CONTRACTS: SIMPLE CONTRACTS AND DEEDS

If a contract is drafted in a common law jurisdiction, two types of agreement are possible. They are (i) simple contracts, also known as ‘contracts under hand’ and, (ii) deeds, also known as ‘contracts under seal’. There are differences in (i) how the two forms of contract are executed and (ii) the time allowed for legal action following a breach. A contract and an agreement are generally used as interchangeable terms by lawyers and mean the same thing.

(A) SIMPLE CONTRACTS In the UK and in other common law jurisdictions most agreements are entered into as simple contracts, which means that when the contract is signed there is no requirement in law for the signatures of the parties to be witnessed. This can often cause confusion for lawyers from civil law systems, where contracts may have to be witnessed and stamped. A simple contract under the common law will automatically come into effect on the date that the parties intend it to do so. This is usually the date of signature, known as the date of the contract, but a different commencement date may be stipulated by the parties within the agreement. If there is a breach of a simple contract, the injured party or non-breaching party has a period of six years in which to take legal action against the party in breach or the breaching party. This is known as the statutory limitation period. If the injured party waits too long, he or she will find themselves ‘time-barred’ and will not be able to pursue a claim. In addition, a simple contract requires all of the elements of a binding contract to be present: namely, offer, acceptance, consideration and an intention to create legal relations. This is not the case with a deed.

(B) DEEDS Under the common law certain types of contract must be ‘executed as a deed’ in order to be valid, which requires that the signatures of the parties are witnessed. There are possibly certain advantages in executing a contract as a deed even when it is not a legal requirement. Lawyers tend not to agree on this subject and there is quite a lot of debate as to whether the supposed advantages of a deed can be obtained under an adapted, simple contract. The process of creating a deed is fairly straightforward and is also inexpensive, as it takes exactly the same form as a simple contract but with certain words used to demonstrate that the parties intend for it to be entered into as a deed. When a company wants to execute a contract as a deed, the signature of the document can be witnessed by two directors.

The first possible advantage is that a deed does not require an exchange of consideration in order to be valid. If one party is therefore receiving a benefit and giving nothing in exchange for that benefit, then the agreement can be executed as a deed in order to ensure that it is binding. However, many lawyers would argue that the parties should draw up a simple contract in which the party receiving the benefit, for example, the gift of a car, should give £1 in return in order to satisfy the requirement of consideration.

The second possible advantage is that when there is a breach of a deed, the statutory limitation period is extended from 6 years to 12 years, giving the injured party a much longer period in which to seek a remedy. However, the realistic benefits of this are questionable, as litigation tends to become a lengthier process and potentially a lot more expensive unless breaches are acted upon promptly.

Some agreements in common law jurisdictions are required by law to be executed as a deed, including contracts for the sale of land and agreements granting someone the power of attorney. Others, such as contracts assigning rights, are traditionally executed as deeds.

THIS AGREEMENT made and entered into this 10 Day of July 20XX WITNESSETH: Author Kate Julia Bellingham (the Donor) hereby (1) ….. as a gift, to The Churchill School Library, (the (2) …..) all of her (3) ….. and interest in her novel ‘The Light of the Sun’ (Donated Property) described in the (4) ….. annexed (5) ….., the receipt of which by the Donee is hereby acknowledged.

The Donor represents that she has full title to and interest in the Donated Property described and that such property is (6) ….. transferred to the Donee without any restriction except as may be agreed upon in writing between the parties hereto. The Donor hereby (7) ….. and transfers to the Donee all of her rights in copyright which she has or may be (8) ….. to have in the Donated Property and transfers the exclusive rights of reproduction, adaptation and distribution to Donee.

DISCUSSION POINT • The majority of contracts entered into in the UK do not require a witness to the parties’

signatures. Do you think this is acceptable? Or do you think that every contract should be ‘executed as a deed’?