Execution blocks: why you shouldn’t take shortcuts

Introduction

From time to time, cases come across our desks that make you feel very sorry for one of the parties involved, for there would never have been litigation had the parties taken ever so slightly more care, and not taken a shortcut on something fundamental. The recent English Court of Appeal case of Roger Williams & Ors and Redcard Limited & Orsi, is one such case.

In this case, the shortcut adopted by the sellers of a property resulted in litigation, and the matter made its way through two hearings in the High Court of Justice (one before a Master, one before a High Court judge), a hearing requesting leave to appeal to the Court of Appeal (turned down, then subsequently allowed), and finally the appeal hearing before the Court of Appeal itself. Aside from the associated time and expense of instructing lawyers for those hearings, and the delay, the sellers must have been particularly annoyed with being dragged through the litigation process when it could all have been so easily avoided.

The critical point missed by the sellers was that execution blocks of agreements need to be crystal clear as to the capacity in which a signatory is signing, and if a signatory is signing in two capacities, the execution blocks of the agreement should record that they are signing in both capacities to avoid any arguments.  

Facts

Redcard Limited (“Redcard”) was party to a contract dated 28 July 2008 and a supplementary agreement dated 27 January 2009. The contracts included the sale of Redcard’s freehold interest in a building, which had been converted into flats let on long leases to individuals (who were also directors and shareholders of Redcard). The contracts also included the sale of the leasehold interests in the flats that were held by the individuals.

The supplementary agreement bore various signatures under the words “SIGNED…SELLER” in the execution blocks, including two authorised signatories of Redcard. These two individuals, and Redcard, were named among the parties to the same document. They also fell within the defined term “Seller” in the document, and the document included the sale of both the freehold and leasehold interests of the property in the one composite agreement.  

The mistake of the sellers was that they signed the document only once, despite intending to sign in both their capacity as seller of their leasehold interests (i.e. in their individual capacity) as well as authorised signatories of Redcard (or at least they did not make clear that they were signing in both capacities). Although not stated in the judgment in so many words, the purchasers appear to have tried to “wriggle out” of their obligation to purchase the property. Amongst other points, the purchasers seized upon the fact that the signatures were not 100% clear on this point to argue that Redcard had not properly signed the agreement and thus it was not enforceable.

Judgment

The judgment considers the technical arguments put forward by counsel for the purchasers in relation to the execution of documents under the English Companies Law. The result might seem obvious, in that the English Court of Appeal held that the signatures of the two individuals (coupled with the definition of “Seller”) were sufficient to indicate that the document was executed by Redcard. This seems to us to be a clear and a reasonable result in the circumstances, and serves to back up the general principle that English law does not normally require formalities to make a contract.

However, the practical advice could not be put any better than as it was stated by His Honour Lord Justice Mummery at paragraph 30 of the case:

“From a practical point of view it may just be worth stating the obvious: expensive and long drawn-out litigation about the execution of a document by a company can be avoided by taking more care over compliance with the formalities at the time of execution by, for example, adding words that expressly state the capacity in which an individual is signing a document to which a company is a party”.

Conclusion

Although the Court of Appeal “saved” the sellers in this case, the moral of the story is clear. When signing a document in two capacities, signatories should make it totally clear as to the capacity in which they sign in the execution blocks. If the typed copy of a contract does not make the capacity in which the document is being signed 100% clear, signatories should take it upon themselves to clarify the matter by writing the relevant capacities in by hand.