by Richard Bethell-Jones
This article examines some soon-to-be-enacted provisions which will abolish the need for companies and individuals to seal documents, highlights some possible anomalies caused by the new law and looks at changes to contracts for the sale of land and the creation of legal mortgages.
The relevant provisions are contained in section 130 of the Companies Act 1989 and the Law of Property (Miscellaneous Provisions) Act 1989.
English legal practice — in one small respect at least — is being dragged screaming and kicking into the 20th century.
The paraphernalia of deeds and sealing has long been part of the apparatus with which lawyers bamboozle laymen. Documents used to be bound in green silk and, even now, red wafer seals are stuck on signature pages of documents which have to be sealed. Soon all that will be unnecessary. But the change in the law also throws up one or two anomalies which may cause some difficulties.
Companies need not have a seal
Section 130 of the Companies Act 1989 provides that a company need not have a common seal. But why was it necessary for a company to have a seal in the first place? There are any number of jurisdictions which get along fine without corporate seals. The reason why they are necessary in England is because some documents have to be deeds — and deeds can be effected only if executed under seal.
Why it is necessary for some documents to be deeds is a different matter — but suffice to say that under English law there are still a number of consequences which flow, depending on whether a document is or is not a deed. For example, a conveyance or disposition of a legal interest in land can be effected only by a deed — and one of the consequences of that is that unless a mortgage is made by deed the mortgagee does not have the benefit of the powers set out in section 101 of the Law of Property Act 1925. The requirement for certain documents to be deeds is not being abolished — nor are the statutory provisions which turn on whether a document is or is not a deed.
New equivalent of sealing
How then will a company without a seal execute a document which previously had to be sealed — because, for example, it has to be a deed?
Section 130 provides that a document signed by a director and the secretary or two directors of a company and expressed (in whatever form of words) to be executed by the company has the same effect as if it were made under the company’s seal.
That provision will apply not only to companies which do not have a common seal but also to those companies which do, but just do not choose to use it.
Although the requirement of a seal has gone, executing a document in the way provided for in section 130 still makes it special. An ordinary contract or agreement can be signed by any director or officer or employee or agent of the company who happens to have the necessary authority. However, documents executed under the section 130 provisions are to be executed by two persons — one of whom is a director and the other another director or the secretary of the company.
Company deeds
Having set out how a company without a seal (or with a seal, but unwilling to use it) can execute a document to take effect as if it had been sealed, it is then necessary to set out how you establish that such a document is, in fact, a deed — when it could have been some ordinary document which just happened to get signed by one director and the secretary.
Section 130 therefore provides that a document so executed (ie by two directors or by a director and the secretary) which is intended to be a deed and which makes the fact that it is intended to be a deed clear upon its face (in whatever form of words) shall take effect, upon delivery, as a deed.
The delivery problem
That seems straightforward and simple — so simple, you might think, that you can now dispense with employing a solicitor to prepare your deeds.
One word of warning, however. Such a document takes effect upon “delivery” as a deed — and it is presumed, unless the contrary intention is proved, to be delivered upon its being so executed.
In those provisions there lies a real trap. You would be forgiven if you believed that “delivery” meant simple physical delivery — but it does not. The Law Commission, in updating the law relating to deeds and their execution, wished to reform English law relating to the delivery of deeds but, despite clearly acknowledging that the present law is unsatisfactory, have been unable to put forward a better alternative.
As we have seen, a deed is presumed, unless the contrary intention is proved, to be delivered upon its being executed.
In the case of Venetian Glass Gallery Ltd v Next Properties Ltd [9] 30 EG 92 a landlord sealed a licence to assign and sent it to his solicitors to be held until a proposed dealing in the freehold interest was clarified.
The judge held that this was not sufficient to make the deed an escrow — and the landlord was held to be bound by the licence — which must have surprised not only the landlord but its solicitors as well.
For a discussion on the medieval English law relating to delivery and escrow see the judgment of the Court of Appeal in Alan Estates Ltd v W G Stores Ltd [2] Ch 511 (which contains a Denning judgment). The Court of Appeal was split — and if three Court of Appeal judges cannot agree with each other, let alone the judge at first instance, there is little hope for the rest of us.
