Execution of a contract is the final stage forming a valid contract after which it is legally binding. Usually, this will involve both parties signing the contract in duplicate (counterparts) and starting work on it. However, sometimes it can be more complicated than that.
The execution of a contract is one of the most important steps to completing a transaction. While oral contracts are enforceable, there are some cases where the parties will prefer (and probably need) to record their agreement in a written format. In these cases English and Scottish law imposes certain requirements on how the contract should be executed and who should sign them, depending on the type of contract and the legal status of the parties. Read this guide to understand how this affects your contracts.
What is the execution of a contract?
Simple contracts (under hand)
There are some transactions for which a written contract is required by law. Some examples of this in English law include:
Some contracts are required to be executed as a deed. For example, statute demands the use of a deed for the following transactions:
Transfers or land or interests in land
Mortgages and charges
Sales by mortgagee
The appointment and discharge of trustees
Powers of attorney, including lasting powers of attorney
In order to be a deed, a document must be validly executed as a deed by the person making it.
For more information please read Execution of deeds.
Execution of a contract
By an individual
When signing a written contract (which is not a deed), all that is usually required is for the individual to sign the contract in the appropriate place. It is not necessary for an individual's signature to be witnessed when signing a simple contract.
The most commonly used form of signature is the individual’s signature of their name (or initials and surname) with their own hand on a paper document. However, as long as the mark which appears in a document was inserted to give it authenticity, it will usually be accepted.
By a company
The formalities regulating the execution of contracts and other documents under the laws of England and Wales by companies are set out in the Companies Act 2006. When making contracts by or on behalf of a company there are two possible scenarios:
by the company itself, in writing under its common seal
or on behalf of the company by any person with express or implied authority to do so
The most common way for a company to enter into a contract is through the actions of an agent who is expressly or impliedly authorised to contract on the company's behalf. This can be the director but not necessarily. The key requirement is that the person making the contract on the company's behalf has the requisite authority to do so. However, that person is not required to hold any particular position or office within the company. This person must have had some form of authority conferred on it by that entity to enter into the contract.
Therefore this will depend on whether the third party has any authority to sign a contract on behalf of the company.
By a partnership
Any partner can execute a contract on behalf of the partnership. The signature section should show the name of the partner and of the partnership and state that he is a partner.
By a limited liability partnership
An LLP can execute a contract by:
fixing its common seal (if it has one) or
signature of a person with express or implied authority on behalf of the LLP; or
the signatures of signed by two Members; or
signed by one Member and witnessed
An electronic signature is any "data in electronic form which is attached to, or logically associated with other electronic data that serves as a method of authentication".
This includes a variety of forms:
Typing the signatory's name at the bottom of an email.
A scanned manuscript signature.
Clicking an icon on a website to confirm an order.
Electronic signatures can be used to execute most documents in England and Wales.
By an individual
When signing a written contract, an individual should sign the contract in the appropriate place by signing their full name as set out in the body of the document or with their full first name or initial followed by their surname.
By a company
A valid execution of a document by a company requires signature by one director, the secretary or by another authorised signatory, meaning anyone who is duly authorised by the company to sign. This is a wider meaning than ‘authorised signatory’ under English law.
By a general partnership
A contract is signed by a partnership if it is signed on its behalf by one of the following:
a person authorised to sign the contract on behalf of the partnership
By a limited partnership
In Scotland, as a limited partnership has a separate legal personality, it can enter into contracts in its own right. The formalities for executing a written contract by a limited partnership are the same as those for a general partnership.
By a limited liability partnership (LLP)
A contract is signed by an LLP if it is signed on its behalf by a member of the LLP.
While Scots law recognises electronic signatures and their admissibility in evidence, there is an exception for documents in respect of wills, testamentary trust dispositions and settlements or codicils which means that they cannot be executed electronically.