What is the difference between Deeds and Agreements?
You may have noticed that some documents you have signed have been expressed to be a Deed and others as an Agreement (or a Contract). You may wonder – is there a difference?
At law, the essential ingredients to have a binding agreement are:
- Offer – what is being sold and purchased
- Consideration – the ‘price’ paid
- Intention to be legally bound by the arrangement
- Acceptance of the Offer
The main difference between a deed and an agreement is that there is no requirement for consideration for the deed to be binding. The fact that something is executed as a “deed” means that it is a most solemn promise that you mean and intend to do what you promise to do.
Obviously, contracts can be written or verbal, but a deed must be in writing.
Often the choice of executing as a deed is due to there possibly being no actual consideration passing or a difficulty in quantifying it (such as the mutual exchange of promises do do or refrain from doing something, rather than a payment of money).
Common examples of deeds include:
- Deed of Guarantee
- Deeds of Release & Indemnity
- Deeds of Settlement
- Trust Deeds or Superannuation Deeds
- Confidentiality Deeds
Some documents must be in the form of or to take effect as a Deed to be valid, such as for the transfer of real property in NSW.
Signed, Sealed & Delivered
Traditionally, to be a valid deed, the arrangement had to be “signed, sealed and delivered” and therefore:
- on paper or parchment,
- signed by the parties and their seal applied; and
- it had to be physically delivered to the other party,
however now, there is no requirement for a seal and the parties are presumed to have ‘delivered‘ it on execution.
It must also still be witnessed for individuals signing however in modern times, the law in NSW (since 22 November 2018) allows for electronic execution. Further, the Regulations made during the COVID-19 Pandemic were updated to allow remote witnessing by audio-visual link* (although we always prefer “wet ink” signatures as the lowest risk option for execution of deeds).
Subject to the terms of the document (which may allow or prohibit it, and whether or not execution in counterparts is provided for), a deed may be binding on a party, irrespective of whether the other party or parties to the deed have also signed it.
As with all documents, the correct “attestation clause” should be used depending on whether the party is an individual, company, trustee or a partnership.
As Deeds do not require consideration, often it can be sensible to include a nominal item as consideration just in case the document isn’t valid as a deed – as it can then be relied on as a contract.
Also, limitation periods for enforcing obligations in deeds are longer than for agreements.
*Note – changes to company signing arrangements took effect on 01 April 2022 with the Corporations Amendment (Meetings and Documents) Act 2022.
FURTHER INFORMATION
For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.
