Executing Contracts: How To Get It Right

Steve Jobs said "[e]xecution is worth millions". He was talking about implementing ideas, but his words neatly apply to contracts. Even after maximum effort has been exerted to negotiate a deal and draft a contract, a slip at the final hurdle could cost millions. Failing to execute a contract correctly, particularly a deed, can result in:

An unenforceable contract. Deeds are often used if one party is not providing consideration. Consideration is something of value brought to the deal (e.g. payment or supply of services) and is an essential ingredient for any contract. If there is no consideration and the deed has not been executed correctly, it is not binding. Confusion about whether an agreement has been reached, resulting in expensive, time-consuming arguments about whether there is a contract and, if so, what terms apply. This rather defeats the point of having a contract to provide certainty. A shorter limitation period. Deeds can be enforced for 12 years from when the relevant cause of action accrues; simple contracts for 6 years. Deeds are commonly used in construction because it may take several years for a defect to manifest and be investigated. If you want 12 years of protection, the deed must be executed correctly. Here is how to get execution right when the law of England and Wales applies.

Step 1 – determine what the document is and if any formalities apply

Are you dealing with a contract or a deed? Simple contracts do not have to comply with any formalities. Provided that the essential components of a contract are present (offer, acceptance, consideration and intent), a contract will be formed (even orally). In contrast, a deed must:

be in writing;1 state on its face that it is a deed; be delivered, meaning the parties must demonstrate an intention to be bound. It is presumed that companies have this intention when they sign, but this can be rebutted, e.g. if the words say "executed but not delivered until dated by..."; and be executed in line with the rules at Step 2 below.2 If these criteria are not met, then you may still have a simple contract. If not, or that is not enough, then the document must be amended and re-executed.

Step 2 – identify who must sign

Again, the rules differ depending on whether the document is a simple contract or deed.

Deeds can be executed by a company in any of these ways:

affixing the company seal; two directors, registered as such at Companies House, sign; one registered director plus the...