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Table of contents
What makes a contract valid?
Offer and acceptance
Offer and acceptance is what makes up the terms of a contract in that one party presents something that they wish to exchange with another party (the offer), and the other party accepts that offer (acceptance). It can be as simple as paying money in exchange for a service.1
Consideration means the benefit included in a contract.2 Basically there needs to be quid pro quo.
Intention to be legally bound
Intention means that the contract was created with the intention that the contract would bind the parties to the agreement and for the agreement to be legally enforceable and valid.3
If all the above elements are satisfied, the contract will generally be considered valid and enforceable.
Signing, or executing, a contract is the equivalent of accepting an offer and evidences an intention to be legally bound.
For more information about the elements of a contract, see our Elements of a contract page.
How do I sign a contract?
Signing a contract might seem fairly straightforward; however, it is a process that should not be taken lightly. Where an agreement is in the form of a written contract, executing that written document generally means that the parties to that agreement intend to be legally bound by its terms and conditions.
By signing it, the parties are essentially saying that they know and understand those terms and conditions. One of, if not the most frequent causes for contract disputes is that people sign contracts without understanding them. Often, they do not read the terms of the agreement properly and therefore lack sufficient knowledge of what entering into that contract actually entails.
Here are 5 things you should do before signing a contract:
- Read the contract properly;
- Make sure you understand all the terms of the contract and their legal implications;
- If necessary, seek legal advice about the contents of the contract;
- Ensure that you are actually authorised to sign the contract; and
- If your signature needs to be witnessed, ensure a qualified witness is present when you sign the contract.
If you are unsure about signing something, take the time to think about it. Never allow yourself to be pressured or rushed into signing something that you have not properly read and might therefore not fully understand. Additionally, you should never sign something if you are concerned about your lack of capacity to sign. You wouldn’t drive a car while under the influence – and you shouldn’t sign a contract under similar circumstances either.
What are the different ways of signing a contract?
The most common way to sign a contract is to physically write your signature on the document.
Recently, and with the advancement in technology, electronic signatures have become a popular alternative because it is often a much easier option to physical execution, especially where documents are exchanged electronically.
While electronically signing a document will generally have the same legal effect as physically signing it, parties who engage in digital execution should be cautious about the potential for misuse. In the case of Williams Group Australia v Crocker  NSWCA 265, a loan was advanced by Williams Group Australia in circumstances where it relied on the digital signature of Mr Crocker on the application. Mr Crocker’s digital signature, however, had been applied to the loan document by another party without Mr Crocker’s authority. Because of this, Mr Crocker was not held liable for the loan.
Counterparts and execution by facsimile
Prior to digital execution, parties to a written contract still required a mechanism to overcome the fact that they were often not in the same physical location, and that posting the contract back and forth for everyone to execute simply was not practical.
To resolve this, many contracts contain a clause allowing execution by counterparts, which is where each party executes a separate copy of the contract and then exchanges it with the other party’s executed document, often via facsimile (fax) or, more recently, email. That copy (made up of the separate copies) would be deemed to constitute the original document.
Execution by a corporation
Corporations are independent legal entities, and execution of contracts by them must comply with section 127 of the Corporations Act 2001 (Cth). A company can sign either by affixing its common seal or by signature of its directors.
The most common way for a company to sign a document is by its directors. If this happens, the document must be executed by either two directors, or a director and a company secretary, or, if the company has a sole director, by that director.
If a company signs by using its common seal, the signature must be witnessed either by two directors, a director and a company secretary, or, if it has a sole director, by that director.
The case of Knight Frank Australia Pty Ltd & Anor v Paley Properties Pty Ltd & Ors  SASCFC 10, is an example of a $1.5 million-dollar contract being incorrectly signed by a corporation. The company had two directors, a father and a son. One director executed the contract on behalf of the company and crossed out the words “sole director/sole secretary” on the execution clause. No steps were taken to obtain the signature of the other director in order to comply with section 127 of the Corporations Act, and the court held that no contract had, in fact, come into existence.
A contract will often require that the execution of the contract be witnessed. It is best practice for the execution of a person’s signature to be witnessed by a third party and for the execution clause of the document to include the witness’s name and signature.
Some contracts will specifically require that the party witnessing the execution holds a certain qualification. In the case of documents to be lodged with the Department of Natural Resources, Mines and Energy (e.g. mortgages, transfer documents etc), execution by individuals must be witnessed by either a lawyer (i.e. a solicitor or a barrister), a justice of the peace, or a commissioner of declarations.
For when you need help
You should always seek legal advice if you are unsure about executing a contract, whether that advice be about the terms and conditions of the contract or simply whether you are executing the document correctly. You should also ensure that the other party, or parties, to the contract have validly executed the contract as well to avoid a situation where you are acting on an unenforceable agreement to your own detriment.
Call Gibbs Wright Litigation Lawyers today for a free and confidential initial consultation about your contract matter.
 Bramble Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Cole v Cottingham (1837) 173 ER 406; R v Clarke (1927) 40 CLR 227.
 Australian Woollen Mills Pty Ltd v The Commonwealth  HCA 20; Woolworths Ltd v Kelly (1991) 22 NSWLR 189.
 Helmos Enterprises Pty Ltd v Jaylor Pty Ltd  NSWCA 235; Ermogenous v Greek Orthodox Community of SA Inc  HCA 8.
The content of this publication is intended as general commentary only and may not be suitable or applicable to your personal circumstances. It is not intended to replace independent legal advice. You can contact us at our Brisbane Office for a free consultation on a range of litigation matters on (07) 3088 6364.
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