3.8 Aspects of signing, and initialling

Who should sign and how to reflect this? The signature block should identify the name of the signatory and, preferably, the legal position of the signatory. This position is important in order to be able to establish whether or not the contract party was duly represented at the time of entering into the agreement. Defects in the representation of a company can often be repaired by a board resolution of the quasi-represented party in which the entering into of the agreement is ratified. (Since the First European Directive on company law determines that only the represented company can invoke undue representation, such ratification merely protects the representative and may be of convenience for the other party.) Obviously, agency law related to the question of whether a company has been bound by an agreement may well protect the counterparty against undue representation and it is good practice to reflect this under the signatory line (i.e. the signatory should himself or herself be liable if the description is untrue).
The wording identifying the signatories’ respective legal position should be consistent with the requirements for representing the company. Normally, the articles of association of the companies involved establish how the relevant company can or must be represented. If the articles require that only the president or chief executive is authorised, the signature block should reflect this. If the articles authorise each managing director, the signature block could refer to the signatory as the managing director as well as to his or her specific position as chief executive or president.

Powers or attorney and internal policies. If the agreement is executed by a person authorised on the basis of a power of attorney, the signature block should identify the signatory as Attorney-in-fact. In many companies, there are contracting policies in place authorising business line managers to enter into less significant contracts; such policies should be set out in a power of attorney. In such cases, the authorised person is often identified by reference to the business position rather than as an attorney-in-fact.

(Limited) partnerships. If a partnership is a party to the agreement, the signature block should clarify how and by whom the partnership is represented. As with corporate legal entities, the signature block should identify the quality (or legal position) of the signatory. After all, the signature block should establish how the contracting party is represented. This can be done by embedding an extra line in the signature block identifying the representing entity. Such signing particularity could also be ‘announced’ in the parties block on the first page.
Similarly, if a company must be represented by another legal entity (i.e. because the managing director is itself a legal entity), the signatory line should identify both the name of the latter legal entity and the name of the person authorised to represent that legal entity.

Each party a signature block. If a contract is entered into between more parties (e.g. a loan facility agreement between financing parties on the one hand and various affiliated borrowing (or guaranteeing) parties on the other hand, each such party should have a signatory line even where several entities are represented by one individual.

A signature schedule. If an agreement is between many contracting parties the execution of the agreement may logistically be burdensome and it can be useful to provide for a separate signature schedule. Accordingly, the concluding clause should refer to the schedule in which the signature blocks are included and the signature schedule should identify the agreement to which it relates (as well as a phrase ascertaining that execution of the schedule has the effect of executing the agreement). This has the same effect as a deed of adherence, by the execution of which a person adheres to an existing agreement.

Attach no powers of attorney or other evidence. It is uncommon to attach evidence of each party’s signatory’s authority to represent the contract party in the ordinary course of business contracts. Moreover, it seems common practice that both parties rely on the other party’s proper entering into the agreement. In major corporate transactions (in which a law firm is involved), the contract binders often contain a final chapter in which copies of all powers of attorney and corporate resolutions are gathered.

A wife or husband’s consent. Under the laws of several EU member states, statutory provisions exist requiring that the partner of a natural person who is married in a ‘community of property’[18] must give his or her consent to important transactions by the partner (e.g. a transfer of shares or securities in a company or granting a guarantee on behalf of a company owned by that other partner)[19]. If the consent is missing, the transaction is null and void. In practice, such consent is typically placed underneath the signature blocks (and obviously requires the signature of the partner). In the Netherlands, there is important case law confirming that this principle also applies to securities in investment funds (e.g. established in relation to life insurance policies or mortgage-related financial products).

Initialling pages. In many jurisdictions, it is common practice that all pages of a contract are initialled; the question is ‘why?’ Initialling contract pages appears to be something that is not found in US commercial legal practice, whilst in Spanish and Dutch legal practice, initialling each page is common.
In the Netherlands, it is common practice to initial all pages (including a cover sheet). On the signature page, the initialling person (who is not necessarily the signatory of the contract) would place his or her inital next to the legal entity for which the document was initialled. As in Spain, this applies both to M&A and ordinary course business transactions.

Legal prerequisite? Is there a statutory requirement for this? We are not aware of such requirement. In particular contexts or for certain specific types of contracts, it may have been in the past. Apart from very specific cases, initialling pages is probably nowhere required in order for the contract to be valid or enforceable.

Purposes of initialling. In an M&A context, even the pages of the schedules and annexes (including those attached to a disclosure ‘letter’) would be initialled. For ‘Agreed Form’ agreements attached as schedules, often, a reference is made in the definition of Agreed Form that they are initialled for identification purposes (meaning that “this is substantially the text we agreed”). After closing, they would probably be replaced in the binders by their executed final form versions. Usually, the lawyers (i.e. the junior associates of the law firm’s partner involved) would do the initialling. The main idea would probably be to be able to identify the documents in their entirety; and certainly not as a representation by the law firm that the document is complete.
For ordinary course agreements, initialling the pages serves an additional purpose: in several companies, there is a compliance policy rule saying that the contract be reviewed (and approved) by in-house legal counsel. The authorised signatory (often: the two signatories) would sign only if legal counsel has initialled the pages as a sign of approval.
In both contexts, initialling serves the purpose of a final check whether the agreement is complete, properly dated and undone from square bracketed texts. Typically, it happens that annexes with technical spec sheets, the general terms and conditions or even the list prices have not yet been attached.
By way of conclusion: the initialling lawyer serves as a gatekeeper of the contracting process. Introducing initialling as a safeguard in the process improves transaction quality, increases certainty and hence reduces risks.