The Importance of Observing all the Formalities required for Deeds

In a recent case, the High Court has had to determine whether guarantees and warranties in the form of deeds had been properly “delivered” by certain individuals.

Under English Law, there are certain contracts that are required to be in writing and in the form of a deed in order to be enforceable. In order for a contract to be in the form of a deed, certain formalities must be adhered to.

Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 (LPMPA) provides that a document shall not be a deed unless it makes clear on its face that it is intended to be a deed by the person making it or the parties to it. This can be achieved, for example, by either describing itself as a deed or expressing itself to be executed or signed as a deed. A document must also be validly executed as a deed (signed in the presence of a witness) and delivered as a deed.

It was this concept of delivery which the High Court had to determine in Bibby Financial Services Ltd and others v Magson and others [2011] EWHC 2495. The courts have previously held that a deed is delivered in law as soon as there are acts or words sufficient to show that the parties intend to be bound by the deed, and this case is a useful illustration of this principle.

Facts

This case involved a claim against the directors of a company in relation to guarantees and warranties which had been signed by them. Three friends were in a pub, discussing a transaction, as well as drinking beer and discussing industry gossip and sport. When asked to sign the documents as a source of comfort to Bibby’s commercial director, and on the basis that they were to be amended, the directors obliged by signing the documents in the presence of a witness, after making manuscript alterations to the documents.

The directors contended that the warranties and guarantees had only been signed as a gesture of good faith and that their expectations, following discussions at the time of the signature, were that clean versions of the guarantees and warranties, incorporating amendments to take account of their manuscript notations, would be produced for them to sign. As a result, the signed versions of the guarantees and the warranties had not been dated or delivered and therefore had not been properly executed.

Decision

The court decided that, as each document was in the form of a deed, it was required to be delivered as a deed within the meaning of the LPMPA. The court held that, on the facts, neither of the directors had intended to deliver the guarantees and warranties, in the technical sense, and were therefore not bound by them.

Comment

The circumstances of the case are unusual yet it still serves to illustrate the importance of ensuring, in all circumstances, that the parties to a deed are clear about when it has been delivered, as well as highlighting the dangers of signing any document in unfinalised form.

To avoid a situation such as that described in this case from arising, parties may wish to consider including clauses in the deed itself to clarify when delivery is effective.

Mark Carter
December 2011

Please note, this article was published by Rickerbys LLP before merging with Harrison Clark Ltd on 29 April 2013.

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