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Senior Partner
Senior Partner, Solicitor
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Experience:  30 years experience in business law and related topics such as employment law
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Loan AGREEMNENT vs DEED of Novation of Loan

Resolved Question:

Why Loan agreements are pure AGREEMENT while Deed of Novation of Loan and Deed of Assignment of Loan is always a DEED? Is the deed valid/executed if it is signed without a witness?

Submitted: 12 months ago.
Category: UK Law
Expert:  Senior Partner replied 12 months ago.
Thank you for your question.

Certain things have to be executed by deed but usually only in connection with real estate. Otherwise a deed is used where one party to the arrangement may not have given any consideration. In the case of an assignment or a novation it is quite possible that this is case. Certainly with a novation the continuing party as opposed to the retiring and new parties may not have done so. As a deed is enforceable without consideration it is usually used in those circumstances.

The formalities of executing a deed were much relaxed but it is still necessary for a deed to be witnessed and it must be expressed to be a deed. It is not valid if an individual signs without a witness
Customer: replied 12 months ago.
Thank you!

The transaction is between NON-UK companies.
what if the deed re assignment of debt under loan agreement was signed between companies without witness? Is it invalid?
Expert:  Senior Partner replied 12 months ago.
In that case it has to be validly executed by those companies in accordance with the law applicable to those companies. Normally you need 2 signatories for corporations
Customer: replied 12 months ago.
well, parties makes English law applicable, so if the document called "the deed" but signed only by directors on each side, is contract valid?
Expert:  Senior Partner replied 12 months ago.
IF there is only one director of each company that that is how companies execute in that jurisdiction then it may be but if there is only on signature it may not be effective as a deed. It may still be binding as a contract depending on the underlying terms and whether it needs to be a deed. Formal invalidity does not necessarily make the underlying agreement void
Customer: replied 12 months ago.
so, in general the deed of novation to the loan agreement may be drafted as a deed (do not need to change DEED of novation into Agreement on novation as well as change all words "deed" into "agreedent". it is simly enouth to use the same forms but sign without witness. Thus, agreement in any way will be considered as contruct but not a deed. At the same time this does not make it void or unexecutable.
Expert:  Senior Partner replied 12 months ago.
No I did not say that. If it is a novation and the continuing party received no consideration then it will be unenforceable as a deed. It depends on the precise nature of the underlying agreements. What I said is that the underlying agreement is not necessarily void merely because the deed is not correctly executed. If it is ineffective unless it is a deed of course it has to be executed correctly but lots of agreements are enforceable without being in a deed.

You are asking general questions which I have answered in some detail. You never said it was a novation just asked why novation and assignments were in the form of deeds.

If you want to post another question based upon a specific set of circumstances please feel free to do so

Senior Partner, Solicitor
Category: UK Law
Satisfied Customers: 13231
Experience: 30 years experience in business law and related topics such as employment law
Senior Partner and 4 other UK Law Specialists are ready to help you

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