Deed vs Agreement: What’s the Difference?

Authors: Zeinab Farhat & Gianluca Pecora, Progressive Legal

For many business owners and small businesses, executing documents is an aspect of business practice that occurs on a regular basis. Part of this, includes executing different types of documents. Deeds and agreements, also known as contracts, are commonly mixed up which can create negative ramifications.

Understanding the difference between these two key legal documents can help your business manage liability risks, maintain enforceability and bind transactions faster.

What is a deed?

A deed is an agreement which contains a promise on part of one party to do something. The purpose of a deed is most commonly to either confer property interests, create obligations or affirm agreements. 

By signing a deed, it commits a party to perform specific duties and obligations. For example, during dispute resolution and litigation, it is common for parties to enter a Deed of Settlement and Deed of Release to end a dispute.  

Legislation often requires specific documents to be executed as deeds. 

There are a wide range of deeds, which include and are not limited to: 

• Deeds of Confidentiality; 
• Deeds of Assignment of IP;
• Deeds of Assignment of a Trade Mark; 
• Deeds of Assignment of Copyright; 
• Deeds of Release; 
• Deeds of Settlement; 
• Deeds of Termination; 
• Deeds of Indemnity; 
• Deeds of Forbearance; 
• Deeds of Guarantee; 
• Deeds of Novation; 
• Deeds of Escrow; 
• Deed Polls; 
• Deeds of Company Arrangement; and 
• Deeds of Novation. 

What are some key requirements of a deed?

Generally speaking, the common law requires deeds to be written (as opposed to oral), sealed and delivered to the other party. 

What is a seal?

Historically, deeds have been required to be sealed with a rubber stamp, wax seal or other impression (Electronic Rentals Pty Ltd v Anderson (1971)), but this is no longer necessary in the literal sense.  

Nowadays, a deed will be deemed to be “sealed” if it expressly states that it is executed as a deed. Most deeds will contain an attestation clause with the words “signed, sealed and delivered” which ensures the deed is enforceable. 

Can deeds be electronic?

Deeds may be created, signed and witnessed in electronic form in New South Wales, Victoria and Queensland. The Corporations Act 2001 (Cth) now allows deeds to be executed electronically. However, South Australia, Western Australia, the Northern Territory, the Australian Capital Territory and Tasmania do not permit electronic deeds.  

As a result, your business should be aware of the lack of jurisdictional uniformity on electronic deeds when transacting with businesses from different states and territories across Australia. 

What is an agreement?

An agreement (also referred to as a contract), is an agreement between two or more parties in order for one party to do, or not do something. The elements of an agreement include: offer, acceptance, consideration and intention to create legal relations. 

Agreements can be wholly written, partly written and partly oral, and/or wholly oral. 

Deed vs Agreement

Consideration is not required for a deed vs agreement

Deeds allow parties to circumvent potential difficulties arising from the requirement to provide consideration for agreements/contracts as deeds do not require consideration to be made. Consideration, in simple terms, refers to the price paid to the promisor (by the promisee) for their promise.  

If you know that a business transaction will not include giving something of value from both parties to each other, it is important to use a deed so that obligations can be validly enforced. 

For example, a third-party guarantor of a loan may attempt to evade contractual obligations by asserting that they received no consideration for guaranteeing the loan – given that they gained no value from doing so. Guarantees executed by way of a deed, avoid any such dispute around consideration, saving your business time and mitigating risk. 

This same strategy should be applied by your business to other legal relationships without consideration. It is best to seek legal advice to identify these. 

Signature less important for a deed vs agreement

For agreements to be enforceable, a signature by all parties is required. Deeds circumvent this common requirement. 

Common law arising from Vincent v Premo Enterprises (Voucher Sales) Ltd [1969], makes deeds binding on both parties from the moment of delivery, if all other requirements are met. Delivery is completed when the person who executed the deed expressly or impliedly, manifests by words or actions that they intend to be bound by the deed (Monarch Petroleum NL v Citco Petroleum Ltd [1986]). The delivery of a deed does not need to be witnessed. 

Execution via delivery can be used to your business’ advantage.  

Conditions surrounding a transaction can change for reasons like market fluctuation. Agreements allow a purchaser to refrain from entering into an agreement at the time of signature if such a change in external conditions occurs. If your business is the vendor, you can utilise a deed to enforce transactions that are at risk of the other party bailing in the last minute. If your business is the purchaser, you must be wary of this feature of deeds if another party suggests them over agreements. 

Aside from simple sale and purchase transactions, knowing this difference can allow your business to transact with strategy. 

If your business is about to complete an important transaction and you want legal advice to assist your commercial strategy, Progressive Legal are experienced at helping small to medium sized business be on the right side of the legal fence. Get in touch with our team by calling 1800 820 083 or sending an enquiry bellow. 

Longer limitation period for a deed vs agreement

Bringing an action in Court in relation to a deed grants a much longer limitation period than for agreements. Thus, if you are considering which to utilise, it is important to also be mindful that: 

1. the limitation period for breach of contract in most States and Territories is 6 years, except for the Northern Territory which is 3 years; and 
2. alternatively, the limitation period for an action arising from a deed is 15 years in South Australia and Victoria, and 12 years in New South Wales, the Australian Capital Territory, Queensland, Western Australia, Tasmania and the Northern Territory.  

This allows parties to initiate legal proceedings a long time after the execution of a deed, which can expose businesses to longer periods of liability. Therefore, longer limitation periods can create significant risk by increasing the time frame in which an action can brought.

However, the opposite is true such that these longer enforcement periods also allow your business to enforce its legal rights in Court for a longer time. Whether this feature is beneficial or detrimental to your business, depends on what side of the deed you are on, and (potentially) your propensity to break obligations. 

For example, if your business has transacted the goods of another business via a deed, but discovers a latent defect many years later, your business can initiate proceedings and be remedied.

However, if you are the business who provided the deficient goods, you may be kicking yourself at not having transacted under a contract with a shorter limitation period in order to prevent, or at least minimise the chance of these claims being brought against you. 

Remedies for breach of a deed vs agreement 

There is little difference between deeds and agreements when it comes to claims for breach. The remedies for a breach of an agreement include: damages, restitution, recission, rectification and specific performance.  

The breach of a deed attracts the same remedies as a breach of an agreement; with the most generally relied upon remedy being that of either specific performance (a party is forced by the Court to complete their obligations) or the remedy of damages when specific performance is no longer practical or possible.

Key Takeaways

It is important to be mindful of the nuanced distinctions between deeds and agreements, particularly if you are a business owner and/or individual who enters into them on a regular basis.  

Some key takeaways include: 

1. deeds bind a party to a promise but should be used in different contexts to agreements; 
2. most commonly, deeds confer property interests, create obligations or affirm agreements; 
3. deeds must be written, sealed and delivered; 
4. unlike agreements, deeds do not require consideration; 
5. signature by all parties is less important for deeds than for agreements; 
6. deeds have much longer limitation periods than agreements; and  
7. deeds welcome similar remedies to agreements. 

At Progressive Legal, our experienced lawyers are experts in commercial, privacy and intellectual property law for small to medium sized businesses. We have drafted an extensive amount of Deeds of Confidentiality, Deeds of Assignment of IP, Deeds of Release, and other deeds.

If your business requires a deed, or if you are not sure if a deed or agreement/contract is more suitable, call us on 1800 820 083 or request our advice below.

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