Why do people have a problem with deeds?

Two incidents this week prompt IP Draughts to reflect on why deeds are sometimes not correctly executed – a niche subject, perhaps, but one that affects the validity of contracts that parties may wish to enforce.

First, a quick reminder: what is a deed? Under English law it is a more formal way of executing a contract than simply signing it. An older name for this is “contracts under seal”, as until 1989 it was necessary to apply a seal to a contract made as a deed. English legislation in 1989 abolished the requirement for most corporations (those incorporated under the Companies Acts) and individuals to apply their seal to a deed. There is still a degree of formality about who must sign and witness deeds, even though the requirement for applying a seal has been abolished. If you need to know more about this subject, read our book, Execution of Documents.

Peculiar types of corporation such as bodies incorporated by Royal Charter (most UK universities) or by special statute (eg NHS Trusts, ie most UK hospitals) or government bodies, still have to apply their seal. Typically the constitution of the corporation will specify what authority is required for the use of the seal, eg it must be done in the presence of two board members who must sign the document next to the applied seal.

Why would one execute a contract as a deed? Two possibilities:

  1. No alternative. Because that is the only way to make the contract (or other instrument) legally effective. This only applies to a few types of contract, including conveyances of land, powers of attorney and financial guarantees.
  2. Nice to have. Because, though executing the contract as a deed is not compulsory (which is true of most contracts), there may be legal advantages of doing so. The two main, potential advantages are (a) there is no need for “consideration” in a contract made as a deed, and (b) the limitation period – the time limit for bringing an action for breach of contract – is 12 years for deeds and only 6 years for ordinary contracts.

So, why do these rules cause people problems in practice?

Two examples that IP Draughts encountered this week illustrate the point.

In the first, a client was seeking to enter into a contract executed as a deed, where one of the other parties was an NHS Trust. The signature blocks showed clearly that the Trust’s seal should be applied. The document comes back, apparently signed as a deed by all parties. But there is no impression of a seal on the document. (Corporate seals are typically small steel devices which clamp together to squash the paper and impress it with an image of the corporate seal.)

The client reports that he has spoken to the Trust’s representative who assures him that they don’t have a seal. IP Draughts is puzzled. He searches for and finds on the internet:

  1. Model constitutions for this type of Trust, which include reference to them having a seal.
  2. A copy of what appears to be the actual constitution of this particular Trust, which also refers to it having a seal.

He suggests to his client that he go back to his counterparty and get them to check the point, preferably involving their legal department. Some time later, the document comes back, now bearing a seal.

The second example that IP Draughts encountered this week was on Twitter. He saw this report, by a US law firm, of a recent case in the Virginia Supreme Court, where the court invalidated a lease that wasn’t executed as a deed (with the application of a seal), as state law required. Thanks to @profrobanderson (no relation) for drawing this to IP Draughts’ attention.

IP Draughts is not an expert in US state laws, but his impression/guess has been:

  1. Centuries ago, US laws had rules on deeds (contracts under seal) that were similar to English law.
  2. But perhaps the rules were originally or later limited to conveyances and long leases of land.
  3. And perhaps in the 21st century the practice of using seals has largely been abandoned, but without legislation directly equivalent to the English laws that were passed in 1989.
  4. So that the subject is seen as something of a formality whose importance has gradually been eroded, and it takes people by surprise when, as in the Virginia Supreme Court case mentioned above, the rules are actually applied and seen to have a significant legal effect.

As IP Draughts has mentioned before on this blog, he was once involved in a licensing transaction with a Massachusetts corporation, where the other party had prepared the drafts, and they included a signature block that referred to the parties applying their seals. When IP Draughts indicated that his client, a UK company, didn’t intend to apply its seal, this point seemed to take the US party by surprise. The surprise didn’t seem to be that we weren’t intending to apply our seal, but rather that we were taking literally the wording of the signature block. The other party revised the signature block so that it no longer referred to sealing.

The lessons that IP Draughts draws from these examples are that those of us who are responsible for contracts need to be ever-vigilant for wrongly-executed contracts, even if in doing so we make ourselves unpopular with clients who “just want to get the deal done”.

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Filed under Contract drafting, General Commercial

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