A formal contract is a type of contract under seal, reduced to writing, signed by the parties contracting and impressed with a seal. Formal contracts are also called specialty contracts or deeds. Its features are that it must be signed, sealed and delivered.
For signing, the person executing the deed can either sign (signature) or make a mark. Nowadays, a seal is not necessary. It suffices if there is an indication of its place in the document.
In the case of First National security Ltd V. Jones (1978) 2 All ER 221, itr was held that a document could be regarded as a deed even though not sealed, where the parties clearly intended it to operate as a deed.
A formal contract is a contract made by deed. It is also known as a contract under seal. All other contracts are simple contracts, whether or not they are in writing or by words of mouth (parol).
Contracts under seal (Formal Contracts) – Formal Contracts
A contract under seal or deed, may be in writing or may be typed on paper or parchment. A deed is supposed to be executed, i.e., completed and given full legal effect by the signing, sealing and delivering of it by the party executing, to the other party. However, there have been considerable changes in the law and practice regarding deeds since the second half of the nineteenth century.
In the first place, the signature was not regarded as being necessary. Execution was valid, provided that the seal of the party executing was imprinted on the deed. However, by the English Law of Property Act 1925, S.73 and various laws in Nigeria, a person executing a deed must now either sign or make his mark, in addition to sealing, if the deed is to be valid. The reason for this is not hard to seek. Whereas previously, sealing means the imprinting in wax of the executing party’s crest or coat of arms, in modern times seals are commonly affixed beforehand and they consist of small red and round adhesive wafers attached to the documents.
More so, with the seal now having a merely symbolic value, the signature has become the vital component of the deed which gives it authenticity and validity.
Previously, delivering was only effective if the deed was actually handed over by the party executing to the other party or a stranger for the latter’s benefit. But since 1867, by the House of Lords’ decision in the English case of Xenos V. Wickham a deed may be delivered even though retained in the custody of the grantor. Any acts or words showing that it is intended to be executed by the grantor as his deed, binding on him, will suffice.
A simple contract (or informal contract) is a type of contract whether written or oral, which is not under seal. Simple contracts can also be implied from the conducts of the parties.
Formerly, simple contracts were referred to as parol contracts, but nowadays lawyers apply the word parol specifically to simple contracts made orally and not in writing.
Simple contracts are therefore the opposite of formal contracts. Unlike formal contracts, simple contracts are not binding except there is consideration. In simple contracts, only a party who has furnished consideration can bring an action to enforce the contract.
Furthermore, may be defined as all contracts other than formal contracts. They may be in writing, or may be oral. In the latter case, they are called parol contracts.
Generally speaking, these are contracts which do not require any special form. They are also known as informal contracts in that they are not under seal. They may be express, implied, written or just oral.
The major distinction between a formal contract and a simple contract is that, unlike the formal, only a party who has furnished a consideration can bring an action to enforce a simple contract. It’s validity is derived from the presence of consideration.
As noted above, Simple contracts can take both the oral and written form. Indeed, in some special cases, the law prescribes that the contract or a memorandum of it must be in writing in order to be enforceable. However, such contracts must be distinguished from contracts under seal or deeds, for in the latter case, there must be a seal. This is not present in ordinary written contracts. As was remarked by Skynner, C.B., in Rann V. Hughes (1778)7Term Rep. 350.
“…all contracts are by the laws of England distinguished into agreements by parol (simple contracts); nor is there any such third class…as contracts in writing. If they be merely written and not specialties, they are parol, and a consideration must be proved.
This obiter was made to repel the notion first expressed by Lord Mansfield, a famous Chief justice of the King’s Bench in the eighteenth century, that proof of consideration was necessary in the presence of writing.
However, as was stated above, only if the writing was contained in a deed (contract under seal) could consideration be dispensed with.