should be used to date it. The contract should be dated with the date of the last signature, which will be appended if the parties sign on different days. If the signing did not occur during a face-to-face meeting, you should find the signing date directly from each signatory.
According to the Forgery Act of 1861 and the Theft Act of 1968, backdating papers may be illegal. Additionally, it can be against the Solicitors Regulation Authority’s (SRA) code of ethics, which lists fabricating papers or backdating them as dishonest activities.
In commercial agreements, it is a standard practice to specify whether a contract has a prospective or retrospective effect. If a contract is meant to go into effect on a date other than the signing date, this should be made clear (e.g., by establishing a “deemed” effective date).
Witnessing
If a simple contract is being executed, a witness is only needed under certain circumstances. For instance, when it is to be carried out on behalf of a corporation by a single director.
There aren’t many restrictions on who can serve as a witness to someone else’s signature on a document. For example, suppose several people are required to sign a document. In that case, the same witness or witnesses may attest to each signature individually, but signatories should never attest to each other’s signatures.
When a witness is needed for a signature, they must be present when the signature is made. Such a remark does not need to be in a certain format. Although it is not required, it is usual practice to have a witness put their name, address, and occupation beside their signature to guarantee that they can be properly identified and contacted if they are needed to provide testimony regarding the execution. HM Land Registry, for instance, may have unique requirements, thus it may be necessary to provide such information in order for the documents to be properly filed or registered.
When carrying it out remotely, extra caution needs to be taken to guarantee that witnessing occurs correctly.
Counterparts
Contracts are frequently executed by counterparts, meaning that instead of all parties signing the same copy, they are signed separately by each party. Coordination of transaction completion can be greatly facilitated by the execution of a document in counterparts, particularly in situations where a large number of parties are involved or when it would be difficult to arrange a physical completion meeting due to distance.
Although it is not absolutely required, adding a counterpart’s clause for clarity’s sake is desirable and to lower the possibility of a dispute regarding valid execution. See Precedent: Counterparts clause for an example of a precedent clause that includes additional instruction in the drafting notes.
When executing electronically or remotely, a counterpart clause will be beneficial.
Remote execution
When executing a document, if the parties are located in separate places and cannot be there in person, think about using virtual or remote execution. A document may be executed using electronic signatures or the email exchange of Word or PDF files. Remember that this could be challenging in cases where witnessing is necessary for execution. In this scenario, witnessing a signature requires the witness’s physical presence.
An electronic signature connects a person to the information in an electronic document and is the digital counterpart of a handwritten signature. It can take many different forms, and while it is frequently used in conjunction with virtual execution, it should be viewed independently. The Electronic Communications Act 2000 is the main piece of UK legislation pertaining to electronic signatures. In 2016, the Law Society released guidelines regarding the use of an electronic signature during document execution. Although the note is not legally binding or advise, practitioners should take note of it as it has been authorised by eminent solicitors. In its 2019 report, the Law Commission further attested to the legality of electronic signatures as of right now.
Additional legal factors to consider include
Powers of attorney
When the authorised party is not present to sign a document, a power of attorney is a frequently used for assigning authority to act. In a power of attorney, one party (referred to as the donor) gives the other party (referred to as the donee or attorney) the authority to act on the donor’s behalf and in the donor’s name through a formal deed.
International execution
Different legal criteria could apply to an entity headquartered abroad for it to legitimately execute a document. It may also be required to obtain local legal counsel regarding execution and any further formalities (like notarisation or legalisation
Overcoming impairments
There are extra factors to consider while executing a contract when the individual does not speak the same language as their adviser or has a disability.
Useful, practical information to consider
Do further formalities need to be completed before execution?
Verify if any more procedures must be followed to execute the contract. These could consist of, for instance:
- The approval of the transaction by a board meeting.
- Using a power of attorney in its execution.
- Notarising or legalising papers related to the execution.
- Getting the contract translated.
- Consulting a foreign lawyer regarding the formalities involved in an offshore entity’s execution.
Who will carry out the execution?
Verify who will carry out the contract, who will observe it being carried out (if necessary), and whether they are qualified and able to do so. Examine any financial thresholds the contracting body uses to determine authority to execute and assess whether any further internal or external financial “sign-off” is necessary.
If selecting this mode of execution, be sure they are available and have access to any systems that allow electronic signatures.
Check the articles of association if the entity executing is a firm to make sure the person executing is authorised.
Do further formalities need to be completed before execution?
Will it be done remotely or using “hard” copies on paper? If remotely, will the parties be emailing each other versions of documents in PDF or Word format or using an electronic signature platform?
To guarantee a seamless execution process, all parties involved should agree on the technique in advance.
Will counterparts be used if traditional paper copies are needed for execution? If so, make sure there are enough copies, and decide how to collect, date, and exchange copies in addition to keeping copies organised and signed.
Certain entities employ seals to permit execution. If this approach is used, make sure the appropriate seal is accessible and that the people who are permitted to use it are on hand before the procedure is carried out.
When executing remotely through electronic signatures or emailing signed contracts to each other, consult and agree upon the procedure beforehand with the legal representatives of all parties involved. You should also abide by the recommendations of the Law Society or the Industry Working Group on Electronic Execution of Documents, which are outlined in their Interim Report on Electronic Execution of Documents and validated in their Final Report as needed.
Contract management
The relevant division of the firm should have access to a copy of the signed contract. The simplest way to keep the information is in a contract database, but if not, the contract’s date and the location of a copy should be kept in a location accessible to all relevant business departments (such as the supplier or customer database). Summaries of contracts can be a helpful tool for giving the company a concise overview of the provisions of the commercial agreements. When using these, one should use caution and consult the relevant team (legal, if resources permit).
Should you need further guidance please feel free to contact Frei Solicitors.
