When is a Contract executed? What is the difference between a simple contract and a deed? What do ‘under hand’ and ‘under seal’ actually mean? It is important to understand the concepts and methods of executing a contract so that you aren’t caught out. This article will try to answer these questions and make contract execution much simpler.
In our previous article on Contract Law Basics we saw that contracts can either be made orally or in writing. As oral contracts cannot be signed, we are going to concentrate on written contracts in this article. Under English law, there are two types of written contract:
- Simple contracts which are executed ‘under hand’.
- Deeds which are executed ‘under seal’.
There are several key differences between simple contracts and deeds that need to be understood before choosing the method of execution.
Simple Contracts
A simple written contract is executed by all parties to the contract signing it to confirm their agreement to be bound by that contract. The contract is executed once it has been signed by all parties and it becomes binding from the date agreed by the parties.
Simple contracts have a statutory limitation period of six years as defined by s. 5 of the Limitation Act 1980, c. 58. This means that a claim for breach of contract must be brought within 6 years of the breach taking place. In the case of construction contracts, the point of the breach is considered to be the completion of the works.
Finally, simple contracts follow the basics of contract law discussed in our previous article so there must be consideration from both parties for the contract to be valid.
Deeds
Deeds have a bit more formality about their execution. Firstly, it is important the document is clearly intended to be a deed (Companies Act 2006, c. 46, s. 46(1)). Secondly, the deed will normally be executed in the presence of a witness, although when a company signs a deed, it can be signed by two directors or a director and company secretary. Once again, once the deed has been signed by the appropriate persons, including any necessary witnesses, it becomes binding from the date agreed by the parties.
The statutory limitation period for a deed is twelve years as defined by s. 8 of the Limitation Act 1980, c. 58, which has both positives and negatives. You could claim for breach of contract up to twelve years after the breach took place, but also a claim could be raised against you for the same period.
Deeds have the further advantage that they do not require consideration from both parties to be valid. As such, it is a sensible idea to execute a contract as a deed if only one party is receiving a real benefit from it. Collateral Warranties are a good example of this within the Construction Industry.
Choice
In the world of construction contracts, most standard forms of contract allow the parties to choose the method of execution. Having a better understanding of the differences between executing a contract ‘under hand’ (simple) and ‘under seal’ (deed) will enable you to make more informed decisions in the future.
VOLOCO can support you with contract reviews and understanding the implications of the method of contract execution. However, it is important to seek proper legal advice before signing any contract.
