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Signed and sealed, but not delivered? Then not effective.

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The recent High Court decision in Bibby Financial Services Ltd v Magson1 has provided a useful reminder about the importance of following the strict legal requirements for the creation of a valid deed. The case concerned a claim by a Bibby Group Company against two directors of a company (QCFS) in respect of guarantees and warranties signed by them. QCFS were entering into an invoice discounting facility with Bibby, and the directors met with their relationship manager from Bibby over lunch, during which a number of documents relating to the arrangement were produced. These included the facility agreement itself, personal guarantees and separate warranties for each director. It was noticed by the directors that the documents contained certain errors and they marked them up and initialled the changes. The directors then signed the documents as deeds, with witnesses, and returned them to the relationship manager. Time passed and QCFS were placed into administration. Bibby then demanded repayment of the invoice discounting facility, and sought to enforce the personal guarantees and warranties. They claimed that the directors had entered into these at the time they had signed the agreement. The directors maintained that they had only signed the documents as a gesture of their intention to proceed, and that they had returned them to the relationship manager with the expectation that they would receive clean copies to be signed and dated afresh. They therefore argued that the guarantees and warranties on which Bibby wished to rely had not been properly executed. The High Court held that each document was in the form of a deed, and therefore they were required to be executed in the manner required by law. In order for a document to be enforceable as a deed it must be signed, witnessed and delivered as a deed. It is made clear in Section 74A (1) of the Law of Property Act 1925 and section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 that in order for a document to be enforceable as a deed, it must be 'delivered as a deed'. The concept of delivery in this case means that the parties must have indicated that they intend to be bound by the terms of the deed they have signed. On the facts of the case the High Court held that neither of the directors had intended, in the legal technical sense, to 'deliver' the guarantees and warranties when signing them at the meeting. Therefore, they had not been enacted and were not effective. The judge accepted that, although the directors had signed the documents in deeds in front of witnesses, they had handed them back on the understanding that revised documents with the correct terms would be produced and signed to complete the agreement. The significance of the case is that it highlights the necessity to conform to strict legal requirements; specifically the need to ensure documents designed to be deeds are "delivered" in the legal sense. Things can become more complex where amendments are made to deeds in manuscript, and clearly parties can become confused as to whether or not documents were intended to be binding. In such cases it is critical to ensure that both parties intend to be bound by the deed and that this intention is in some way demonstrated. You should not presume that a deed will be "delivered" and effective just because it has simply been physically transferred from one party to the other. • For additional information please contact: Edward Worthy of Gepp & Sons on 01245 228124 or worthye@gepp.co.uk The above is not legal advice; it is intended to provide information of general interest about current legal issues. 1 [2011] EWHC 2495 (QB)

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