What happens when a seller of property executes a contract in the wrong capacity?
Individual Property Owners
If an individual is buying or selling a piece of property, the individual should execute the sales contract by signing just his name. Parties will sometimes, though, sign a contract in the wrong capacity. For example, if a seller owns a property personally, but he signs a purchase agreement as though the seller is the corporation of which he is president, then the contract is unenforceable. The corporation didn’t own the property, making that signature invalid. The owner didn’t sign the contract personally or individually. There is not a valid signature. If the parties don’t want to correct the mistake, or one (or both) of the parties does not want to move forward, the contract is unenforceable.
Authorized Agents or Representatives
If a corporation or some other entity owns the property, the person signing the contract on behalf of the company must reflect that representative capacity in the signature block of the contract. Authorized representatives may sign on behalf of corporations, partnerships, limited partnerships, and limited liability companies. Typically, the closing attorney in such a transaction will want a copy of the legal documents for the entity or a corporate resolution confirming the authority of the person to act in a representative capacity.
Executors, Administrators, Trustees and Guardians
Contracts signed by executors, administrators, trustees and guardians must identify the capacity in which a person is signing. The representative must name the person or entity being represented on the face of the contract and show that they are signing the contract in a representative capacity. If the representative relationship is not clearly disclosed on the contract, the contract could be enforced against the individual acting as the agent, representative, trustee, or guardian and not against the person or entity being represented.
Persons Whose Names Have Changed
Generally, when a seller’s name on the purchase and sale agreement is different from how it appears on the deed recorded in the land records, a closing attorney will require the seller to bring to the closing for verification her marriage license, divorce decree, or other official name-changing document, and a photo identification reflecting the seller’s new name. Once the name change is verified, a name affidavit stating that the named persons are one and the same is included in the recital section of the property deed. Lastly, closing attorneys generally require that the seller sign the deed and purchase and sale agreement with the new legal name, followed by “formally known as [or f.k.a.] _____________ [previous legal last name].” The sample signature block set forth below may be used to indicate a name change: Seller: /s/ Sally Smith Jones Sally Smith Jones, f.k.a. Sally Smith
Using a Power of Attorney
An individual who has been given a power of attorney may sign a contract on behalf of any individual party who has the capacity to enter into a contract. Since a contract for the sale of land must be in writing, the power of attorney giving someone the authority to sign a real estate contract on someone else’s behalf also must be in writing.
Georgia law also requires that the power of attorney be signed and sealed by a notary public and separately witnessed if the power of attorney is being given to buy or sell land. Generally, a power of attorney to sign a contract is executed before a party signs a real estate agreement on behalf of an absent party. However, in some rare instances, a party who is not authorized to sign an agreement will do so on behalf of an absent party without a power of attorney. If such an instance occurs, the contract will generally be void and unenforceable because the signatory did not have the proper authority to consummate the transaction. However, the party with the proper authority may ratify the contract after it has been signed by creating a power of attorney with a retroactive effect. Normally, in closing real estate transactions, the closing attorney is going to ask for the documents evidencing the power of attorney’s authority to execute the agreement on behalf of the absent party and recommended practice is for a party to grant the representative a formal power of attorney that expressly empowers the representative to execute a sales contract for a particular piece of property. If such a power of attorney is executed, the terms of the power of attorney should describe the property with the same specificity as the contract itself. Although the power of attorney may include only a general description of the property, title insurance companies are reluctant to accept such general authority for a representative to act.
Nevertheless, it is best if the power of attorney state that the representative has the express power to sign mortgage loan documents, if this is going to be the case. Lenders and title insurance companies may have their own preferred form for powers of attorney and require that they are used. While any legally enforceable power of attorney should do, it may make the transaction smoother to first check with the lender’s closing attorney or title insurance company to determine if they have a preferred form.
Consequences of an Insufficient Power of Attorney
A party who signs a contract based on an insufficient or ineffective power of attorney is not bound to the contract. Individuals who deal with representatives in real estate contracts should carefully examine the representative’s authority to act. If there is a written power of attorney, the party giving the power of attorney should be contacted, if possible, to confirm its authenticity. The parties may also attach a copy of the power of attorney to the sales contract. A power of attorney must be effective at the time it is being exercised. If the power of attorney is very old, it is best to verify that it is still valid. The power of attorney must be signed by the property owners of record. Further, the power of attorney must contain a provision that allows the agent to execute a deed of transfer of ownership to the property as well as the power to negotiate the terms of the sale. A power of attorney terminates by express revocation, by the appointment of a new agent, or by the death of the principal or agent. If a person acting in a representative capacity signs a contract based on a power of attorney and the power of attorney does not actually give the representative the authority to enter into the contract, the other party to the contract cannot sue the representative for a breach of authority if that other party could have protected himself by taking ordinary care, such as reviewing the power of attorney or contacting the party who gave the power of attorney.
Source: Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (pp. 299-307). BookBaby. Kindle Edition.
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