Contracts are an essential element when it comes to conducting business — we all know that.
However, there are still some legal terms or jargon that are used so often by people that draw up our contracts that we don’t entirely know what is meant.
For instance, contract signatory is a popular term that is used by one and all, but do we really know what it means?
In order to answer that query with a resounding YES, let’s dive into this article to understand what a contract signatory is, how it is different from an authorized signatory, what the obligations of a contract signatory are, what criteria they need to meet, and how to set up a signatory in PandaDoc!
- A contract signatory is anyone who signs the contract and agrees to all the obligations and responsibilities that come with it.
- Authorized signatories are those people approved by an organization or a person to sign on behalf of others.
- Contract signatories need to meet all the requirements stated in the contract law, and they are obligated to meet all requirements of the contract, provided that everything is legally valid.
- You can easily add signatories and sign contracts through PandaDoc.
What is a contract signatory?
Simply put, a contract signatory is anyone who signs a contract or any other legal agreement.
Let’s discuss this further:
To finalize a contract, you need two (or more) parties to sign it.
These parties that sign the contract are now known as contract signatories, and assume all the responsibilities that come with that title.
A contract signatory need not only be a person. It can also be an organization, or a country for that matter.
For example, if you’re an independent contractor working with a New York-based company, you’ll need to sign a contract with an authorized signatory from that company to lay down all the terms and conditions.
In such an instance, both you and the company are known as contract signatories.
As far as countries are considered, an authorized signatory can sign on behalf of a country (or a state) to enter into agreements or treaties (e.g., The U.S. has signed multiple free trade agreements).
In the United States, because of the ESIGN Act, both electronic signatures and wet signatures have the same legal validity, so contract signatories can use whichever method they prefer to jot down their signatures on the signature line.
Difference between a contract signatory and an authorized signatory
Because contract signatures and authorized signatures sound like such similar terms, it’s pretty common to get confused by the two.
So, here’s a quick summary of the differences:
An authorized signatory is basically someone who’s been authorized by a company, organization, state, country, or a signatory authority to sign official documents on their behalf.
In most cases, the board of trustees, vice president, or a delegation of authority picks and chooses who this person will be.
For example, a managing editor who signs contracts with freelancers on behalf of the company would be known as an authorized signatory.
But an authorized signatory’s role is not limited to only signing contracts; instead, they can also sign checks, bank account slips, forms, and other documents. In contrast, a contract signatory can only sign contracts.
So, to sum up, a contract signatory can only sign legal documents, whereas authorized signatories can sign multiple documents.
And anyone can be a contract signatory, but you need to be approved by someone to be an authorized signatory.
Put another way: All authorized signatories are contract signatories, but the same is not true vice versa.
What happens when someone who is not an authorized signatory signs the contract?
Now, this is where things get a little tricky. Let’s assume two different scenarios for this argument.
Scenario 1: Person who signed the contract didn’t have any authority
Imagine the person who you’re dealing with signs a contract without getting any approval from the right person(s).
In this case, your contract will be considered null and void, and the company you were previously in business with will not be liable to honoring it.
However, you might be able to go to court and hold the individual who signed the contract accountable.
Scenario 2: Person who signed the contract had apparent authority
In this scenario, we’re assuming that the person who signed the contract had authorization to sign contracts, but they didn’t have the authority to sign your specific contract, either due to the terms in your contract or the ticket size (dollar amount) involved.
Let’s assume the editor of a company has the authority to sign contracts with freelancers to work on contract basis.
In a turn of events, the same editor signs a one-year contract with an agency for content creation (aka, the same tasks that were previously assigned to the freelancers).
What happened here is that although the editor signed contracts for activities that fall under their domain, the work capacity and personnel specifics in these contracts were entirely different, and in such cases it can be argued that the editor had “apparent authority” to sign the one-year agency contract, and hence the contract must remain (unless if the deal was purposely shady).
Criteria a contact signatory needs to meet
We know we told you anyone can be a contract signatory, but there are some criteria that they, too, need to meet for the contracts they sign to be considered valid.
For one, according to the laws in most parts of the world, the person signing the contract needs to be considered an adult, which usually means 18 years of age and above.
Furthermore, they cannot be intoxicated when signing the contract, nor coerced or forced to sign the contract in any way.
The contract signatory also needs to be in the right mental state to sign the contract, and/or must have sufficient mental capacity to sign.
If any party can prove that these conditions were not met at the time of signing the contract, there’s a high probability of the contract being deemed null and void.
Obligations a contract signatory assumes
Anyone signing a contract directly assumes all the responsibilities and terms and conditions mentioned in the contract.
For example, in an employment contract, the signer (aka the employee) directly assumes the job-related responsibilities, code of conduct requirements, and company bylaws as stated in the contract.
At the same time, the signing authority (aka the direct boss/company) promises that the human resources department will send the new employee their salary every month for the work they do.
However, it’s extremely imperative that the contracts drawn up are both fair and legal for both parties, because if it’s not, then those contracts will be considered unenforceable by the law.
What makes a signature and a contract legally valid?
Signatures remain legally valid if they have been signed with the intent to carry out the terms and condition of the contract, were signed by a consenting party, and adhere to all required state-wide and country-wide laws (e.g., some countries require digital signature certificates or digital attribution with e-signatures).
As far as contracts are concerned, a legally valid contract needs to meet three conditions:
- There needs to be an offer
- The offer has to be accepted
- It has to be beneficial to both parties
How to set up a signatory in PandaDoc
So far, we’ve covered the following: a contract signatory is someone who signs the contract, and an authorized signatory is someone who has been given authority to sign these contracts on behalf of others.
We’ve also clarified what happens when someone who is not the authorized signatory signs the contract, and the important distinctions around what makes signatures and contracts legally valid (read: signatures require intent and contracts need to meet three conditions).
In this section, let’s get hands on, and explore how you can set up your signatories and sign documents in PandaDoc.
To begin with, go to your document’s signature page (if you don’t have documents ready, you can use PandaDoc’s templates to finalize things quickly).
On the right side of your tab, you’ll find a “Content” field.
Click Signature, and place where you want the signature to be.
The signature field will allow you to assign the signature to a recipient, and you can write down the recipient’s email and full name (you can even add more fields like address, company name, phone number, etc. by clicking on “More Fields”).
From there, you can either draw, type, or upload your signature.
It’s also entirely possible to change colors and fonts, or add other details like dates, names, initials, etc.
Once all this has been decided, you only need to select “Accept and Sign.”
When the final touches are done, you can forward your contracts to your intended signer and reviewer by clicking on “Send.”
PandaDoc allows you the option to send contracts through a link or on email, and you can even add small touches like a personalized note.
When it comes to legal contracts or official documents, you’re often left on the edge of your seat wondering how they went through and how well they were received.
For example, if you’ve sent a big-ticket proposal to a new client, you might want to know how the client is reviewing the document, what the areas of interest are to them, how many times they went back to read the proposal, etc.
Thankfully, with the advancement of technology, you can now get access to such insights at the click of a button.
PandaDoc shows you how many times your document was opened, when, and for long.
Alongside this, we also have insights on which pages your clients stopped on, the time spent on each page, and when they signed the document.
And you can access all of these insights without breaking the bank. To know more about what PandaDoc can do for you, schedule a demo!