VIC Execution of Contracts and Deeds

[Phillip Sweeney]

This question may seem to have an obvious answer. However, what are the implications under contract law if the wrong party executes:
(a) a contract (with consideration), or
(b) a deed (no consideration)?

For example, if the contact or deed requires a majority of the natural person company directors to execute a contract or deed and the deed is executed by the legal person being "the company" under the common seal of the company instead? The formalities of executing a deed are different for natural persons compared to a legal person - the company.

 

[Tracy B]

Hi Philip,

Executing a deed has greater requirements than a contract.

• If a deed is not executed according to formalities, title cannot pass.
• Contracts do not deal with passing of title (generally) and so, the court is willing to read into a contract and give effect to parties' intentions should there be a dispute as to validity of contract.

In terms of company execution

• Executing a deed requires the company to execute according to their constitution's (articles of association) sealing provision. It should be accompanied by a certified copy of a board resolution and/or power of attorney. Failure to do this means the deed does not properly vest title in the purchaser
• A contract does not need to be executed like this. It will most likely require a board resolution, but need not be certified copy, and if there are disputes or issues with authority, the company may still be bound to its obligations in relation to an innocent third party/other side

A contract requires consideration to be valid. A deed may be executed without consideration (i.e. a gift of title).

 

[Phillip Sweeney]

Hi Philip,

Executing a deed has greater requirements than a contract.

• If a deed is not executed according to formalities, title cannot pass.
• Contracts do not deal with passing of title (generally) and so, the court is willing to read into a contract and give effect to parties' intentions should there be a dispute as to validity of contract.

In terms of company execution

• Executing a deed requires the company to execute according to their constitution's (articles of association) sealing provision. It should be accompanied by a certified copy of a board resolution and/or power of attorney. Failure to do this means the deed does not properly vest title in the purchaser
• A contract does not need to be executed like this. It will most likely require a board resolution, but need not be certified copy, and if there are disputes or issues with authority, the company may still be bound to its obligations in relation to an innocent third party/other side

A contract requires consideration to be valid. A deed may be executed without consideration (i.e. a gift of title).

Thanks Tracy B

Since a Deed is a much more formal legal document that a contract under hand it makes sense that stricter provisions apply as to the validity of these documents

 

[Tracy B]

Hi Phillip,

You're welcome.

Yes, a deed is only required for passing title or an interest in property. Consideration is required for contracts because it is seen as incentive for parties to comply with their respective promises. For deeds, consideration is not need because of the importance of what is being transferred (so the law presumes that each party will be extra diligent), the higher consequences for breach/non-performance and because historically, a deed was viewed as one of a person's most solemn and important promises made (it's over land!) and because most of the time, deeds need to be registered (made publicly available) so it is perceived as a "promise to the community", hence, no further incentive needed for parties to comply.