Authority, Formality and the Illusion of a Binding Deal

Commercial teams often treat signature as the finish line. In English law, however, a document that looks like a contract may fail to bind the company that appears to have signed it. The problem is rarely the quality of the drafting. It is usually authority, formality or intention. Those issues are easy to overlook when a deal is urgent, a counterparty is pressing and the approval trail sits in a shared inbox.

Agreement is not the same as obligation

English law does not require a contract to be in writing, save for certain categories such as land and guarantees. A binding contract needs offer, acceptance, consideration and an intention to create legal relations. But where a company is involved, a further question arises: did the person who signed, clicked or emailed have the authority to commit the company? A signature without authority may produce an agreement that is voidable or unenforceable against the company, depending on what the counterparty knew or ought to have known.

The Companies Act 2006 provides a familiar execution route. Under section 44, a document is executed by a company if it is signed on behalf of the company by two authorised signatories, or by a director and the company secretary. Section 43 deals with contracts made by a person acting under the company’s authority. But section 44 is not the only route to a binding contract. A company can also be bound by a person with actual or ostensible authority, even if the internal paperwork is incomplete.

Electronic signatures and the click that may not count

Electronic signatures are lawful in England and Wales. The Electronic Communications Act 2000, the retained eIDAS framework and the Law Commission’s 2019 report on electronic execution all support that position. The courts have gone further. In Neocleous v Rees [2019] EWHC 2462 (Ch), an email signature block was held sufficient to satisfy a signature requirement in a contract for the sale of land. A DocuSign click or a typed name can therefore bind a party where the evidence shows an intention to be bound and a reliable method of authentication.

The risk lies in the exceptions. Not every email is a signature; not every click is an execution. A procurement manager who accepts supplier portal terms while exploring a pilot may have no authority to commit the business. A sales director who types ‘agreed’ at the bottom of an email may create an impression of authority that the company later disputes. The counterparty may rely on that impression. The result is a dispute about apparent authority, not a clean answer about whether the deal was signed.

An electronic signature policy should therefore do more than name a platform. It should identify who may sign, for what value, on which entity and with what approvals. It should require the signatory to use a company email domain, to initial every page where appropriate, and to ensure that the final version is the version approved. Audit trails are useful evidence, but they do not cure a lack of authority.

Board approval gaps and the authority matrix

Internal approval gaps are common. A group company signs, but the wrong entity is named. A director signs without the board resolution that the articles require. A business unit exceeds its delegated authority. The legal question is not simply whether the internal rule was broken. It is whether the counterparty was entitled to rely on the signatory’s apparent authority. The principles discussed in Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28 remain instructive: apparent authority depends on the representation made by the company and the reasonableness of the counterparty’s reliance. If the counterparty knew, or ought to have known, of the limit, reliance is harder to establish.

That is why a pre-signature check should confirm the legal entity, the signatory’s position, the board or delegated authority, and any conditions precedent. Sales teams should not treat the approval matrix as an internal inconvenience. Procurement teams should not assume that a supplier’s standard terms have been reviewed by legal. Finance teams should not release funds on the basis of a document that has not been executed by the right entity. Each function sees a different part of the execution risk.

The commercial deal and the written page

Another trap is the belief that the commercial deal will override the written terms. English law starts from the document that the parties have signed. Entire agreement clauses are common, and they are usually effective to limit reliance on pre-contractual statements, subject to fraud and misrepresentation. The Supreme Court’s decisions in Arnold v Britton [2015] UKSC 36 and Wood v Capita Insurance Services Ltd [2017] UKSC 24 confirm that interpretation is a unitary exercise, but they do not give a court licence to rewrite a clear bargain because one party later regards it as commercially unattractive.

There are exceptions. A collateral contract, a misrepresentation, an estoppel or a rectification claim may allow a party to escape the written page. A ‘subject to contract’ label may also prevent a binding contract from arising. The Supreme Court’s decision in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH [2010] UKSC 14 shows that the absence of a formal signed contract does not always prevent a court from finding one, particularly where work has begun. The lesson is not that written terms are irrelevant. It is that intention and conduct matter, and that a deal can be made before the paperwork catches up.

A pre-signature checklist

• Confirm the correct contracting entity, jurisdiction and registered details.
• Check the signatory’s authority against board minutes, delegated authority and any power of attorney.
• Verify that the execution method complies with the Companies Act 2006 and the company’s constitution.
• Apply the electronic signature policy: approved platform, authentication, company email domain and audit trail.
• Freeze the final version, initial each page where appropriate and attach all schedules.
• Confirm whether the document is ‘subject to contract’ or conditional on board, finance or regulatory approval.
• Review the entire agreement, variation and notice clauses before signature, not after.
• Make reasonable enquiries about the counterparty’s authority and signing entity.
• Record internal approvals and store the executed version in a controlled repository.
• Confirm insurance, finance and compliance sign-off where the contract requires it.

Conclusion

Execution is not an administrative tail-end. It is part of the risk. A contract that cannot be proved, or that was signed by someone without authority, is not a commercial asset. It is a dispute waiting for a trigger. At Valenstein & Fatt, we see these issues surface long after the deal has been celebrated. Before the next signature, sales, procurement and finance teams should ask not only whether the deal is good, but whether the company has actually made it.