The importance of executing contracts properly cannot be overstated – get it wrong and you risk your contracts being considered invalid and unenforceable. The exact formalities required will depend on the parties to the document and the type of document concerned.
Most contracts with which lawyers are concerned are made in one of four forms: oral, written, written "under hand" and deeds. The main distinction between a deed and other forms of written contract is that some additional execution formality is required (beyond a simple signature) for the transaction to be fully enforceable.
We have set out below ten commonly asked questions in relation to signing and our practical tips for ensuring that documents are executed correctly:
What is the difference between a contract signed "under hand" and one signed as a deed?
A simple contract does not have any specific signing requirements in order to be considered enforceable. Where a simple contract is made in writing and signed by all parties to the contract, then this is referred to as a contract signed "under hand".
A deed on the other hand has the following four key requirements in order to be considered valid:
- It must be made in writing;
- It must be clear from the face of the contract that it is intended to take effect as a deed;
- It must be validly executed as a deed by the correct signatories (see details below); and
- The deed must be "delivered" – this is the process by which the parties to the deed confirm they intend to be bound by its terms and this is commonly on completion.
Why execute a document as a deed?
Executing documents as a deed entails additional formality (beyond a simple signature) for the transaction to be enforceable. So why bother?
There are two important differences between a simple contract and a deed:
- Deeds are generally effective and enforceable at law despite any lack of consideration; and
- The limitation period for actions brought under a simple contract is six years from the date on which the cause of action accrued (section 5 Limitation Act 1980).The period is 12 years in the case of a deed (section 8(1) Limitation Act 1980, but as qualified by section 8(2)). This means that a party has a longer period in which it can enforce claims which is key to construction projects as latent defects for example may not become apparent until years after a construction contract has been signed.
Who is authorised to sign a deed and how do you check it has been signed correctly?
The applicable execution formalities differ according to the legal personality of the executing party e.g. distinction between individuals, companies, partnerships.
|
Executing Party |
Signing Formality |
|
Individual |
|
|
Companies under the Companies Act 2006 |
|
|
LLPs |
|
|
Partnerships |
|
|
Overseas Company |
|
|
Company in Liquidation |
|
|
Company in Administration |
|
Top tips:
- Always check Companies House to ensure that the person signing is a director/company secretary and ensure that they are still active and have not resigned.
- Witnesses cannot also be parties to the contract or deed.
- If execution is under a power of attorney, check that this power of attorney itself has been executed as a deed and that it confers authority on the relevant party to execute documents
Can the same signatory sign on behalf of two different parties in a contract?
This scenario commonly arises where a parent company and one or more of its subsidiaries are party to a document (such as a group loan facility or debenture) and they share the same corporate officers. Provided that the signatory signs the document separately in each capacity, the same signatory can sign on behalf of two different parties. Signing separately will require there to be two separate and distinct execution blocks.
Can you sign a contract electronically?
Since Covid-19 the rise of electronic execution has been exponential and it is often a convenient and cost-effective way of signing documents. Provided the correct signing formalities are followed and a valid electronic signing platform is used, documents can be executed as deed electronically. This is often done through popular signing platforms like DocuSign which allows you to set up the formal signing procedure. There is also the Mercury signing process detailed below.
Top tip: any witness to a document, whether this is being electronically signed or otherwise, must be physically present when the contract is signed.
What is Mercury signing?
"Mercury signing" is the electronic signing process which was set out in the case of R (on the application of Mercury Tax Group Limited and another) v HMRC and others [2008] EWHC 2721. To use the Mercury signing process, all parties to a document must have legal representation.
The following steps must be followed to validly execute a document under the Mercury signing procedure:
-
Final agreed copies of the deed must be emailed to each signing party
-
Each party prints the signature page only
-
Each party signs the signature page, and where necessary, in the physical presence of a witness
-
The witness signs the signature page
-
Each party sends an email attaching the final agreed copy and a scan of the signed signature page
-
The documents are completed and assembled by the solicitor, and the compiled deed and signature page shall be considered the completed contract
What happens if a document has been wrongly executed?
Failing to follow the formality requirements for a contract and to execute correctly can lead to the contract being considered unenforceable.
If all the signing formalities of a deed are not followed, then this may instead by considered a document signed "under hand" – while it may still be enforceable, parties will not be able to rely on the longer 12 year limitation period.
Can you amend an already signed document?
Yes – you can "manuscript amend" wet inked signed documents provided that (1) you have the consent of all parties to make the amendment and (2) the document has not been dated. This is done by writing in the amendments either in pen to change or include the required wording. Such changes should be initialled by the party making them. With DocuSign, electronic manuscript amendments are possible by inserting additional text boxes within the platform.
Does a contract have to be dated to be fully executed or does it complete when both signatories have signed?
The short answer is no, a contract does not have to be dated to be considered properly executed.
Under Universal Permanent Building Society v Cooke [1952] Ch 95, at 101, the courts held that a deed is binding on the date of delivery and not on the date of execution. The courts have enforced the principle that a clear indication from the parties that they intend to be bound by the contract is required for the document to be "delivered". Dating a document is evidence of the date parties consider it to be delivered but it not a requirement.
Can you backdate a contract to before when the last signatory signed?
Delivery is when all parties to the contract agree to be bound by the terms of the contract and generally this should be the date the last party signed the contract. A contract executed as a deed should never be backdated – the formal requirements of a deed mean that it has to be in writing and once the formalities have been followed. The backdated date will be before these formalities are followed and so the legal obligations will not be considered to have come into effect.
IMPORTANT: Please note that documents involving property transactions and/or requiring registration at HM Land Registry have additional requirements which we have not discussed or covered in the above responses.
Please note that the above answers relate to execution of documents generally. It is meant to be a high level review – if you have any further queries in relation to what has been discussed, please do not hesitate to get in contact.
