IT and Social media has brought a new dimension to our lives. WhatsApp, email, text, Facebook, Twitter etc. - its amazing how many different methods of communication we have in this new age. It's also meant that the law has been hurrying, running alongside to keep up with the myriad of legal issues arising as a result of social media's confident strides into the future.
Yesterday, I was asked an interesting question from a new client. He had been travelling whilst his fellow company director had negotiated and signed a contract on behalf of the company.
The contract had also included a number of personal guarantees on behalf of the directors. He, as a fellow director, hadn't seen the contract and hadn't read it. However, the parties had gone into business as usual. Was the Company bound? And more worryingly, was he personally bound by the personal guarantee? Could his personal assets be at risk?
First - the easy one to answer. The company was definitely bound by the contract. It only requires the signature of one director to bind a company to a simple contract. No question. So the terms of the contract must be observed and would stand in a Court of Law.
In fact, of interest to you all will be the fact that even if the contract had not been signed, the company would likely have been bound by the contract given the conduct of the parties after the event! Yes - a fully negotiated contract, 4Ps, lots of correspondence between the parties and conduct in line with the contract is more than enough.
Take a read of RTS Flexible Systems v Molerei for a great judgement which shows clearly just how much a court is willing to take into account when figuring out what the terms are of an unsigned contract.
So, be careful when negotiating your contracts. Always best to close them out in a fully negotiated contract that both sides have clearly signed unless you want the lawyers calling for your text messages in evidence! Eek!
But what about the personal guarantee? This being the guarantee wording in the contract which would mean that the company's obligations would be personally guaranteed by the named persons in the contract. Hmmmm......
The Law in this area is covered by The Statute of Frauds 1677. Yes you read that right - 1677. This is still good law that has direct impact today. It specifically states that guarantees must be signed by the guarantor. "Phew" you may say - however the legal provisions also go on to say that it can be signed by someone "authorised by the guarantor"!
In this instance, I advised that the risk of his being bound by an unsigned guarantee was very low - however, I am mindful of the many indicators the courts are now taking into account when looking at conduct between the parties - so beware!
Contact me if you have any queries about contracts you are looking at right now. Nicolina@andalllegal.com and 020 8263 6063.