Many people do not understand the need for signatures to documents to be witnessed.
The recent Supreme Court of Western Australia decision of Netglory Pty Ltd v Caratti [2013] WASC 364 (Netglory Case) provides a useful illustration of the importance of the proper witnessing (or attestation) of signatures to documents.
Background
Documents fall into two basic categories – deeds and agreements.
For an agreement to be binding, there has to be the passing of “consideration” between the parties. “Consideration” is the price that is asked by the promisor in exchange for their promise.
If a document is a deed, it will be binding even if there has been no passing of consideration between the parties.
That is why the vast majority of documents are structured as deeds.
To be a deed, a document must comply with the formalities in s 9 of the Property Law Act 1969 (WA), being that:
the document must be signed by the parties to be bound by it;
each signature must be “attested” by at least one witness that is not a party to the document; and
the document must be expressed to be a deed.
It is critical for any document to comply with the deed formalities if there is no consideration passing between the parties as the document is unenforceable as a simple agreement.
The case
Facts
The Netglory Case involved a claim by Netglory Pty Ltd (Netglory) to recover funds lent to Hocking Land Company (Hocking) under a loan agreement for which Mr Caratti provided a personal guarantee.
The loan agreement met two of the three requirements of a deed - it was expressed to be a deed and was signed by the parties to it. The point in dispute was whether the loan agreement had been properly attested.
Netglory’s consultant, Mr Pollock, claimed that he witnessed Mr Caratti’s signing of the loan agreement and the guarantee in 2003. However, he did not sign those documents as a witness until 2010. By that time, Mr Pollock was in jail (which did not assist with his credibility at the trial).
Netglory claimed that Mr Pollock had properly attested Mr Carrati’s signatures on two grounds:
firstly, that to attest simply means to witness, such that the witnessing party is not also required to sign the document; and
secondly, even if the signature of the witness is required, this requirement is met if the witness is present at the signature and subsequently signs the document as an attesting witness.
Findings
Edelman J:
found that the loan agreement was not binding as a simple agreement as no consideration had passed between the parties;
held that even if there had been an advance of funds from Netglory to Hocking under the loan agreement (which was in dispute), such advance occurred before the date of the loan agreement and therefore fell foul of the principle that “past consideration” is not good consideration;
in rejecting both of Netglory’s claims that Mr Pollock had properly attested Mr Caratti’s signing of the loan agreement, held that attestation must occur contemporaneously with the witnessing of the document; and
noted that one of the purposes of attestation was to avoid fraud and that “this purpose would be undermined if an alleged witness could simply sign the deed, many years later, even immediately before litigation or possibly even in the witness box”.
Lavan Legal comment
The decision in this case is not surprising and represents what one would expect to be the case.
The decision highlights that proper attestation of a deed requires that a person attesting a deed must sign the deed contemporaneously with the witnessing of the document.
Failure to comply with this formality can be critical as it may cause an agreement to be unenforceable if there is also no consideration passing between the parties.
A deed is seriously compromised (and as a result its effectiveness is severely diminished) if it is not properly executed.
Execution is a relatively simple procedure. A little care can prevent a lot of heartache. Conversely, it does not take much to render a deed virtually useless if the simple process of execution is not properly done.
