How Do I Make My Document Legally Binding?
A question we regularly get asked at the Clickdocs support desk is "what do I need to do to make my document legally binding?" This can apply to a wide range of legal agreements: from commercial leases, to loan agreements, contracts of employment and everything in between. In this article we discuss how to create a legally binding written agreement and the different options available to signatories (the people who sign an agreement).
Under the law of contract, binding agreements can be made both orally and in writing. Most people choose to have a written agreement specifying in clear terms what the parties have agreed so that should any problems arise in the future, there will be a clear record of what the parties intended.In English law there are two types of written agreement:
- simple contracts; and
When does it become a legally binding document?
Most legal documents are simple contracts which become legally binding on the date that the parties intend that the contract comes into effect. This is usually the date that both parties sign the document or if the parties sign at different times, the date when the last party signs. A simple contract does not need the signatures to be witnessed.
Some legal documents, such as powers of attorney, must by law, be made by deed. Deeds must be in writing and the parties must sign in the presence of a witness.
Aside from witnesses, the other main difference between simple contracts and deeds is the statutory limitation period. This is the time within which a party can bring a claim for breach of contract. With simple contracts, the limitation period is 6 years from the date the breach occurred and with deeds, the limitation period is 12 years.
Some contracts are executed as deeds even when there is no legal requirement to do so, particularly when the contract favours one party.
In Scotland, the Legal Writings (Counterparts and Delivery) (Scotland) Bill has recently been passed. This allows documents to be executed in counterpart and to be sent by electronic delivery. Prior to the new law, it was not possible for the parties to sign in counterpart to create a legally binding agreement. All parties had to sign the same document, either at the same time or the document was passed round until all the parties had signed. This had obvious drawbacks: time consuming and the inconvenience and cost of travelling to meetings.
Under the new law, each party signs a separate identical document and all the signed copies together form a single document. The single document can be comprised of each counterpart in its entirety or one entire counterpart and the executed signature pages of each party. The document does not need to contain a clause specifically allowing counterparts.
Documents executed in counterparts have been legally binding in England and Wales for some time.
When does a counterpart agreement take effect?
It becomes legally binding when all the counterparts have been delivered and delivery will be complete when each counterpart is delivered to each party whose signature is not on the counterpart in question, or to a person nominated by a party to take delivery. The parties may also agree on a time when the counterparts will be deemed to be delivered allowing them to state exactly when the agreement comes into effect.
Methods of delivery
The methods of delivery under the new law include email, fax, disc and memory stick. This applies to all legal documents and not just those executed in counterpart. The parties can specify how delivery is to be effected, but where this is not stipulated or the preferred method of delivery is impractical, it should be by any means reasonable in the circumstances.
In some instances it is not possible for all the signatories to an agreement to be physically present at the same meeting to sign the document. Instead it is possible to sign the agreement ‘virtually’. Signature pages are signed in advance and then delivered, normally by email, by agreement between the parties.
Depending on the type of document there are 3 options when considering a virtual signing or closing:
- returning the entire document and the signed signature pages by email
- returning only the signed signature pages by email
- creating a pre-signed signature page in advance of finalising the document.
For example, options 2 and 3 are not available when signing deeds or real estate contracts whereas simple contracts can be completed using any of the 3 options.
Law Society guidance
The Law Society has issued guidance on virtual signings and the safest course for both deeds and simple contracts is to exchange by email the entire agreement in pdf or Word format together with the executed signature pages.