Under English law, contracts can generally be made without them having to be in writing. However, there are certain types of contract that are not enforceable unless in writing. These include guarantees. Beyond this, there are some contracts that not only have to be written, but must be in the form of a "deed". With deeds, there are specific formalities that have to be followed.
The Law of Property (Miscellaneous) Provisions Act 1989 provides that a document is only to be treated as a deed if it makes clear on its face that it is intended to be a deed by the person making it (or, as the case may be, the parties to it).
A deed only becomes binding when it is "delivered". This does not necessarily mean simply handing over the document. The courts have held that for "delivery" to take place, the parties must have shown an intention to be bound by the deed.
The recent case of Bibby Financial Services and others v Magson and others [2011] EWHC 2495 illustrates this. This involved a claim against directors of a company in relation to guarantees and warranties signed by them. Mr Magson and his co-director submitted that although they had signed the guarantees and warranties to which manuscript amendments had been made, they had done so in the expectation that typed versions would subsequently be produced to them for re-signing and dating. Their position was that they had only signed the documents as a gesture of good faith and their intention to proceed; as corrected documents had not been produced, the guarantees and warranties were not properly executed.
The High Court found that the guarantees and warranties were not enforceable because they were not "delivered": "On my findings none of the Guarantees, the Warranties or the Bibby ID Agreement was intended to be delivered in a technical sense, when handed to [Bibby's] Mr Darling at the meeting on 27 August 2008 after signature by Mr Magson and Mr Scott...It follows that neither Mr Magson nor Mr Scott was bound by his Guarantee or his Warranty, and so is not liable to [Bibby] in this action".
The court made clear that signature alone is not enough; nor is it enough that "what looks like a deed has been given to the person who appears to be the beneficiary of it - the issue is not whether the document has been physically handed over to the beneficiary, but whether the person whose deed it is supposed to be intended to be bound by it".
It is not uncommon for guarantors, for example, to sign a guarantee in anticipation of a finance agreement being entered into with a customer. This case therefore highlights an important legal and practical issue.
It can be useful to include a statement in a deed indicating when it is treated and delivered and comes into effect, but even more significant, all parties need to be absolutely clear on when it is intended to be delivered and the parties bound by the executed document.
This article is a general summary only. If you would like advice on any of the issues raised by it, please contact us. Please bear in mind that the law may change from time to time and this article may not be (or have been) updated to reflect those changes. © afl Solicitors
