Commercial law, Uncategorized

Deed vs. Agreement- What is the Difference?

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When parties wish to enter into a legally binding arrangement, it is beneficial to enter their intention and the terms of their arrangement in writing. Deeds and agreements are written instruments that can be used to record such legally binding arrangement. These serve as important pieces of evidence, not only in cases of disputes, but also when the parties wish to refer back to the terms of their transaction.

Important differences exist between deeds and agreements, and the decision to use one over the other leads to different outcomes in practice. It is necessary to understand the fine differences between the two types of written instruments in order to mitigate risk of disputes. 

What is a Deed?

Deeds are written instruments, that act as a record of a solemn affirmation that the signing parties promise to abide by the terms of the document. 

The key features of deeds are that:

• they have relaxed requirements for privity- meaning that someone who is not a party to the deed may also be beneficiaries of it;
• they have strict formal requirements for execution;
• they are enforceable even without consideration;
• they have a longer limitation of actions period, varying from 12 to 20 years depending on the jurisdiction.

Deeds can be used for various purposes, including for creating binding obligations and conferring or affirming legal interests in property or some other right. Deeds are also often used to record settlements and releases.

It is noteworthy that some legislation also mandates documents such as documents for conveyances of old system land, or personal insolvency transactions, to be recorded through deeds. 

Similarly, an old common law requirement, which has now been displaced by legislation in many jurisdictions, also mandates that a Power-of-Attorney that is granted for executing deeds must itself be granted through a deed.

Types of Deeds

Several types of documents are commonly executed as deeds. These include:

• Deeds of Amendment
• Guarantee Deeds
• Indemnity Deeds
• Deeds of AssignmentDeeds for Novating a Contract
• Deeds of Settlement, Release, or Compromise
• Trust Deeds
• Deed Poll
• Escrow Deeds
• Deeds of Confidentiality
• Deeds of Company Arrangement used in Insolvency Proceedings

The common characteristic in most underlying transactions with which the deeds mentioned above deal is that there is either no consideration flowing from either of the parties, or there is consideration flowing only from one party to the other.

What is Required for a Deed to be Valid?

The formal requirements for deeds to be valid are governed by a mix of common law and State legislation. Relevantly, and in short, for deeds to be valid, they must comply with the following criteria:

• they must be written on parchment or paper;
• they must be signed;
• they must be sealed, or expressed to be sealed;
• in most States and Territories, they must be witnessed by at least one person who is not a party to the deed;
• for Corporations, deeds should be expressed to be a deed and executed as such under s 127(1) or s 127(2) of the Corporations Act 2001 (Cth);
• they must be delivered, meaning that they must become immediately binding on the parties

In several states, including Victoria and New South Wales, deeds can be created, signed and witnessed electronically. It is important to take care when foreign corporations are entering into deeds, since the more accepted position is that a physical seal must be attached.

Lastly, it is also relevant to note that special care needs to be taken when one of the parties is a corporation and another is an individual, since a mix of requirements from several statutes govern such documents.

Sometimes, wrongly executing a document as a deed may make the document unenforceable. It is pertinent to obtain correct advice if one is unsure of the nature of their transaction and the correct document.

What is an Agreement?

Similar to deeds, agreements are promises of parties to a transaction to each other. The terms ’Agreement’ and ‘Contract’ are used interchangeably and have the same meaning. For a valid agreement or contract to be formed, the following criteria must be met:

• there must be an offer by one of the parties, 
• there must be an acceptance of that offer by the other party(ies);
• there must be a clearly demonstrated intention of both of the parties to enter into the agreement;
• there must be a promise, performance, or forbearance by one of the parties in exchange for the promise, performance, or forbearance by the other party(ies).

Importantly, agreements or contracts may be oral, written, or even implied.

How are Deeds Different from Agreements?

The fine but significant differences between deeds and agreements play an important role in deciding as to which of the two should be used as a record of a transaction.

The key differences between the two are:

• the absence of requirement for agreements to be in writing, unless mandated by legislation;
• the strict formal requirements for deeds;
• the longer limitation period of deeds varying from 12 to 20 years depending on the jurisdiction, as opposed to the limitation period of 6 years in most jurisdictions for bringing an action for breach;
• the absence of availability of equitable remedies for deeds due to the lack of consideration;
• the relaxed privity requirements in cases of deeds.

While courts tend to follow the consider the ‘substance’ of the document, rather than the ‘form’ when deciding whether it is, in fact, a deed or an agreement, one of the common questions posed by the courts is to consider whether the intention of the parties was to make the document immediately binding upon the parties, in which case the courts tend to find the document to be a deed rather than an agreement. However, the actual decision comes down to finer points which need careful consideration.

Do I Need a Deed or an Agreement?

Deciding as to whether a deed or an agreement would be more suitable for a particular transaction is sometimes a difficult yet important question. Deeds are commonly used in circumstances including the following:

• when the nature of the transaction requires execution of a deed due to legislative requirements;
• when there is absence of consideration flowing from at least one of the parties;
• where a longer limitation period is beneficial to one or both of the parties.

Frequently Asked Questions 

How can I terminate an agreement?

Termination of agreement is usually governed by specific clauses in the agreement which provide for situations in which parties can choose to terminate, or in which the agreement is automatically determined.

Usually, parties also have the right to terminate in cases of material breaches of their agreement by their counterparty. However, deciding on the materiality of the breach by the counterparty is a highly complex matter and needs careful consideration. There may be formal requirements that may need to be met prior to terminating for breach.

Parties may find themselves in situations where they are in breach of the agreement due to wrongful termination of the agreement by them.

What can i do if someone breaches our agreement

Unfortunately, while the other party promises under an agreement to undertake, or abstain from undertaking performance, they may break their promise. Usually, and more so if a contract is written, the terms of the contract would govern the consequences of breach of an agreement. In such cases, you may have rights to claim damages for the breach of the contract, or sometimes may even be able to specifically enforce the contract.

Breaches of oral agreements are trickier since such agreements, and the finer terms under such agreements, are very difficult to prove, especially because the breaching party’s version of the oral agreement may significantly differ from your understanding of the agreement.

However, remedies do exist and should be pursued if it is commercially viable to do so.

How can I avoid deed obligations 

While it is difficult to avoid obligations incurred under a valid deed, it may be possible to rescind the deed on grounds of formal requirements not being met, or if the deed was entered into under fraud, duress or misrepresentation.

Further, equitable remedies are usually not available to parties to a deed due to absence of consideration, meaning thereby that remedies that a party to a deed can seek are significantly limited.

What can i do if someone breaches our deed

Similar to breaches of contract, remedies are available, usually under the terms of the deed, for breaches thereof. If the common law and statutory formal requirements for entry into the deed are met, it would be difficult to render a deed unenforceable. Remedies available under the terms of the deed, statutory remedies, or common law remedies may be pursued, depending on the commercial viability of the litigation.

Contact Rosendorff Today

At Rosendorff Lawyers, we align with the needs and strategies of our clients to guide them through all stages of their transactions or disputes. 

Our Melbourne based business lawyers aim at providing commercially feasible advice to mitigate risks of our clients and to resolve their challenges. In order to solve our clients’ problems in a cost-effective manner, we aim at settling cases quickly with excellent outcomes. Our clients can attest to our straightforward and honest approach that ensures that our clients’ interests are protected.

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