Deeds: Contracts under seal

A deed is a written instrument which must be executed in a specific way to allow an interest, right or property to pass or to create or confirm a binding obligation on someone.

The written agreement is traditionally, ‘sealed’ by the parties to confirm they are bound by it. The ‘seal’ could take the form of a wax seal, a seal ‘embossed’ onto the document by a special stamp, or simply the attachment of an adhesive paper seal (usually red). Such contracts were also known as ‘contracts under seal’.

Requirements

Individuals

The formal requirements for making a deed are contained in s 1 of the Law of Property (Miscellaneous Provisions) Act 1989. There is no longer any requirement that the document should be sealed. The document must, however, make it clear ‘on its face’ that it is intended to be a deed, and it must be ‘validly executed’ by the person making it or the parties to it.

‘Valid execution’ for an individual means the document must be signed in the presence of a witness who attests to the signature. There is also a requirement that the document must be ‘delivered as a deed by the person executing it or a person authorised to do so on his behalf’ (ie, the parties must show an intention to be bound by it).

Companies

Under the Companies Act 2006 (CA 2006), where a deed is made by a company the execution requirements set out in s 44 of must be observed. These are:

  • the company’s seal must be affixed to the document; or
  • two directors or a director and the company secretary must sign the document; or
  • one director must sign the document in the presence of a witness who attests the director’s signature.

To take effect, the document must be delivered as a deed. For companies, there is a statutory presumption of delivery which means that, unless a contrary intention is shown, it is deemed to be delivered and the company is bound by it when it executes it. If the deed is being executed in advance of completion of a transaction, the deed should make it clear that it is not delivered until dated.

In OTV Birwelco Ltd v Technical and General Guarantee Co Ltd (2002), it was held that a deed was validly executed where a company used its trading name, rather than its registered name; it also did not render the deed unenforceable because the seal used was engraved with the trading name rather than the registered name. Non-compliance with Companies Act rendered the company concerned liable to a fine, but had no automatic effect on the validity of the deed.

Consideration

If the parties to an agreement have taken the trouble to put it into the form of a deed, following the requirements laid down by s 1 of the 1989 Act (or s 44 of the Companies Act 2006), the courts will not inquire into whether the other main test of enforceability of a contract – consideration – is present.

The characteristic of consideration is that there is mutuality in the arrangement, with something being supplied by both parties to the agreement. That is not necessary in an agreement which is put into the form of a deed. Where, therefore, a transaction is ‘one sided’ with only one party giving, and the other party receiving all the benefit without providing anything in exchange, the deed is one certain way of making the arrangement enforceable.

Deeds may be used even where the transaction is supported by consideration. This has traditionally been done in relation to complex contracts in the engineering and construction industries. This is probably because, by virtue of the Limitation Act 1980, the period within which an action for breach of an obligation contained in a deed is 12 years, whereas for a ‘simple’ contract it is only six years. The longer period is clearly an advantage in a contract where problems may not become apparent for a number of years.

The practice of ‘sealing’ a document is also still used, even though it is no longer necessary even for a company. It may in some circumstances serve to make it clear that the document is intended to be a ‘deed’. It does not in itself, however, make the transactions concerned any more or less enforceable.