In the world of contracts, you may have noticed that some are called deeds and others are called agreements. The important difference between a deed and an agreement is whether each party has exchanged something under the contract.

Under an agreement, one party might provide a particular product in exchange for the other party providing money. In comparison, deeds are a unique form of legal document which indicates a party's promise to do something. You should be careful to use the correct document for your particular arrangement, as they both have different signing requirements. This article will explain the difference between deeds and agreements.

What is a Deed?

A deed is a special type of binding promise or commitment to do something.

The essence of a deed stems from the need in every community to have a special type of ritual or procedure which publicly indicates the solemnity of a binding promise that a person intends to make.

In today's commercial world, this idea of a serious commitment continues in the form of a deed. Therefore people use a deed when substantial interests are at stake, such as when a person passes an interest, right or property.

You will often need to use a deed if you are:

  • assigning intellectual property between related companies;
  • entering into a non-disclosure deed where you want to ensure that another party does not share your confidential information;
  • documenting an agreement that you have reached with another party after a dispute;
  • providing a bank guarantee or letter of credit; and
  • transferring property, such as the sale of a house. 

What is an Agreement?

An agreement, also known as a contract, is formed when:

  • there is an offer and an acceptance. For example, I offer to wash your car, and you agree to pay me $50 for it;
  • the parties demonstrate a clear intention to create legal relations; and
  • the parties do something in exchange for an offer. This is known as consideration.

The major difference between a deed and an agreement lies in whether there is any consideration for the promise. 

For example, if you are selling goods in exchange for money, then you will need an agreement. However, if you are merely providing the products for nothing in return, you may need a deed.

The Difference Between an Agreement and a Deed

The fundamentals of modern contract law are that there must be:

  • offer and acceptance;
  • an intention to be legally bound; and
  • consideration.

Consideration stems from the idea that when two parties agree, they have reached a bargain. The parties need consideration to show that they have ‘bought' the promise by doing some act or providing something in return for the promise.

In contrast with a contract or agreement, there is no requirement for consideration for a deed to be legally binding. A deed does not need consideration because of the idea that a deed is the most solemn indication that the parties intend to be bound.

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Common Types of Deeds

Common types of deeds include:

  •   deed of termination;
  •   escrow deed;
  •   financial guarantee or letter of credit;
  •   deed poll;
  •   indemnity deed; and
  •   confidentiality deed.

Example: Tristan is lending money to Mani. Tristan requires Mani to provide a financial guarantee for the money. Mani's parents provide a financial guarantee to Tristan on behalf of Mani. There may be no consideration between Mani's parents and Tristan. Therefore, to ensure that the guarantee is binding even though there is no consideration, the guarantee is in the form of a deed.

How Do I Execute My Deed?

Deeds and agreements have different requirements for execution. Execution is the process of formally finalising contractual documents.

For example, a document can be executed through both parties signing it.

If you are executing a deed, you will need to follow specific rules. If the deed is regarding something personal for you, like a house deed, someone must witness your signature. In comparison, however, if the deed is for a company, it will need to be signed by: 

  • two directors; or
  • one director and the company secretary. 

You will not need a witness if you are signing a deed for a company. Further, there is no need for the other party to sign the document. A deed is binding immediately once one party executes it.

For example, in New South Wales (NSW), the Conveyancing Act 1919 provides that a deed passing an interest in property must be signed, sealed and attested by at least one witness not being a party to the deed (section 38).

It is important to refer to the legislation specific to your state as the failure to duly execute a deed means that the deed is unenforceable. The requirements for executing deeds are much more stringent than that for contracts. Therefore, you should seek specific advice if you are unsure about how to execute a deed or whether you need a deed for a particular situation.

How Do I Execute My Agreement?

Agreements do not need to be ‘signed, sealed and delivered' in the way that deeds must be. An agreement can technically be binding if the parties have agreed to it:

  • in a contract;
  • orally; or
  • by writing in an email.

The essential factor is whether both parties had the intention to be bound by a contract.

However, it is best practice for agreements to be in writing and have both parties sign it. This makes it very clear what terms the parties are agreeing to. Individuals may sign an agreement without having someone witness their signature. Similarly to a deed, a company may sign an agreement by:

  • two directors; or
  • one director and the company secretary. 

One huge practical advantage in using an agreement, rather than a deed, is that you can execute the document in counterparts. This means that you and the other party can both sign a copy of your own agreement, and then send it to the other side. Taken together, the two documents constitute the same agreement. This is particularly practical if you are not geographically near the other party.

Limitation Periods

A limitation period is the period of time that you can bring a claim to court after an event occurs. These periods exist to protect defendants. They operate under the principle that the administration of justice becomes more difficult the longer it takes for an action to come to court. Many do not know that contracts and deeds have different limitation periods.

In New South Wales (NSW) and Queensland (QLD), the limitation period to bring a claim to court for breach of contract is six years from the date of the breach. In comparison, under a deed, there is a 12-year limitation period.

It is important to note that the court will interpret an action as first accruing as the point when circumstances gave rise to the claim the first time. For example, this could be when the breach occurred. However, where the loss is purely economic, the cause of action accrues when the loss first became known to you, or when it should have reasonably been discovered through diligence.

Therefore, if you are dealing with a contractual dispute with another business, make sure that you understand whether the document at hand is an agreement or deed. Then, ensure that the limitation period does not lapse before bringing a claim to court.

Key Takeaways

A deed is a special form of document which indicates an individual's most sincere promise to do something that she or he has contracted to do. At common law, the requirements for executing a deed are that it must be in writing, sealed and delivered to the other party. The key difference between an agreement and a deed is that a deed does not need consideration. Furthermore, each Australian state and territory has legislation that sets out specific requirements for executing a deed. You should check legislation to ensure that you properly execute your deed.