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In the course of acting for your business, you will agree to various forms of commercial deals. You will record most of these deals through a signed commercial contract. In most situations, the signature of a commercial agreement is relatively straightforward. However, complications during the signing stage can sometimes arise and prove costly for your company. This article will explore four ways in which the signature of a commercial contract can negatively affect your organisation.
What is a Commercial Contract?
A commercial agreement is a document in which businesses record the main terms of a commercial arrangement. Like all legal documents, the more complex examples can be lengthy and contain dozens of clauses.
Absent exceptional circumstances, commercial contracts tend only to be legally binding if both parties sign the document correctly. As a result, it is uncommon for an unsigned written agreement to have binding legal authority over the businesses involved. Let us explore four ways that signing a contract can lead to potential complications for your company.
1. Incorrect Signature
Occasionally, a business will make an honest attempt to sign a commercial agreement but do so incorrectly. One of the most common examples includes a company director signing a deed but forgetting to get it adequately witnessed. This is particularly common in the case of electronic signatures and digital signatures.
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2. Signing Without Review
Not all signature-related issues stem from an incorrect signature. Instead, some business owners verbally agree to potential terms. Consequently, upon receipt of the written agreement, sign it without thoroughly reviewing it.
Unfortunately, doing so may lead to unexpected future consequences for your organisation. Two prominent examples include:
- the contract consists of unexpected clauses that you did not initially discuss with the other party and your business is not ready for (or would not have agreed to); and
- the contract does not accurately describe what the parties verbally agreed (for example, recording a different rate of pay from that discussed within initial conversations).
3. Only One Party Signing
Another issue that may arise is when only one party signs the contract. In most cases, the contract will not be binding on the other party absent their signature. This is because the primary way of accepting the terms of an agreement is through a signature.
There are some exceptional circumstances in which the other business may be taken to have accepted the contract absent signature. However, these situations are limited. One of the main examples would be where the other party acts per the contract wording despite not signing it. In this case, a court may hold that they have accepted its terms through their conduct.
However, it is uncommon for a business in England to be held liable for an unsigned contract. Furthermore, such a claim can lead to expensive and time-consuming litigation.
4. Signed Document Lost in the Post
Imagine that you have signed an important commercial contract and sent it to the other business by post. However, the document gets lost in the post and awaits a signature.
If you place a reminder in your diary to chase up the other party if a countersigned copy has not been received, you should be able to re-send a further signed version for their signature. This provides clarity on whether the other organisation did not receive the original document or does not wish to sign it.
The worst scenario is to forget you are awaiting a return contract and risk the other party arguing the contract is not binding as you did not follow up for their signature. To avoid this, some businesses favour electronically signing electronic documents by email.
Key Takeaways
The attempted signature of a commercial contract can lead to issues in various ways, whether through the signature not being valid or the contract not being read or signed by both parties. One of the key takeaways is to do everything possible to ensure that both parties correctly sign a commercial agreement, this being accepted as good practice. If your business faces a situation where this does not appear possible, it is important to consider obtaining legal advice on the status of the unfinalised contract.
If you need help validly signing and finalising commercial agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The main issues include the fact that the other company may hold that the paper document (or digital Word document) does not bind them. Unfortunately, disputes over whether businesses are bound by the contents of important documents tend to end up in an expensive legal battle.
Not necessarily, no. E-signatures are equally as binding on a company as a physical signature and, where suitable digital signature technology is used, can potentially provide more certainty as to the identity of the person signing.
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