Signing a Business Contract?
A Checklist for Greater Peace of Mind
Release 1.07, May 2011
Member of the State Bars of Texas and California
Copyright © 2011 D. C. Toedt III
Smashwords Edition
I want to thank my wife, Maretta Comfort Toedt, for her encouragement, feedback, and the occasional gentle nudge ….
For contact and biographical information, please see http://www.dctoedt.com/about.
Caution
This publication provides general information; it is not intended and should not be relied on as a substitute for legal advice. Check with a licensed attorney about how the law might apply to your specific factual situation.
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Chapter 1: A final "pre-flight" checklist
Chapter 2: Guarding against personal liability
Chapter 3: Staying out of jail
Chapter 5: Signature authority
Chapter 6: Nah, don't bother reading the contract (not!)
Chapter 1: A final "pre-flight" checklist
We all overlook stupid stuff once in a while. That’s why professionals in many fields use checklists to help them do their jobs with greater confidence. To name but one example, airplane pilots are trained to use checklists when they perform their final pre-flight safety inspections, even after they've had many years of experience. You may have read of other examples in the best-selling book, The Checklist Manifesto, by Harvard Medical School professor Dr. Atul Gawande.
If you sign business contracts for your company, the five-point checklist below and the notes that follow will help you guard against future legal- or business problems for your company ... or for you personally.
1. Make sure your organizational title is included in your signature line.
To guard against finding yourself personally liable for a company contract, make sure your printed signature block is in "corporate" form, with your company title set forth, and not in "personal" form. And while you're at it, check the contract language (or ask your lawyer) to see whether you might be exposed to personal liability in some other common ways. Chapter 2 goes into more detail.
2. The date of your signature should be the date you actually sign.
Backdating your signature could put you squarely in the sights of the SEC and the Justice Department, and quite possibly send you to jail. Chapter 3 addresses this and other examples of activities that can get you in trouble in connection with signing a contract.
3. Spot-check for provisions that could cause problems for your business.
If you're not familiar with the detailed provisions in the contract, consider asking your company's negotiator to confirm that the contract has been vetted for provisions that could cause significant business problems down the road. It wouldn't hurt to spot-check yourself, too. Chapter 4 addresses a number of these issues.
4. Check whether The Other Side's signer has at least "apparent authority" to sign.
Don't give The Other Side an unnecessary "out" allowing them to escape their contract obligations: If the person who will sign the contract for them has a low-ranking job title (or a strange one), it's worth checking whether she has signature authority to commit her company to the contract. See Chapter 5 for an overview.
5. Be sure you've actually read and understood the contract.
Courts, bosses, and boards of directors seldom have much sympathy for people who complain about a contract's terms but then admit, "I didn't read it before I signed it," or "I didn't understand that part." Indeed, in most jurisdictions, the law presumes that anyone who has signed a contract has read and understood it. See Chapter 6 for a sad tale of what can go wrong when someone signs without reading.