Both Deeds and Agreements serve as means to legally bind parties involved in a transaction. Although they may initially appear similar, the two documents differ in execution and significance. Understanding the difference is crucial for businesses in structuring tractions to manage litigation risk and resolve disputes effectively.
Agreement
For an agreement to be legally binding, certain elements must be present:
1. Offer and acceptance.
2. Intention to be legally bound.
3. Consideration, which involves the exchange of something valuable between the parties as part of the agreement.
Deed
A Deed signifies a solemn commitment or promise that holds significant legal weight. Deeds can serve the following purposes:
1. Transfer or confer legal or equitable interests in property or other rights.
2. Establish binding obligations on individuals.
3. Affirm agreements involving the transfer of legal or equitable interests in property or other rights.
Various types of documents are commonly executed as Deeds, eg, Deed Polls, Escros Deeds, Confidentiality Deeds, Deeds of Termination, Settlement Deeds, Guarantee Deeds and Indemnity Deeds. Deeds of settlement and release are commonly used to resolve disputes, especially in litigation.
Certain legislation requires specific documents to be executed as Deeds. Eg, in most Australian states and territories, assurances of land, such as conveyances and dispositions, must be made through a Deed.
Requirements for a Valid Deed
Traditionally, common law required Deeds to be written on parchment, vellum or paper, have a personal seal, and be delivered to the other party. however, legislation across all Australian jurisdictions has modified these requirements. Eg, companies in Australia can execute a document as a Deed if it is expressed as such or signed in accordance with the execution provision of the Corporation Act 2001 (Cth)
In NSW, an individual’s Deed must be signed and witnessed by a non-party, and it is considered “sealed” if expressly stated as a Deed. Electronic execution and witnessing of Deeds are permitted in New South Wales, Victoria and Queensland, but not in other states. The recent amendment to the Corporations Act 2001 (Cth) allows the electronic execution of Deeds under certain conditions.
Difference
1. A deed does not require consideration, unlike agreements, which necessitate consideration. A Deed allows parties to overcome difficulties arising from enforcing a promise without actual consideration.
2. A Deed must be in writing, an agreement can be oral or written.
3. Deeds have longer limitation periods. The timeframe for bringing an action under a Deed is significantly longer than for agreements varies across Australian jurisdictions.
4. Equitable remedies are generally not available for actions based on Deeds lacking consideration.
Speak to CFS Legal dedicated lawyers in confidence for Agreement and Deed advice. Email: info@cfslegal.com.au.