We are often asked the question whether all Director’s need to be signatories to a contract.
More often than not in our hectic daily lives companies who have more than one Director find it difficult to get those people all together for signing.
This usually leads to delays in getting documents signed or the inconvenience of having to have the documentation circulated. There is accordingly a lot of pressure just to have one Director sign.
Case law on this issue has been less than clear over the years and recent High Court decisions which give contradictory outcomes only further serve to confirm the dangers of shortcuts in relation to execution of documents.
However if you are the party wishing to enforce the document any expediency in allowing one Director of a company to sign is going to be of little comfort when the validity of the document is later challenged.
So what is the legal position? The essential question is – does the single or sole Director signing have the necessary authority to bind the company? This is easier said than applied.
Where there is clear evidence that the Director did have the authority and was acting on behalf of the company (often in the sole Director scenario) then the company will not be able to avoid its obligations by arguing that a sole Director, although signing on behalf of the company, didn’t have the actual or apparent authority to sign the document.
Problems arise however where there is more than one Director. A recent decision of the High Court has confirmed that a Director signing on behalf of the company without execution by the other Director is not able to be enforced without actual evidence of authority to do so.
In that case the other Director who had not signed the document claimed he had not authorised the execution by his co-Director.
Essentially the Court found that the usual authority of an individual Director to bind the company is very limited and there is no standard delegation of power which generates that authority. In the case in front of the Court there was no usual or customary authority and therefore no implied authority which the Director had to bind the company and the company was therefore not obliged to comply with the contract.
It is always wise to insist on all Directors executing a document unless there is clear evidence to establish that signing Directors do have the actual authority to bind the company. In the absence of that the safest course of action is always to insist that all Directors of the company sign any relevant documentation.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Paul Farry
pfarry@farry.co.nz
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.