How to legally sign a contract?

Author: Ian Aldridge, Progressive Legal

Contracts are an essential aspect of any business transaction, serving as a legally binding agreement between parties involved. As an Australian business owner, it is crucial to understand how to legally sign a contract and the legal requirements for signing contracts to avoid any potential legal disputes.

Failing to adhere to these requirements can result in significant consequences, including invalidating the contract or facing legal action. Therefore, it is imperative to have a thorough understanding of the legalities surrounding proper contract execution in Australia. 

One of the biggest dangers for a business/company is making sure that the correct legal entity or entities are on the contract itself, that those details (including name/ACNs/ABNs) are actually correct, not just taking their word for it, that either owners or directors or those that can legally enter the contracts sign them (and sign them properly). If this doesn’t happen and those details aren’t checked, then it could be open to them to say that the contracts are not legally binding because the details aren’t correct or if not executed properly, there can be an argument that they are not enforceable. This can lead to dire circumstances and believe us, it happens more often that you might think. Like Murphy’s Law, of course it will happen to the largest contract or a business that you least wanted to have a fight with.  

In this article, we will explore the legal requirements for signing a contract and provide guidance on how to do so legally and effectively. By following the steps outlined in this article, you can ensure that your business is protected and can operate smoothly without any legal complications. 

This article will consider: 

• What constitutes a legally binding contract?; 
• How to correctly sign a contract as an individual?;  
• How to correctly sign a contract as a company?;  
• Signing contracts as a Trust; 
• I did not sign the contract properly, what happens?; and  
• Key takeaways.  

What constitutes a legally binding contract?

Before you are able to legally sign a contract, you have to make sure the contract itself is actually binding.  

A document will be recognised as a binding contract when it satisfies the essential elements of: offer, acceptance, consideration and intention to be legally bound. Whilst each of these have substantial case law addressing each element, they can be summarised as follows:  

• Offer and acceptance: One party must contain a clear proposal regarding the contract, and the other party must accept it. 
• Consideration: Consideration is the price paid to the promisor in exchange for their promise. There must be a benefit for all the parties to the contract (i.e I give you something and I get something in return).  
• Intention to be legally bound: Parties to a contract must freely agree to the actual contract itself and reflect an intention to be bound to its terms. Signing a contract is one way of demonstrating your intention to be legally bound. However, not all contracts need to be signed and signing a contract requires some further considerations to ensure it is executed in accordance with the relevant legislation.  

How do I correctly sign a contract as an individual?

Capacity  

Whilst it may be self-evident, in order to sign a contract, the signee must possess the requisite mental state in order to understand what they are binding themselves to. Should they, for example, be mentally impaired in some way the signature will be rendered invalid on the basis the signee did not have the capacity. Although, this is largely fact specific.  

Age 

In order for a person to enter into a contract as an individual, they must be a legal adult. Pursuant to The Minors (Property and Contracts) Act 1970 (NSW) a “minor” is defined as anyone under the age of 18.  

However, minors can enter contracts in certain situations and it is best to seek legal advice on this should it apply to you.  

Understanding and ensuring it is the right contract 

More often than not, contracts are negotiated and undergo significant revisions prior to the final execution. As a signee, you should ensure that: 

• You actually understand what you are binding yourself to in that contract; and 
• If you have had revisions to the contract, that you are actually signing the most up to date one.  

Presence/ Signature of a witness 

In many jurisdictions, including Australia, it is generally required for a witness to sign a Deed or a Will for it to be considered valid. More simple contracts will not generally require a witness. Although, it is good practice to have one present.  

In order for someone to qualify as a witness, they have to be a legal adult, present at the signing of the contract and must not be a party to the contract.  

Date 

Typically, a contract will be enforceable from the date of signing unless the contract explicitly provides for retrospective application.  

Duress and Undue Influence  

While a signature is intended to reflect the position that you have understood and accept the contract terms, if a party has been pressured into signing the document, then the contract may be rendered invalid. Some things to consider when ascertaining whether there has been duress are: 

• Has there been a threat of violence?;  
• Has there been a misrepresentation or fraud?; and 
• Has there been extreme economic pressure?  

Undue influence is a slightly more elusive concept, and often relates to the dynamics of the contracting parties. Some things to consider regarding undue influence are: 

• Was the victim vulnerable?; 
• Did the other individual have influence over the victim?; and 
• What tactics did the other individual use and what were the consequences of those tactics?  

Australian Business Number (ABN) and Australian Company Name (ACN)  

In many instances, you will be required to place your ABN or ACN on a contract. This is the case generally with contracts which provide for contractual work.  

How do I correctly sign a contract as a company?

A company can sign a document, however, they are able to do so in a different manner as in accordance with the Corporations Act 2001 (Cth). If you are entering into a contract as a company, you should ensure the execution of the contract is valid by reading our article on Section 127 of the Corporations Act 2001 (Cth) here.  

Put simply, the following should be considered:  

Where the company is signing via a signature, the requirements are that:

• Two directors sign the document (if the company has 2 or more directors); or 
• A director and company secretary sign the document; or  
• If there is a sole director, that they appoint themselves as a company secretary to sign on behalf of both (that is only they need to sign).  

Where a common seal is used to execute the document, the requirements are that the common seal is witnessed by:  

• Two directors of the company; or 
• A director and a company secretary; or 
• The sole director / company secretary.  

Where the company constitution provides the procedure for signing documents, this may outline how documents are to be signed (i.e. appointing someone to sign the documents on behalf of the company).  

Signing contracts as a trust

If the contract involves a trust, the trustee of the trust must execute the contract. The execution block used on the contract should expressly note that the signee is executing the contract as a trustee for the relevant trust.  

If the trustee is a company, the same rules apply for the execution of the contract as expressed above. If the trustee is a individual, then they should execute the contract in the presence of a witness.  

I did not sign the contract properly, what happens?

Should you not sign a document properly, this could lead to it being rendered invalid and unenforceable. If this occurs, the contract is not binding on the parties. 

By ensuring documents are properly signed, this reduces the likelihood of protracted and costly disputes in the event an issue arises in relation to the terms of the contract. 

Key takeaways

If you are considering entering into a contract with another party, it is imperative that you sign the document in a manner that protects its enforceability. Some questions to consider when signing a contract are: 

• Is this actually a binding contract?; 
• Am I signing this in my individual capacity or on behalf of a company?; and 
• Have I read and understood the contract sufficiently to know what I am binding myself or the company too? 

If you require any advice in relation to contracts, fill our online contact form here, or contact our office at 1800 820 083.