The Difference Between a Contract and a Deed

When it comes to legal documents, the way they are executed—whether signed normally or signed as a deed—can have significant legal consequences. In this article, we will explore the key difference between a contract and a deed, their legal implications, and relevant case law and legislation to understand when each method of execution is appropriate.

1. Key Difference Between a Contract and a Deed

a. Execution Formalities

A simple contract, such as a business agreement requires only the signature of the parties involved and may even be formed orally or through the conduct of the parties in some cases. However, a deed carries additional formalities. According to Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989, a deed must:

• Be in writing.

• Express that it is intended to be a deed (e.g., it states “executed as a deed by”).

• Be validly executed as a deed, meaning it must be signed by the individual executing it, and their signature must be witnessed and attested by another person.

b. Consideration

Another key difference between a contract and a deed is the requirement for consideration. Under normal contract law, as per Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915], consideration is a key requirement for the validity of a contract. Consideration means something of value must be exchanged between the parties. For example, party A gives party B £100 in exchange for party B supplying 20 bricks. Without this exchange between the parties, the contract is not valid. The exchange between the parties must not be reasonable, for example party A may give Party B £1.00 in exchange for a house, because there is consideration from both of the parties, this is a valid contract.

In contrast, a deed does not require any consideration to be binding. This is why deeds are often used in situations where no exchange of value occurs, such as when making a gift of property, but there are also other reasons why deeds may be preferred in some situations.

2. Difference Between a Contract and a Deed: The Legal Implications of Signing as a Deed

a. Extended Limitation Period

One of the key legal difference between a contract and a deed is that a deed has an extended limitation period for bringing claims. Under the Limitation Act 1980, the limitation period for claims based on simple contracts is six years. However, for deeds, the limitation period extends to twelve years. This extended period can be crucial in property transactions, long-term leases, business sales and other situations where the parties wish to preserve their rights over a longer period.

b. Intention to Be Legally Bound

While signing a simple contract requires mutual agreement and an intention to create legal relations, signing as a deed is generally taken to express a more formal commitment. This was highlighted in the case of Shah v Shah [2001], where the court found that the intention to execute a deed carried a weightier legal effect.

3. Difference Between a Contract and a Deed: Witness Requirements

A significant difference is the witnessing requirement. For a deed to be validly executed, the signature of the person signing must be attested by at least one witness, as set out in Section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989. The witness must be present when the deed is signed, and failure to do so could render the deed invalid.

In contrast, a simple contract does not typically require witnesses for its validity.

4. Difference between a Contract and a Deed: Uses of Deeds in Legal Practice

Deeds are often used in a variety of specific legal contexts, including but not limited to:

• Transfers of land and property.

• Long-term leases.

• Powers of attorney.

• Certain commercial agreements where the parties wish to bypass the need for consideration.

• Loan agreements that need to survive longer than the six-year limitation period for simple contracts.

In the case of Re Stone and Rolls Ltd [2009], the court emphasised that execution of a document as a deed should be interpreted strictly, underscoring the formal nature of deeds and their important role in conveyancing and property law.

5. Electronic Execution of Deeds

With the growing trend of digital transactions, questions around the validity of electronic execution have become prevalent. The Electronic Communications Act 2000 and guidance from the Law Society of England and Wales have confirmed that deeds can be validly executed electronically, provided the formalities (such as witnessing) are observed.

Conclusion

In conclusion, the differences between signing a document normally and signing it as a deed can be significant, particularly in terms of enforceability, limitation periods, and formality requirements. Understanding when a deed is required and how it must be executed is critical to ensuring that your legal transactions are properly binding. Whether you are entering into a property transaction, a long-term lease, or any other complex agreement, knowing these distinctions will help you navigate the legal landscape effectively and understand the effects, such as the duration of liability attached to the documents.

For more legal guidance on contracts, deeds, or property matters, visit LegalAnswersPro.co.uk, where we offer expert advice and free legal document generation services.