20 Jan 2014

    

This article is a timely reminder never to sign a document where agreements or promises are recorded unless you have made sure, with the benefit of legal advice, that it clearly and accurately:

 

(a)  identifies every party involved in the transaction;

 

(b)  states the legal roles and relationships of each party;

 

(c)  states what each party has agreed to do and for whose benefit or at whose request; and

 

(d)  provides that each party who promises something is promised something in return.

 

With some exceptions, most contracts are exchanges of legally binding promises.  In theory, contractual promises, or covenants, are legally binding because:

 

(a)  each party to the contract wants to be bound to their part of the bargain (in other words, the contract is voluntary); and

 

(b)  the parties to the contract have the same intentions about who is bound to do what under it (in other words, the contract is consensual).

 

Sounds simple right?  In theory, it is.  At least, that is, until a dispute arises as to a party’s intention to be bound by the terms of the contract (voluntariness) or what terms the parties intended to be bound to (consensus).

These matters can become complicated because of the rules about what evidence you can and can’t use to prove voluntariness and consensus.  Basically, the rules say that you cannot give evidence in a written statement or from the witness box about what you intended or whether your intentions were the same as the other party’s.

So, when you have what appears to be a written agreement, then generally speaking, the only evidence you can use to prove there was any intention to be bound to its terms, or what those terms actually mean, is the contents of the document itself.  There are exceptions to this rule: for example, where the words of the document are reasonably capable of being understood in more than one way or where the authenticity of the document is in dispute.  But in most cases, the rule applies.

However, the written terms are not the only part of a document that can be used as evidence of the parties’ intentions.  Signatures, handwritten words and other marks  that parties place on written documents can often give an insight into what the parties intended.  Sometimes, though, what a signature or other marking was intended to mean, and what lawyers and judges interpret them to mean, can be very different.

Take this example from a real case (the details of which have been altered):  Joe is the Managing Director of a company that provides professional services to the mining industry.  He is approached by the representative of a mining and exploration company to arrange a survey of a mining tenement and to analyse and report on the results of the survey.  Joe accepts this instruction and signs:

 

(a)  an agreement with the mining and exploration company to arrange and report on the survey; and


 


(b)  an agreement with a surveyor to survey the tenement and provide the survey data to Joe’s company for analysis.


 

The problem with Joe signing both contracts is that in fact, he never intended to be personally liable to pay the surveyor for its services.  In his mind, the surveyor was going to do the job for the mining company’s benefit, so the mining company should pay for it.  Meanwhile, though, the mining company became insolvent without paying the surveyor’s fee for its services. Later, when the surveyor’s lawyer looked at its contract with Joe, the lawyer noticed that Joe had:

 

(a)  signed the survey agreement in his own name without having taken legal advice; and


 


(b)  written what he understood to be the name of the mining company underneath his signature; but


 


(c)  got the mining company’s name just wrong enough to create confusion as to the mining company’s identity.


 

On this basis, the surveyor’s lawyer invoked the “undisclosed principal doctrine” which applies in this case because Joe did not tell the surveyor that it would be dealing with him as agent for the mining company.

 In these circumstances, the “undisclosed principal doctrine” says that the surveyor was entitled to assume that it was doing business with Joe personally and enforce its right to be paid again him.  The surveyor ended up suing Joe accordingly, even though, by then, Joe had told the surveyor that he had been acting for the mining company all along.  This is not surprising, since the mining company had gone bust!

As the above example shows, complex legal issues can arise where, for example, agency relationships are involved or promises recorded in a document are intended to benefit non-parties.  In all such cases, good legal advice is essential.

 

This is general information only, and does not constitute specific legal advice.

Murray Thornhill is the Director at HHG Legal Group with the Litigation/Commercial Law team. Daniel Morris is an Associate with the Litigation/Commercial Law team at HHG Legal Group. If you would like further details in relation to this information, please contact HHG Legal Group on 1800 609 945.

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