The why, who and how of signing a contract

Legal contracts can be formed in several ways. A formal written document, verbally, by email or by completing an online form, can be a contract. The crucial element is that there is consensus in idem between the parties on the essential terms of the contract or in other words, both parties share the same understanding of the contract that is being formed.

Why should I have a signed contract?

So we’ve said that there is a contract so long as there is consensus in idem, why do we need it to be in writing?

Well a written contract avoids ambiguity and makes it easier to prove what the contract terms are if a dispute arises. If you were just going to order a widget from your supplier, we are not advocating you have a written contract. A phone call to place an order would be sufficient.

However if you are the supplier and getting a large order of goods or a continued order of goods, then it would be in your interest to have it in writing.  A written contract allows the parties to set out important provisions such as when risk and title in the goods passes between the parties.

• Whose fault is it when the widget is damaged in transit?
• What happens if the widget is defective?
• If the customer uses the widget two months after delivery, is it still the supplier’s responsibility or should the customer have checked the condition on receipt?
• What happens if there is non-performance and how are disputes dealt with?

Who should sign contracts on behalf of a company?

A contract is only valid if it is signed by someone with the appropriate authority. For a company, legally a director, a company secretary or an authorised signatory is required to sign.

But it’s not uncommon for a manager or a mid-level employee to order the widgets. If the value of the contract was significant, it would be prudent to have a director, the company secretary or someone who is shown to have delegated authority to sign the contract.

How should a contract be signed?

Under the Requirements of Writing (Scotland) Act 1995 a signed contract will be “probative” or “self-proving” if it is signed by either: two directors, one director and the company secretary, two authorised signatories or any one of those plus a witness.

The benefit of a document that is “probative” is that it is presumed to have been granted by the signatory. So, if the contract later needs to be relied on in court or there is any dubiety about its validity, there will be a presumption that it has been properly signed and that the signature is that of the grantor.

The document should be signed using your usual signature at the end of the agreement, but before any annexations or schedules. The date and place (the town or city) of signing should also be inserted.

Again, using my example of a supplier relying on a big contract with a customer, if the customer hasn’t signed it in a probative manner, then the supplier will have to first prove in court that the contract was entered into by the customer, which is an unwanted distraction.

You may also be interested to read the Insight on signing contracts electronically here .