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  • bibby financial services ltd v magson

    This is an excellent judgment!

    http://www.bailii.org/ew/cases/EWHC/QB/2011/2495.html


    The recent case of Bibby Financial Services Ltd and others v Magson and others [2011] EWHC 2495 (QB)1 serves as a reminder of the requirements of a deed.

    ‘SIMPLE’ CONTRACT OR DEED?
    Each day most of us will enter into numerous contracts, such as when we buy goods from the supermarket. In more formal relationships, the terms are often expressly noted in a written form.

    Parties, or their legal advisors, should always give some thought to the form the agreement should take to determine whether it should be signed as a ‘simple’ contract or a deed. Quite often, the parties will not get a choice as the law demands that certain documents, such as legal mortgages, charges and most leases, are executed as deeds.

    However, where there is a choice, there are two fundamental reasons for choosing deeds over ‘simple’ contracts. First, deeds do not require any consideration. Consideration, in a legal sense, means that some form of payment is required in respect of the performance of the contract. Payment is not limited to monetary sums; it can take many forms. A basic rule of contract law is that consideration must move from the promisee to the promisor, meaning the party who is benefiting from the contract should provide something in return to the party performing the contract. Often the recipient under the agreement will not be providing something, and in this case a deed should be used.

    Second, the limitation period (which is the amount of time within which a claim can be made against the other party) for a ‘simple’ contract is generally 6 years from the date the cause of action arose, and for deeds the period is generally 12 years (subject to limited exceptions).

    REQUIREMENTS OF A DEED
    If a deed is required, or the parties have decided that a deed would be beneficial over a ‘simple’ contract, additional formalities are required. Until recently, as the Stevie Wonder song goes, a deed had to be signed, sealed and delivered. Signature and delivery are still needed, but in the case of individuals no seal is required. Companies can choose whether to affix a seal to a deed, but in our experience, most companies do not.

    This article will look at delivery in more depth following a recent case which highlighted the perils of not satisfying the criteria.

    WHEN IS A DEED DELIVERED?
    Historically, delivery occurred when the document was received by the other side. As the law evolved, the concept of delivery became the point at which it could be shown that it was intended that the document would become binding. This is still the test used today.

    For companies, a deed is deemed to have been delivered in accordance with the provisions of the Companies Act 2006. However, no deemed delivery provisions apply to individuals.

    BIBBY V MAGSON
    Bibby Financial Services Ltd (Bibby) is a company which offers invoice finance, such as invoice discounting and factoring, to companies. In this case, Bibby had entered into an invoice discounting facility with a company. As security for the monies due to Bibby, two directors of the company were required to enter into personal guarantees and warranties in respect of sums due.

    The company began to struggle and could not pay Bibby what was owed. Consequently, Bibby sought to enforce the terms of the personal guarantees and warranties.

    The argument put forward by the directors was that neither the personal guarantees nor the warranties were binding. The documents were executed as deeds, all signatures had been witnessed and the documents had been handed to the other party. However, the directors asserted the documents had not been delivered.

    As stated above, delivery occurs when there is an intention for the document to become binding as a deed. In Bibby v Magson, the directors’ personal guarantees and warranties, even though signed and witnessed, were not in a final form. Manuscript amendments had been made to the documents with the intention that clean versions of the documents would be prepared incorporating the amendments, which would then be circulated and signed again.

    At trial the directors’ argument won and Bibby could not enforce the documents as they had not been delivered as deeds.

    ADVICE TO TAKE AWAY FROM THIS CASE
    Whilst the case adds nothing new to the law surrounding the execution of deeds, it is a timely reminder that delivery of a deed should not be overlooked.

    It is possible to include clauses in deeds setting out when delivery occurs, usually when the document is dated. An alternative would be for a side letter to be prepared stating that delivery has occurred.

    Receiving legal advice from an early stage in a transaction, whether it be a company purchase or the negotiation of a supply agreement, is often essential to ensure the agreement is properly documented. Without such advice, the basic principles of law can easily be overlooked. This can have disastrous consequences, and can result in an agreement being declared void ab initio (invalid from the outset).

  • #2
    Re: bibby financial services ltd v magson

    Signed, sealed, but not delivered?


    Bibby Financial Services Ltd v Magson [2011] EWHC 2495 (QB) is a useful reminder of the importance of following the strict legal requirements for creating a valid deed.


    In the Bibby case, two directors of QCFS, a company which was
    entering into an invoice discounting facility with Bibby
    Financial Services, met with their relationship manager over
    lunch. During the course of the meeting, documents relating to
    the invoice discounting facility were produced. These included
    the facility agreement itself and a personal guarantee and
    separate warranty from each of the directors. The documents
    were found by the directors to contain some errors and they
    marked them up and initialled the changes. The directors then
    signed the documents as deeds in front of a witness and gave
    them to their relationship manager.
    Time passed and QCFS's business did not do well.
    Administrators were appointed and Bibby demanded
    repayment of the invoice discounting facility. When the facility
    was not repaid, Bibby sought to enforce the personal
    guarantees and warranties it claimed had been entered into by
    the directors.
    The judge found that, although the directors had signed the
    documents as deeds in front of the witness and handed them
    over Bibby's representative, they did so on the understanding
    that revised documents incorporating the correct terms would
    be produced and signed to complete the agreement between
    the parties. They signed the documents merely to give comfort
    on both sides that an agreement would be reached.
    Even though one of the directors, a solicitor, accepted in his
    evidence that he could have written "signed in draft" or "signed
    subject to amendment" on the document to make it clear that
    it was not intended to be binding, the judge found that the
    directors had not intended to be bound by the documents and
    therefore they had not been validly "delivered" as deeds and
    were not effective.
    The legal requirements for creating a valid deed mean that, in
    addition to being signed and, if necessary, witnessed, a deed
    must be "delivered". The concept of delivery is difficult to
    define but it means more than simply handing over a document
    to the other party - the parties must show that they intend to
    be bound by the terms of the deed they have signed. Unless
    there is evidence to the contrary, a deed is presumed to be
    delivered when it is dated (and they will often contain an
    explicit statement to that effect). In the case of companies,
    there is a presumption that a deed is delivered when it is
    executed. However, these presumptions will not always be
    conclusive and it is still important to ensure that the parties do
    intend to be bound by a deed, and that they demonstrate that
    intention.
    The significance of this judgment is that even though the
    documents in question had been signed, witnessed and given to
    the lender's representative, the judge found that they had not
    been "delivered" in the legal sense and therefore the deeds
    were not effective. Those seeking to rely on deeds must
    therefore take care to ensure that it is always clear that a
    document has been delivered. Possible solutions include:
    • including a statement in deeds confirming that they are
    delivered when dated
    • where a transaction involves a formal "completion",
    requiring the parties to confirm (either by email or orally at
    a meeting) that they intend to deliver and be bound by the
    deeds they have executed
    This case also highlights again the potential negative effects of
    amending deeds in manuscript. Although not central to the
    issues in this case, the manuscript changes made to the deeds
    contributed to the parties' confusion about whether the
    documents were intended to be binding. Wherever possible any
    significant changes to deeds should be dealt with by producing
    a fresh document for signature.
    Bibby Financial Services Ltd v Magson [2011] EWHC 2495 (QB) is a useful reminder of the importance
    of following the strict legal requirements for creating a valid deed.
    Signed, sealed, but not delivered?
    October 2011

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