Deeds not 'delivered' despite signatures, rules High Court

Out-Law News | 20 Oct 2011 | 9:47 am | 2 min. read

Guarantees and warranties given by the directors of a company did not take effect despite the signing, witnessing and handing over of documents, the High Court has ruled. The documents in question were deeds and the Court said that they had not been 'delivered'.

Deeds are more formal than contracts and must be signed, witnessed and 'delivered' to the other party, meaning that the parties must show in some way that they wish to be bound by the documents.

QCFS had requested an invoice discounting facility with Bibby Financial Services. Invoice discounting involves making a loan to a company against invoices it issues which allows that company to receive its income earlier than it would if it waited to be paid by customers.

Documents setting out the agreement for the loan and the supporting guarantees and warranties from the directors were drawn up and amended by hand, then signed and witnessed. The directors handed the signed documents to Bibby.

When QCFS went out of business Bibby sought to recover its debt through the personal guarantees and warranties that it said had been given by the directors of QCFS.

The High Court has found, though, that the guarantees and warranties were not valid because they were not 'delivered' in the way that a deed must be, and so they were not enforceable against the directors.

"On my findings none of the Guarantees, the Warranties or the Bibby ID Agreement was intended to be delivered, in the technical sense, when handed to [Bibby's] Mr. Darling at the meeting on 27 August 2008 after signature by [QCFS directors] Mr. Magson and Mr. Scott," said His Honour Richard Seymour QC, sitting as a judge of the High Court. "It follows that neither Mr. Magson nor Mr. Scott was bound by his Guarantee or his Warranty, and so is not liable to [Bibby] in this action."

The High Court found that the documents were amended with notes indicating what changes should be made, rather than with precisely-worded changes that would constitute part of a deed. Because it found that the directors of QCFS would have expected a fresh version of the document to be produced, it ruled that the deed was not delivered.

"The critical thing is that the person who has signed the deed must have separately indicated that he intends to be bound by the deed," said the ruling, as reported by legal information service Lawtel. "Mere signature is not enough. Nor is it enough that what looks like a deed has been given to the person who appears to be the beneficiary of it – the issue is not whether the document has been physically handed over to the beneficiary, but whether the person whose deed it is supposed to be intended to be bound by it."

If deeds are being used then all parties need to be totally clear on when a document becomes a deed if they are to be able to rely on it in future said Lucy Shurwood, a financial services law specialist at Pinsent Masons, the law firm behind Out-Law.com.

"Those seeking to rely on deeds must take care to ensure that it is always clear that a document has been delivered," she said. "This could be done by including a statement in deeds confirming that they are delivered when dated, or by requiring the parties at a 'completion' to confirm by email or orally that they intend to deliver and be bound by the deeds they have executed."