Certain types of document are not valid unless they are in the form of deeds. The most common of these include transfers of land, certain leases, mortgages and charges, powers of attorney and appointments of trustees.
In English law, deeds differ from ordinary contracts in a number of respects. First, a deed is enforceable whether or not consideration (i.e. money or value in some other form) is given for the obligations undertaken by the parties to it. By contrast, an ordinary contractual promise made for no consideration is not enforceable. Secondly, the limitation period for action to enforce an obligation arising under a deed is 12 years, double the period for action for breach of an ordinary contract. Finally, an ordinary written contract is effective as soon as it is signed (unless its terms state otherwise), but a deed must be both signed and delivered. It is at the point of delivery that the deed becomes binding and effective.
Traditionally, the execution and delivery of a deed was accompanied by much formality. Deeds had to be not only signed but also sealed (originally involving the use of sealing wax, more recently requiring red labels to be stuck onto the document). The parties to a deed had to speak certain words confirming that the deed had not only been signed but was also being delivered so as to become effective.
Over time, the requirement for a spoken confirmation of delivery fell away. Instead, the parties simply had to show an intention to be bound by the deed. This intention could be shown by action rather than words, for example by a party doing something that the deed obliged it to do (such as handing over the deeds to land or the keys to a property). In the case of companies, the law laid down a presumption that when a company executed a deed, it also intended it to be immediately delivered unless a contrary intention could be proved (now section 46(2) Companies Act 2006).
By 1990, even the red seals or stickers became unnecessary. Instead, the law imposed a "face value requirement", in other words a deed had to make clear on its face that it was a deed. For example, the words "executed as a deed" in the document would suffice. Companies no longer had to use a common seal to execute deeds, but could instead have deeds signed by two directors or a director and company secretary. Moving forward, since 6 April 2008, only one director needs to sign a deed for a company, so long as the signature is duly witnessed.
Although this gradual reduction in formality and ritual was welcome, a deed must still be delivered in order to become binding. However, for most practical purposes, an executed deed can now be treated as delivered unless there is something to demonstrate that the parties do not intend delivery to take place. This means that in practice, deeds and ordinary contracts are often treated in exactly the same way. In both cases, it is often assumed that the document does not come into force unless and until it is dated. This assumption is incorrect.
Once a deed has been executed and delivered, it is binding and cannot be revoked unless either the parties agree to this (by way of a further deed) or there is provision in the deed permitting revocation by other means. The consequences of this can be seen from the decision of the High Court in Silver Queen Maritime Ltd v Persia Petroleum Services plc [2010] EWHC 2867 QB.
Two companies were in litigation over failures to make payments for services. Negotiations brought about a settlement, the terms of which were set out in a settlement deed. The settlement deed did not contain an express provision allowing it to be revoked. The deed was executed by the defendant and emailed to the claimant's solicitors. The email said nothing about delivery of the deed.
The defendant subsequently discovered that certain material facts had not been disclosed by the claimant during the settlement negotiations. The defendant's solicitors therefore notified the claimant's solicitors (on the morning following the sending of the settlement deed by email) that the defendant was no longer prepared to be bound by the settlement deed. The claimant then duly executed the deed and it was returned (undated) to the defendant's solicitors. The claimant indicated to the defendant that the claimant regarded the deed as binding. This was disputed by the defendant.
There were then further settlement discussions in which the claimant indicated that it would accept a lower amount than that specified in the deed provided this amount was paid in full within a few weeks. The defendant alleged that this further offer meant that the claimant could no longer rely on the terms of the settlement deed.
The High Court ruled that the settlement deed remained fully enforceable against the defendant. This was unaffected either by the defendant's statement that it was no longer prepared to be bound by the deed or the subsequent discussions between the parties.
The court held that a deed could be delivered in the following ways:
- unconditionally: the deed takes effect immediately and is irrevocable;
- in escrow: the deed is irrevocable but does not take effect unless and until the relevant escrow conditions are satisfied; or
- passed to an agent who was instructed to deal with it in a particular manner: the deed is revocable and does not take effect unless and until the agent complies with those instructions, at which point the deed is delivered and takes effect.
The court held that the settlement deed had been delivered in escrow, being conditional only on being executed by the claimant and returned to the defendant's solicitors. The defendant had not, in executing the deed and instructing its solicitors to send it to the claimant's solicitors for execution, indicated that it reserved any right to withdraw from the settlement. Nor did the terms of the deed itself permit such a withdrawal. The absence of a date from the document was irrelevant, as the correspondence between the parties and their solicitors clearly showed when delivery took place. For the purposes of section 46(2) Companies Act 2006, the defendant could not prove any contrary intention to the deed being delivered by it immediately on execution. In order to do so, the defendant would have needed to state such an intention openly to the claimant. Accordingly, the settlement deed was presumed to have been delivered when executed.
Furthermore, the deed was unaffected either by the alleged non-disclosure of material facts or by the parties' subsequent discussions. The non-disclosure was not in breach of the Civil Procedure Rules, nor was it fraudulent. There was no relationship of trust between the parties such that non-disclosure would amount to a breach of fiduciary duty. The further discussions were merely that; discussions between parties who were, at that stage, in dispute over whether or not a binding settlement had been concluded between them. No further binding agreement had been reached during the discussions.
When executing deeds, always remember that what matters most is not signing or dating, but delivery. If you are executing a deed which you do not intend to become fully effective immediately, ensure that you clearly state to the other parties (preferably in writing) any conditions attaching to delivery. In most cases, it will be sufficient for the deed to contain a provision stating that the parties do not intend delivery to take place until they insert the date of the document. At the very least, it can be agreed that a deed executed by one party is sent to the other party on condition that it is held to the order of the first party until both parties agree that it comes into force.
In practice, very similar issues will arise in relation to ordinary contracts; always be clear about when they are intended to come into effect, regardless of signing and dating.
A specific issue can arise in relation to mortgages and charges executed by companies. Particulars of these must be delivered to the Registrar of Companies within 21 days of being created. If they are not, the security is rendered unenforceable against a liquidator, administrator or creditor of the company. In addition, the company and defaulting directors face fines. It is sometimes overlooked that the 21 day period starts to run as soon as the mortgage or charge is executed (if it is not made clear that delivery is not to occur until later), even if this is done in advance of the document being dated.