Good Faith and Errors in Business Contracts

If you enter into a business contract in good faith and it subsequently transpires that the contract was incorrectly authorised or otherwise invalid from the perspective of the other party’s internal regulations, where do you stand?

A bank found itself exposed under a debenture and cross-guarantee because only one director had signed the documentation. Two signatures were required and the director had counterfeited his co-director’s signature, this being usual practice for them when matters were agreed. However, on this occasion, there had been no agreement and the second director was unaware of the document. When the bank sought to appoint an administrator, after the company defaulted on its loan, the second director went to court to have the appointment set aside on the ground that the documentation for the loan had been forged.

Again, the court decided that the bank had acted in good faith. The forged document was enforceable against the company because the director who placed both ‘signatures’ on it had the ostensible authority of the other director to do so.

Contact Paul Hillier on 01234 858000

	News & Events	If you enter into a business contract in good faith and it subsequently transpires that the contract was incorrectly authorised or otherwise invalid from the perspective of the other party’s internal regulations, where do you stand? A bank found itself exposed under a debenture and cross-guarantee because only one director had signed the documentation. Two signatures were required and the director had counterfeited his co-director’s signature, this being usual practice for them when matters were agreed. However, on this occasion, there had been no agreement and the second director was unaware of the document. When the bank sought to appoint an administrator, after the company defaulted on its loan, the second director went to court to have the appointment set aside on the ground that the documentation for the loan had been forged. Again, the court decided that the bank had acted in good faith. The forged document was enforceable against the company because the director who placed both ‘signatures’ on it had the ostensible authority of the other director to do so. Contact Paul Hillier on 01234 858000 Back to top

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