Difficulties for liquidators, receivers and administrators
The abolition of the requirement that a company must have a seal will not cause any problems while there are directors and a secretary around willing and able to execute deeds in accordance with the section 130 provisions.
But what of a liquidator, administrative receiver or administrator? Those office-holders have, since the Insolvency Act 1986 (and liquidators before then), been able to cause companies to execute deeds by using the company’s seal themselves. If there is no seal, then, unless the directors and secretary are co-operative and available, there seems to be no obvious way in which the office-holder can cause a company to execute a deed. Unless a way round this can be found, it will create serious problems for such office-holders.
The Law of Property (Miscellaneous Provisions) Act 1989
In addition to the changes made when the Companies Act 1989 becomes law, we now have the law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A). That Act has been passed, but the provisions relating to deeds and sealing will not come into effect until a day to be appointed by the Lord Chancellor.
Deeds still written
The LP(MP)A preserves the requirement that deeds should be in writing (consideration was given to allowing electronically coded deeds, but they are not permitted yet). It is no longer necessary that the writing should be on either paper or parchment — the writing can be written on any substance. So, like Mr Haddock’s cheque, a deed may now be written on a cow.
Individuals no longer have to seal
Section 1 of the LP(MP)A essentially does for individuals what section 130 of the Companies Act 1989 does for companies. The requirement of a seal for the valid execution of an instrument as a deed by an individual goes. You can still seal the deed if you wish — but you do not have to.
If you do not want to seal it, then the instrument will be a deed only if it is clear on the face of the instrument that it is intended to be a deed by the parties making it — words like “This is a deed” should do the trick!
Alternative ways of executing deeds
The document also has to be validly executed as a deed. This means that the deed-maker must either sign the document in the presence of one witness who then attests the signature or, if the deed-maker is unable to sign, he must have the document signed at his direction and in his presence and the presence of two witnesses who each attest the signature. This latter process means four people being in the room at the same time.
The LP(MP)A also abolishes the rule of law which required that when one person authorised another to deliver a deed on his behalf, the authority itself had to be under seal as well.
Contracts for the sale of land
Section 2 of LP(MP)A alters the law in relation to contracts for the sale or other disposition of an interest in land. Section 40 of the Law of Property Act 1925 is abolished. These new provisions came into effect on September 27 1989.
The new rule is that a contract for the sale or other disposition of an interest in land can be made only in writing and only by incorporating all the terms which the parties have expressly agreed into one document — or, where contracts are exchanged, in each document.
The terms may be incorporated in the document either by being set out in it or by reference to some other document — so references to the National Conditions of Sale or the Law Society’s Conditions of Sale will still be permissible.
Requirement of signature
The document incorporating the terms — or, where contracts are exchanged, one of the two documents — must be signed by or on behalf of each party to the contract. The new provisions are much more straightforward, and long overdue. Under the previous law, a contract for the sale of land — like most other contracts — was perfectly valid even if it was only a verbal contract. However, section 40 of the Law of Property Act 1925 provided that you could sue a party to such a contract only if a written note or memorandum of the contract existed which had been signed by the person to be sued.
This led to the ludicrous position of there being a perfectly valid legal contract between A and B, but with A able to sue B because B had signed a note or memorandum, but B being quite unable to sue A if A had signed nothing.
Far better, as the new law will provide, that the contract should be in writing and signed by both parties. There are some savings. For example, a contract made in the course of a public auction does not have to be in writing and signed.
Mortgages
Although a contract for the disposition of an interest in land must be signed by both parties, the disposition itself need not.
Thus a legal mortgage in favour of a bank need only be signed by the mortgagor. However, an equitable charge may now need to be signed by both the mortgagor and the bank. It is arguable that an equitable charge is a contract to create a legal mortgage upon request and that to be enforceable it will have to be signed by both parties. This is probably an unexpected problem created by the LP(MP)A, and legal opinion is divided on this significant point.
Also, a charge by simple deposit of title deeds can no longer be created. There must also be a written memorandum of deposit. This, of itself, should cause no significant practical problems, as anyone wishing to take an equitable charge on land by deposit of title deeds will invariably require a written memorandum of deposit as well.
