You might have given someone the authority to sign on behalf of your company. Does that signature have any clout in the big, wide world? What about the person who does the signing? Can they legally act on behalf of your company? And the person you’re negotiating with at another company? Are they authorised to sign on the dotted line and seal the deal?
It’s important to understand who can sign documents on behalf of your company.
It’s just as important to know if the person you’re negotiating with has sufficient authority to validate an agreement. The following story will underline why you should pay close attention to such things.
Bishop Warden Property Holdings Limited v Autumn Tree Limited has caused some discussion in legal circles. The case underlines why it’s dangerous to rely on the ability of one director, on a board of more than one, to contract on behalf of a company. The case has implications at many levels. It’s a reminder that you, or those you work with, might not have as much authority as you think.
Tina, as she was called during the case, was a director of Autumn Tree, a property development company. Tina signed an agreement to sell the company’s major property asset to Bishop Warden Property Holdings Limited at a price significantly below its value. The purchaser checked the Companies Office register for Autumn Tree, which apparently showed Tina as sole director.
So far, so good. But there’s a twist. Every good story needs a twist…
Just hours before Tina did her deal with Bishop Warden, Autumn Tree registered another director: Anna. As a result, when Tina’s agreement was signed, only one of two directors had signed it. Tina claimed she was the sole director at the time the agreement was signed. She insisted she had full authority. The purchaser, Bishop Warden, agreed with Tina. Why wouldn’t they? They’d just done a deal to buy a heavily reduced asset.
Remember, at the time the agreement was signed, Tina was not the sole director of Autumn Tree. The company, probably mindful of the cut-price sale to Bishop Warden, insisted both Anna and Tina were registered as directors. As such, they claimed that one of two directors did not have the authority to unilaterally enter into a property transaction of this scale. Furthermore, they said that Tina did not have any other express authority from the company to enter into the agreement alone. They refused, therefore, to honour the agreement.
Bishop Warden took Autumn Tree to the High Court to argue the agreement was valid. They were anxious for their cut-price purchase to proceed. Unfortunately, for them, the High Court agreed with Autumn Tree; the deal was invalid as just one of two directors had signed. Bishop Warden persevered. They went to the Court of Appeal. Different court, same result. The Court of Appeal also decided that the original deal was invalid.
This sorry saga might not be exactly replicated within your company. We certainly hope not! But it does serve as a timely lesson in making sure that whoever signs on your behalf of your company has genuine authority. At the same time, if you’re negotiating with someone from another organisation, it’s crucial you check their ability to authorise an agreement.
Knowing if they’re the only director, or one of several, is a vital point to investigate before entering into a contract.
If they claim to be a sole director, make sure that aligns with the most recent Companies Office register entry. If they are one of several directors, yet they say they are authorised to act on behalf of the company, you’re entitled to seek evidence of their authority.
It can be a deal maker, or a deal breaker. As it is a complex issue, we suggest you get in touch with us. We’ll help you understand how much authority you have, and how much authority they have.