How to Properly Sign a Contract So It Will Be Enforceable
You've negotiated an important agreement, you've reduced it to a written contract, and now you are ready to sign on the dotted line. Most people think that actually signing a contract is a mere formality. However, it is important not to let your guard down at this point. Whether you properly sign the contract may make the difference between a smooth business transaction or a messy court fight.
The following steps should be followed when signing any contract:
1. Make Sure the Contract You're Signing Is the Contract You Agreed to Sign
If the contract has gone through a number of rounds of negotiations or revisions, don't just assume that the copy put in front of you to sign is what you think it is. Before you sign it, be absolutely sure that you fully know and understand the terms of the document. Under Michigan law, you are generally bound by a contract that you sign even if you have no knowledge of its contents. Unless you can prove that the other party engaged in fraud or other wrongdoing in preparing the contract or inducing you to sign it, you will be required to abide by it.
2. Date the Contract
While a contract does not have to be dated in order to be valid and enforceable, it is a good idea to do so. Dating a contract will help you to positively identify it later if you need to and will help you place it in its proper chronological context. Also, it is legal in Michigan to predate a contract. In other words, you can provide that your contract is entered into "as of" or "effective" a date earlier than the date of the contract is actually signed. If that is done, the contract will be effective retroactively "as of" or "effective" that earlier date.
3. Make Sure Both Parties Sign the Contract
This may seem like a basic (and it is!) but you'd be surprised at how often this slips by in the hustle and bustle of getting on with business. Although you don't necessarily have to sign an agreement for it to be valid, why would you want to take that chance? There is absolutely no better way of proving that a party intended to be bound by a contract then by whipping it out and displaying their signature on the document. If it is possible that the parties to a contract will not sign it at the same time, you might consider adding a section in the contract providing that the contract will not be legally binding unless it is signed by both parties.
The parties do not necessarily have to sign the same copy of the contract in order for it to be binding. If the parties do sign different copies of the contract, they must agree that each of their signature pages together constitute a complete executed agreement. That's why contracts often contain a provision stating that "the parties may execute this contract in counterparts, each of which is deemed an original and all of which constitute only one agreement."
4. Make Sure Any Last Minute Changes to the Contract Are Initialed
The best course of action is to have any changes included in the signature version of the contract. This will help ensure there are no misunderstandings as to what the parties intended to sign. However, if it is not possible to have have a contract revised and reprinted before it is signed, make sure that any changes made to the contract by hand are initialed by each party to the contract.
5. The Parties Must Sign the Contract in Their Correct Capacity
If an entity is a party to a contract, it is imperative that the signature block properly identifies the party signing on behalf of that entity. For example, if someone is signing as president of a corporation, the signature block should look something like this:
Acme Widgets, Inc.
Why is this so important? Because signing correctly on behalf of an entity will prevent any later claims that the person signing the contract is personally liable for the entity's contractual obligations.
6. Make Sure the Other Party Has Authority to Sign the Contract
The importance of this cannot be over emphasized. Obviously, you do not want a company to claim that it doesn't have to abide by the contract because it was signed by someone who was not authorized to do so. Thus, if the other party to the contract is a corporation, you need to be sure that the corporation is actually in existence, that the person signing on behalf of the corporation has the authority to do so, and, that the contract was approved by the corporation's shareholders or directors.
7. Keep an Original Signed Copy of the Contract in Your Files
Each party should get an original signed copy of the contract for their files. That means if there are two parties to the contract, two identical contracts must be signed. One original copy of the contract should go to you, and one original copy should go to the other party.
Please feel free to contact Michigan contracts attorney Michael J. Hamblin for more information on how he can help you with your legal needs.