I’ve practiced in the area of contract law for twenty-five years, and I’ve noticed something: Many people simply do not understand how to sign contracts. This struck me as strange at first, but after years became commonplace. Allow me to explain: By signing the contract, I mean signing their name on the correct signature line and dating in the correct area.
This shouldn’t be very difficult. However, like so much of the law, once you scratch the surface it turns out to be pretty darned complicated. In this blog, I’ll cover some of the basics.
First, make sure you know who the parties to the contract are. Next, make sure those parties are the folks doing the signing. This sounds obvious, but you’d be amazed at how many times it gets messed up. If there is a dispute later, with allegations of breach of contract and a court case, it can really matter. In at least half of my contract litigation experience, there has been at least one potentially significant issue due to mistakes in naming the parties or inconsistencies between the names of parties and the signature lines on the form.
If the party to the contract is your company, and not you, make sure that is how the contract reads. For example, contracts should begin with language similar to the following:
“This Agreement is entered into by and between XYZ, LLC and ABC, Inc. to be effective January 1, 2019.”
Therefore, the parties are XYZ, LLC and ABC, Inc., which should be the full, true corporate names of the parties – not a “d/b/a” (doing business as). Articles of incorporation for the corporation [or certificate of formation for an LLC] must state that the name of XYZ, LLC is indeed “XYZ, LLC.” This is specific, and includes even whether there is a comma between “XYZ” and “LLC.” Sometimes the true corporate name has the comma, sometimes not—but whichever is true, this must be correctly stated in the contract.
Each party that is bound by any obligation in the agreement must have a signature line. Not all do! For example, promissory notes are typically signed only by the debtor. This is because only the debtor has an obligation arising out of the instrument. With a contract each party promises something to the other, so each party needs to sign to be bound by their promise or promises.
Examples of Signature Lines
For a corporate entity, the signature line should look like this:
THE NAME OF THE ENTITY
So for our example, above, the signature line for XYZ, LLC would look like this:
Name: Xander Yates
A permissible variant would be:
Xander Yates, Manager
In either instance, Xander would then sign on the line above his name.
The above signature lines state that XYZ, LLC is the entity bound by the contract. XYZ, LLC is bound because Xander Yates has the authority to bind XYZ, LLC to the contract by signing and delivering the contract in his capacity as Manager of XYZ, LLC.
Here is an example of how NOT to do it:
Xander Yates, Manager
Here is another example of how NOT to do it:
The problem with the two examples of how not to do it is that in neither is it crystal clear that Xander is not signing as a party to the agreement together with XYZ, LLC. In other words, almost certainly Xander does not want to be personally liable on the contract. The contract signature section is ambiguous and open to interpretation. Is it binding Xander and XYZ, LLC, or even just Xander and not the LLC? Simply adding the word “By” and the capacity in which he is signing (i.e., Manager) clarifies the contract.
What if it turns out Xander really isn’t the Manager, or doesn’t have actual authority to sign for XYZ, LLC?
That’s another blog entirely, and a complicated matter, at that. Suffice it to say that most of the time, if the other party to the contract has no reason to know Xander isn’t the Manager, or doesn’t have such authority, then the contract is probably still binding on XYZ, LLC. In very important deals where the parties are not very familiar with each other, this is why the parties require certifications or other evidence that the person signing really is the President or Manager of the company, and as such, really does have authority to bind the company.
Can I get a Witness
Often you will see lines for witnesses to sign. What if the signature is not legible? If there is a signature line for witnesses, there should be not just the signature, but the name of the witness clearly printed below. There are some types of documents (like Wills) that generally require witnesses to be valid. Surprisingly, the vast majority of business contracts do not. So why include witness signature lines?
Later on, if there is some dispute about whether the person signing for the company really did sign the contract, the other party could drag the witness into court to give testimony. Perhaps the person signing later said they were too inebriated to know what was signed. A witness could state the witness presented as quite sober.
Dates and Where to Place Them
Finally, if there is a line to insert a date where the party signs, it’s fine for the person to put the date of the actual signature. The date the parties sign usually doesn’t matter, especially if the text of the contract states when the contract is effective. Parties can sign on September 18, 2018, but agree in the text of the contract that the contract is, made to be effective retroactive to September 1, 2018. Or the parties can sign on the 18th, but say in the text of the contract that it is not effective and binding on them until some later date.
Often the contract will say that it is effective on the day on which the last of the parties to the contract signs it. This happens often if, for example, one party signs it and the next day the other party comes into town to sign. Then it is important that the parties write the date that they are signing it.
Simple, right? If you have questions, give us a call. We can help you clarify these specifics and get your contracts right the first time.