Wednesday, 30 January 2013

Proper Signing of Contracts -- Tips from a Lawyer

Proper Signing of Agreements

By: Courtney Aarbo, Barristers and Solicitors

Providing Information to Assist in Business

a)         Sole Proprietor, Partnership, or Corporation

There are basically three types of business entity:

·        a sole proprietorship;

·        a partnership;

·        a corporation.

The sole proprietor is a business entity owned by a person who as the owner has personal liability for all that that business does.  The sole proprietorship may be operating under a registered business name, for “Quick and Cheap Computing”, but the owner “Phil Jones” is the business.  If you had to sue on an agreement, you would sue “Phil Jones” personally.

A partnership is a business entity owned by two or more separate legal entities who generally have joint liability for all that the business does.  The business may operate under a registered business name for example “Quick and Cheap Computing”, but be owned by the two partners “Phil Jones” and “John Cheap”, who each have personal liability for the business debt.  Usually the partners will have a written (or verbal) agreement relating to the establishment of the partnership.

A Corporation is a separate legal entity from its owners, who are the stockholders.  Debt of the corporation is not normally a personal liability of the individual stockholders.  If “Quick and Cheap Computing Inc.” runs up $100,000.00 of debts, the stockholders are not personally liable.  The Corporation should be looked upon as if it is a separate legal person, which needs the help of other persons to enter legal relations, which other persons have the corporate signing authority.

It is essential that you know, and properly describe the parties to a contract.  Always make sure that the other side to a contract knows you act on behalf of a corporation if that is the case.  Always find out who or what you are contracting with.  If you don’t know, or wish to check, any registry shop will be able to search a business name to determine if it is a corporation, or simply a registered name, or neither.  Failure to properly indicate one is acting on behalf of a corporation will likely result in personal liability under the contract for the person signing it.

b)         Signing of Contract

In order for contracts to be binding upon all parties, it is in their best interest that they be signed properly.  As most documents are not prepared by lawyers, it is necessary for people in business to make sure proper signing occurs.

If you are dealing with a corporate entity, it will always end its name with one of the words or suffixes Company, Co., Limited, Ltd., Corporation, Corp., or Incorporated, Inc.

What follows is a reference table for proper description and execution of documents:

Type of Business
Name Description
Sole Proprietor
Phil Jones carrying on business under the name “Quick and Cheap Computing”
_______     ________________
Witness      Phil Jones
Phil Jones and John Cheap carrying on business in Partnership under the name “Quick and Cheap Computing”
_______     ________________
Witness      Phil Jones
_______     ________________
Witness      John Cheap
“Quick and Cheap Computing Inc.”
“Quick and Cheap Computing” Inc.
Per: ___________________
        Phil Jones (President)
Per:  __________________
        John Cheap (Treasurer)

It is always good practice to check identification of the person signing an agreement especially if one is witnessing his or her signature.  Corporate seals are not essential when a corporation is signing, but if a seal is not being used one should make sure the persons signing for the corporation has proper signing authority.  One is usually safe if the signing person is an officer or director of the corporation (although not always).  A registry shop corporate search should indicate directors and officers.  If in doubt verify corporate signing authority.

It is also a good practice for the parties to initial each page of the contract.

c)         Alteration of Contracts

It is essential that any alterations to contracts be done in writing.  All too often the parties agree to an amendment of their agreement, but fail to properly document it.

Properly documenting an alteration may involve making a simple change to the original agreement by crossing a few words out and then having the signing parties initial the change and date it.  In a more complex alteration, a separate written document or an “Addendum” will need to be prepared.  An addendum is attached to the original agreement and initialed by all parties.

A verbal agreement may cause great difficulty.  Similarly a verbal alteration or amendment to a written agreement may be unenforceable.  Remember that the written agreement likely contains the term that it contains the whole agreement.  Under the Parol Evidence Rule, verbal contract terms should not be allowed to contradict written terms.

A review of the original agreement may reveal a term that states how amendments or alterations are made.  If there is such a term make sure it is followed precisely.

For more information contact Courtney Aarbo Barristers and Solicitors at or  or phone 403 571-5120.

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