Contracts for the sale of land require to be in writing, and be signed by or on behalf of the parties to the contract. A recently decided case in the Court of Appeal provides important clarification concerning execution of documents by companies. The case between Roger Williams & Others and Redcard Limited & Others [2011] EWCA Civ 466 reached the Court of Appeal to settle the matter of whether a contract for the sale of land, which required to be signed by individuals and a company, had been properly executed in accordance with the legislation. On dismissing the appeal, the Court of Appeal held that the words "by or on behalf of" did not require to be expressed on the signing page for a document to be validly executed by authorised signatories of a company within Section 44 (4) of the Companies Act 2006 (CA 2006). It was sufficient that it read "SIGNED …. SELLER" and that the company was defined as the Seller in the body of the contract.
The statutory basis
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 states that a contract for the sale of an interest in land must be in writing, incorporate all the terms agreed by the parties and be signed by or on behalf of each party; and
Section 44 CA 2006 controls how documents can be executed by a company and provides for alternatives to execution by a company writing under its common seal. It states that a document is validly executed by a company (if not under a common seal) if it is signed on behalf of the company by two authorised signatories or a director of the company in the presence of a witness who attests the signature. Directors or the company secretary (if appointed) are authorised signatories. Documents signed in either of these ways are stated to have the same affect as if executed under the common seal of the company:
"A document signed in accordance with subsection (2) and expressed, in whatever words, to be executed by the company, has the same effect as if executed under the common seal of the company" (Section 44 (4) of CA 2006).
Two contracts, six properties - how many signatures?
The parties entered into a contract dated 28 July 2008 followed by a supplementary agreement on 27 January 2009 (which altered the completion date and restated the other terms of the original contract). The contract and supplementary agreement were for the sale of Redcard's freehold interest in a residential building in London as well as the sale of five self contained residential flats, each let on long leases to individuals who were all directors and shareholders of Redcard.
Under the contract the "Seller" was designed as being each of the individuals and Redcard. The purchase price was £3.35 million, being an unapportioned aggregate sum of the freehold and leasehold interests.
The purchasers, Mr and Mrs Williams refused to complete the purchase despite having been served a notice to complete, contending that the contract had not been validly executed by Redcard. They argued that in the absence of a use of a common seal, the statutory provisions required the execution clause to contain words expressing that the signatures of the authorised signatories are "by or on behalf of" the company.
It was the supplementary agreement with which Court of Appeal was concerned. It had been agreed that if it was determined that this had been executed correctly, any defect of execution which may have existed in the earlier contract would be remedied, as the supplementary agreement incorporated all the terms of the original agreement.
The supplemental agreement had various signatures under the title "SIGNED … SELLER". Two of those who signed were authorised signatories for Redcard and were also individually, parties to the contract. But were they signing as individuals only, or did their signatures also constitute execution on behalf of Redcard?
The views of the Chancery Division and the High Court
In the Chancery Division the judge ruled that the contract had not been executed by Redcard. On appeal, however, the High Court held that the contract had been executed in accordance with the statutory requirements of Section 44 of CA 2006 and did comply with Section 2 of the 1989 Act. The High Court concluded that there was no reason that an individual could not sign a contract on his own behalf and on behalf of a company, with only one signature. The judge then went on to state (paragraph 21):
"I consider that provided that, on the fair interpretation of the words in a contract, the reasonable reader would understand the signatures of the natural persons are signatures both in their own account and on behalf of the company, that is sufficient to amount to proper execution for the purpose of section 44".
He did not think that it had to be expressly stated that the signature was in both capacities. In applying the test to the facts of this case, he was of the opinion that the reasonable reader would have to conclude that signatures were in both capacities. Redcard Limited, along with the individuals were designated in the contract as the "Seller". The two authorised signatories of the company had signed under the space for the Seller in the execution clause. If the interpretation was that the signatories only had one purpose, the conclusion would have been that Redcard had failed to execute the contract despite the directors signing in a personal capacity. Such an outcome would be unlikely in the circumstances.
The Court of Appeal confirms valid execution
Mr and Mrs Williams sought a second appeal. In dismissing the appeal, the Court of Appeal stated that the case turned on the phrase "expressed in whatever words, to be executed by the company" in section 44(4) of CA 2006. It was thought that this clause had to be intended to add to the meaning of Section 44(2) (which sets out alternative to execution under the common seal), but that there was no requirement for express wording that the signatures are "by or on behalf of" a company. In their view, it was sufficient that the signatures were made under the words "SIGNED … SELLER" and the definition of Seller in the contract included Redcar Limited and the individual directors.
The Court of Appeal examined what the position would be if the sale of the freehold interest and leasehold interests had been dealt with in different contracts. They concluded that if two authorised signatories of Redcard Limited had signed a contract for the sale of the freehold interest under "SIGNED … SELLER" and Redcard was defined as the Seller, this could only mean that that the contract was expressed to be signed by Redcard. The Court could not see that legal position regarding the signing should be any different when the freehold and leasehold interests were sold together (paragraph 26):
"In my judgement, there is no conceivable sensible reason why the legal position should be any different in the case of one document rather than two, especially when the statutory provisions were intended to expand the range of formalities that would count as execution by a company".
The Appeal Court concluded that the use of the defined term "Seller" and the written word "SELLER" above the signatories meant that the document is expressed to be simultaneously executed by both Redcard Limited and the individuals.
Important clarification
Leave to appeal to the Court of Appeal was at first refused but later permitted due to the importance commercially of execution by limited companies and the need to provide clarification.
Despite the decision of the Court of Appeal, however, it remains crucial to consider carefully how execution is dealt with, especially when individuals are signing in more than one capacity. It is obviously favourable for words to be included in a contract, expressly stating the capacity in which the signatories are signing, to make the position clear to all. It is also worth noting that although an individual can sign once, on its own behalf and on behalf of a company, if an individual is signing a document as authorised signatory for multiple companies, the individual is required to sign separately in each capacity.
It should be noted that the position in Scotland is governed by the Requirements of Writing (Scotland) Act 1995, under the terms of which the outcome would have been likely to be the same, and in particular section 7(4) of the 1995 Act provides that where a person grants a document in more than one capacity, one subscription of the document is sufficient to bind him in all such capacities, and while not specified in the 1995 Act, execution on behalf of multiple companies will also require multiple signatures.
To read the full decision in click here.