How to ensure a person signing a contract has the authority to do so
If you are entering into a contract with a company, you have to ensure that the director signing the contract has the authority to do so, otherwise the contract could be cancelled completely.
In a recent case in the New Zealand Court of Appeal, the Court cancelled a contract for the sale of land because the director who signed the contract did not have authority to represent the vendor company. In that case, the director was a single director on a board of 2 directors.
A company is controlled by the board of directors. All decisions of the company must be made by the majority of the directors. So if a board has 2 or more directors, then a single director does not have any power to make decisions for the company.
Therefore, if you intend to sign a significant contract with a company, then you must be aware of the following:
- If the company has 2 or more directors, then you must obtain the signatures of the majority of the directors;
2. If only 1 director is signing, you must ensure the person is the sole director of the Company, which you can check on the Companies Office website. You must keep a copy of the company extract to prove there was only 1 director on the date the contract was signed;
3. If only 1 person is signing, you must ensure that person is the CEO or Managing Director of the company; or
4. Lastly, you can ask the company to provide you with a copy of the written resolution of the board approving the entry into the contract.
In short, do not assume the person signing on behalf of a company has the authority to do so, always check if he or she does in fact have authority to contract.
Partner & CEO
Kenneth is the founding partner of Capstone Law. Kenneth has a MPhil from the University of Cambridge, and he was also awarded the prestigious Dean’s Academic Achievement Award for graduating from the University of Auckland law school in the top 5% of his class. Kenneth has worked at some of the best law firms in the country before starting Capstone Law.
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