Contracts are the connective tissue between businesses, and some of the most frequently-drafted documents in any organisation.
They document an agreement between two or more parties, and can include terms relating to the nature of the relationship between the parties, any works or behaviours expected of the parties throughout the period the contract covers, and any consideration to be provided (usually monetary payment).
As contracts document the final terms agreed upon by the parties, they generally will require confirmation that all parties have an understanding of the terms they have agreed to. To demonstrate this, most businesses require contracts to be executed.
What does an executed contract mean?
When a contract is ‘executed’ it means the contract has been signed and completed by all parties according to the requirements of the type of party signing the contract. If a contract is not correctly executed then it may be deemed invalid and not legally enforceable.
Are contracts signed or executed?
When a contract is executed it is signed by all parties to indicate that all parties are in agreement of the terms stated within the contract.
When is a contract executed?
A contract is executed at the conclusion of the negotiation period, once all parties have an agreement of the terms of the contract and expectations resulting.
Generally speaking, a contract is considered executed once all necessary parties have signed.
What are the risks associated with incorrectly executed contracts?
Executing a contract correctly is critical to ensuring all parties understand and agree to what is expected of them throughout the contract period.
A party may successfully avoid having to fulfil their obligations as listed in the contract terms if they are able to prove that the contract was not executed correctly and is therefore invalid.
Ensuring contracts are executed correctly is critical so that parties can avoid lengthy disputes later down the track. They are a form of protection from the risk of one party being left with outstanding or unexpected obligations to the other.
Risks exposed by incorrectly executed contracts
If a contract is not correctly executed, parties take on greater risk that costly disputes may arise. Examples of which may include:
Disputes arising around payment of services provided
Disputes as to quality of the services provided
Disputes surrounding obligation deadlines or time frames.
What are the rules for executing contracts for different types of parties?
The requirements of an executed contract may vary depending on the types of parties entering the agreement.
Individuals executing contracts
Generally contracts between individuals are relatively straightforward. These contracts typically only require the signatory to leave their signature on the document and state their name below their signature.
Many contracts also ask for the individual to have a witness to their signing of the contract and also require that the witness also sign their name and signature beside the signatory’s signature. The witness should not be a party of the contract.
Partnerships executing contracts
Partners must follow the requirements of the Partnership Act of each state and territory. These Acts generally allow for one partner to sign on behalf of the partnership to execute contracts, however the Partnership Agreement may have some conditions as to which partner may sign contracts.
For a contract to be successfully executed by a partner, it must include:
The partner’s signature
The partner’s name
The name of the partnership
It may also be useful to have the name and signature of a witness as they add an extra layer of security and surety that it was the signatory who signed the contract, but this is usually not a requirement.
Companies executing contracts
There are three methods through which a company can execute a contract:
- The primary method a company executes contracts is through its senior directors as according to the Corporations Act.
two directors of the company;
one director and one company secretary; or
the sole director who is also the company secretary. This is for proprietary companies only.
The second method is for an individual within the company with the express or implied permission and authority to sign on behalf of the company
The third is where the company’s appointed attorney signs a contract to execute the agreement on behalf of the company.
Trusts executing contracts
A trustee may sign to execute a contract on behalf of the trust. The process and method will vary depending on whether the trustee is an individual or corporate trustee.
When the trustee signs the contract, the contract must state that the the signatory is executing the contract in its capacity as trustee, or 'as trustee for' ('ATF') the trust.
If the trustee is a company then the requirements of Company signatories also apply.
Can a contract be executed digitally?
Many businesses are adopting digital e-signature technology to facilitate their contract execution process. E-signature has been recognised in Australia since the introduction of the Electronic Transactions Act, 1999.
Platforms such as Plexus Gateway allow signatories to easily draft, negotiate, sign and store their contracts within a single system. This streamlines the contract negotiation process and speeds up the execution process.
To wrap -
A contract is ‘executed’ when it has been signed and completed by all parties as according to the requirements of the type of party signing the contract. The requirements of execution vary depending on the type of parties involved in the contract, however all generally require a signature by an individual with the individual’s name stated below.
It is critical that all parties ensure that contracts are executed correctly to enforce the validity of the contract and protect the parties from risk.