Let's face it: No matter how hard you try to avoid it, one
of these days you and your business may unfortunately end up in
court over a contract dispute.
One very simple, inexpensive but very effective legal tip that
could provide the winning edge in court is to have all the
signatures on important contracts or agreements acknowledged by a
notary public. In plain English, have the signatures notarized.
Yes, I understand that locating a notary public to witness the
signing of a contract can be difficult. But smart business owners
know the financial and legal value of having signatures on that
important contract or agreement notarized.
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A notary public is a person who has a special commission from a
state or county government to allow him or her to acknowledge or
officially witness another person's signature on a document.
The purpose of the law is to provide a form of legal guarantee that
the person signing the document is "The Real McCoy" (or
"The Real John Hancock" for that matter).
Long ago, it was legally essential to have many types of
contracts notarized. Today, however, the law typically requires
that only a few types of documents have to be notarized to be
lawful and valid. The most common area where notarization of
signatures is still required is on real estate deeds.
So if the law doesn't require you to notarize signatures on
your contracts, why would you want to? There are two very practical
and money-saving reasons.
First, as unbelievable as it may sound, a person may actually
deny in court that he signed a contract, particularly if that
contract placed him on the short end of the deal. Once a person
denies signing a contract, there are big (read: very expensive)
legal hurdles you and your lawyer have to jump over to win in
court.
Fortunately, having all signatures notarized can be a very
simple and inexpensive way to prevent this very expensive nightmare
from happening to you.
The magic behind the notarization of signatures is that many
state courts and all federal courts automatically declare a
notarized signature to be authentic in court. For example, Rule
902(8) of the Federal Rules of Evidence in a U.S. court goes like
this:
Extrinsic evidence of authenticity as a condition precedent
to admissibility is not required with respect to the
following:
- Acknowledged documents. Documents accompanied by a
certificate of acknowledgment executed in the manner provided by
law by a notary public or other officer authorized by law to take
acknowledgments.
What this bit of legal "mumbo jumbo" means is that
when a person's signature has been notarized, many courts waive
the legal requirement of proving authentication of the contract and
that alone can save you a great deal of time and money in
court.
There's a second important reason to require notarization of
signatures on important documents: Notaries are typically required
by states or counties to be bonded by insurance companies.
To show why this can be important to you, let's take the
example of a contract where all the signatures have been notarized
but later in court one of the parties denies ever having signed the
contract.
The notary is then brought into court to testify that he did in
fact witness the signatures of all the parties to the contract as
is indicated in the notary acknowledgements. If it turns out that
the notary made a mistake in verifying the signatures (for example,
failed to check their identification or failed to actually witness
the signing), then the insurance company who issued the bond for
the notary will very likely be responsible for any damages that
your business incurs if the notary's mistake causes you to lose
the contract lawsuit.
Although the dollar amounts of notary's bonds are not huge
(typically in the range of a few thousand dollars), you need to ask
yourself this money-saving question the next time you sign a big
contract: If I can't prove in court that the other party
actually signed my contract, who's going to pay for that
mistake, me or some notary who is bonded by an insurance
company?
The answer to that question is best stated by eminent legal
scholar and business tycoon Homer Simpson:
"d'oh!"
The key to notarization of signatures on key contracts is that
it is very much a bottom-line proposition: The bottom line you save
may be your own.
Note: The information in this column is provided by the
author, not Entrepreneur.com. All answers are general in nature,
not legal advice and not warranted or guaranteed. Readers are
cautioned not to rely on this information. Because laws change over
time and in different jurisdictions, it is imperative that you
consult an attorney in your area regarding legal matters and an
accountant regarding tax matters.
is an award-winning small-business advisor and attorney
and the founder of The Law Firm For Businesses, a boutique law firm
that helps entrepreneurs solve their business and legal
problems.