Deeds – Looking at the concept of “Signed, Sealed, Delivered” in 2016

The case of Re Armstrong Brands Ltd (In Administration) [2015] EWHC 3303 (Ch) has provided some recent judicial guidance on the legal paradigm of proper execution of deeds.

It is worth remembering that the execution of deeds is something which is enshrined with more formality than the signing of a simple contract. In the age of electronic signatures and email contracts, the formalities surrounding the proper execution of deeds may appear like an archaic concept. However, legal documents which require execution by deed more often than not contain onerous legal obligations and so formality is required so as to be the guardian against a party inadvertently binding themselves into an arrangement that they had no intention of being a part of.

The concept of formality being a tool of protection rather than a legal loophole has been demonstrated in the recent High Court decision in Armstrong Brands. The applicant in this case argued that a mortgage deed which was executed by the mortgagor company was invalid on the basis that one of the directors who signed the deed was no longer a director of the company when the deed was completed three months after the document was signed.

Signature of a deed on behalf of a company is prescribed by Section 44 of the Companies Act 2006, which provides the following options:

1. Affixing the company’s common seal to the document;
2. The document being signed by two directors of the company;
3. The document being signed by one director and the company secretary; or
4. The document being signed by a director of the company in the presence of a witness who attests (i.e. counter-signs) the signature.

It should be noted that a company’s memorandum and articles of association can also dictate how a company can properly execute a document in that one or more of the above options may be dis-applied as amounting to proper execution for that particular company. The standard form of company articles allow for all methods of execution but it is always prudent to double check the position.

Option one, a company seal, is the least popular method of execution as it can be cumbersome and requires more formality than most busy company directors may be patient enough to allow. Options two, three and four require at least one director of the company to put their signature to a document in order to validly execute the deed on behalf of the company. Therefore, the identity and position of the signatories is of key importance as proper execution does not hinge on whether the director(s) and / or company secretary have the relevant authority of the company to enter into the document itself (although there will, of course, be other recourses if an individual is acting without the authority of the company).

Presuming that the deed has been properly executed by signatures or by seal, the legal obligations will bind the company to the document only once it is “delivered”. Delivery usually takes place at a time when the parties are ready to complete the document. There is, however, a rebuttable presumption under the Companies Act 2006 that the document is delivered at the same time as it is properly signed on behalf of the company. This presumption is ordinarily rebutted within the document itself which usually states that the document will be delivered only once it has been dated (i.e. completed).

In the Armstrong case the presumption was rebutted so that the document was signed but then delivered three months later when the parties sought to complete the loan. The issue at hand was, therefore, whether the signature of one the directors remained valid at the time of delivery when the same director was no longer in the position as a director of the company.

The Court held that signature and delivery were separate legal steps and so the question of a valid signature was to be answered at the time the document was actually signed. As the individual signing the deed was a director at the time of signature, the execution was valid. The later step of delivery did not require any execution of the document and so the later completion “did not matter” according to the Court.

The holding in Armstrong balances the importance of formality with the notion of not allowing for a legal document to be set aside based on a procedural technicality. The result is that a company will have been deemed to have properly executed a document if the signatories hold their position as director and / or secretary at the time of signing.

However, it should be borne in mind that on the facts of the Armstrong case there was an abundance of evidence demonstrating that the director held such a position at the time he signed the document. Without such evidence, it would have been open to the other side to question whether, in fact, the individual held the position of director when the document was signed. Therefore, to avoid any arguments of invalidity it will always be preferable to ensure that the signatories remain in their position as director and / or company secretary not only at the time of signing but also at the time of completion.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

For further information, please contact Paul Jagger on Pjagger@glovers.co.uk