A party seeking to extricate itself from a contract will look at every aspect of the contract to ascertain if there is a way of getting out without being in breach. Failure to comply with the formalities of execution of documents, including leasing agreements, may prove one such way out. However, this is less likely to be the case following the Court of Appeal decision in Williams and others v Redcard Ltd and others.
In Redcard, the parties entered into a contract and supplementary agreement for the sale of the freehold and leasehold interests in some residential flats. Redcard owned the freehold interest while some of its directors held the leasehold interests. The agreement defined the defendants (both the company and the directors) as the "seller", the claimants as the "purchasers" and bore various signatures under the heading "SIGNED…SELLER".
Those signatories, which included two of the defendant company’s authorised signatories, were also defined as sellers in respect of the sale of their leasehold interests in two of the flats. The signatories had only signed once each.
Later, the claimants refused to complete the purchase, arguing the agreement was improperly executed. They claimed it was invalid because the agreement did not expressly state that the signatures of the signatories were "by or on behalf of" the defendant company pursuant to section 44 of the Companies Act 2006. Section 44 requires a document to be signed "by" a company. The claimants sought the refund of the deposit they had paid and the defendants brought a claim for damages.
The Court of Appeal held that the agreement had been validly executed in compliance with s44 which did not require the express words "by or on behalf of" to be present in addition to the signatures of authorised signatories. No particular words were required to express the fact of execution by the company. If it was clear when interpreting the contract as a whole that two authorised signatories had signed on behalf of the company, that was sufficient to satisfy s44.
If a contract was to be signed by a person both on his own account and also on behalf of the company, a single signature would suffice, provided it was expressly given on his own account and also on behalf of the company.
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It was sufficient, in this case, that all of the defendants together were described as "seller" and that the signatories’ signatures appeared at the end of the agreement under the words "SIGNED…SELLER".
In such circumstances, the court said, it would be absurd to suggest that the contract for the sale of the freehold by the defendant company was not expressed to be executed by it.
Things to consider
Best practice must clearly be to check the execution formalities at the time of signing and, if needs be, add words that expressly state the capacity in which the document is being signed. That way the cost of expensive litigation, as occurred here, can be avoided.
Greg Standing is a partner in Wragge & Co LLP’s finance litigation team