Corporate & Securities Law

Questionable Defense of the Month: ?I Signed the Contract in the Wrong Place?

By Ken Adams

Today the Law Shucks blog posted this item about a former IBM executive, David L. Johnson, who is claiming that his noncompetition agreement with IBM is unenforceable. One element of his defense is that he signed the contract in the space where IBM was supposed to sign. According to Bloomberg:

Johnson told Robinson he signed the agreement on the space where IBM was supposed to sign because he thought it would prevent the contract from taking effect. His lawyers said it was up to IBM?s human resources department to make him to sign the agreement or punish him?something that didn?t happen.

?The notion that Mr. Johnson intended to be bound by that agreement is absurd,? Johnson?s lawyer, Michael Banks, said at the hearing.

In their post, Law Shucks said they hoped that I’d have something to say about this?and I heard the call!

If Johnson’s defense were limited to the fact that he had signed the contract in the wrong place, he would likely have a tough time getting any court to buy his defense. Here’s what 1-2 Corbin on Contracts § 2.10 has to say generally about such matters:

A signature may be operative without respect to its position on the document, although it is customary to sign at the end of the writing and beneath the written provisions. There must be satisfactory evidence that the signature was affixed with intent to authenticate and express assent to the entire document.

And in a few minutes of rooting around on Westlaw, I found a relevant case, Karapanos v. Boardwalk Fries, Inc., 837 P.2d 576 (Utah App. 1992). Here’s the relevant language:

Karapanos argues that because he signed in the wrong place, the agreement was never executed. We disagree. Black’s Law Dictionary defines “execute” as “[t]o perform all necessary formalities, as to make and sign a contract.” 509 (5th ed. 1979). In addition, “it is a general rule that a signature located anywhere on a contract is sufficient to authenticate the instrument if it was placed there with the intent to do so.” Pio v. Gilliland Constr., Inc., 276 Or. 975, 560 P.2d 247, 250 (1976); see 1 Corbin on Contracts 122 § 31 (1950). Karapanos admits he intended and believed the agreement to be enforceable when he signed it. In fact, he assigned his interest under the agreement to Guardian State Bank to secure a loan. He also flew to Maryland to receive training from Boardwalk. Boardwalk similarly conducted itself as if the agreement were fully enforceable. Boardwalk gave Karapanos confidential and proprietary materials, including operation and training manuals, business plans, budgets, and equipment specifications. It was only after Karapanos began having doubts about his decision that he questioned the enforceability of the agreement. Therefore, we conclude the parties executed the agreement, and we will enforce the agreement as it is written.

The lawyers for our former IBM executive would doubtless distinguish Karapanos by saying that Johnson never did anything to suggest that he thought the contract was enforceable. The problem is that the way you comply with a noncompetition agreement is by … doing nothing. So lack of any indication of assent other than Johnson’s signature wouldn’t seem to prove anything.

But there’s more to Johnson’s story that the fact that he signed in the wrong place. Apparently IBM never signed the contract and returned the original to Johnson, who refused requests to sign another. So the story is murkier than it seems at first glance.

Full post as published by AdamsDrafting on June 24, 2009 (boomark / email).