Do you know the difference between a deed and an agreement? Do you know which of these legal documents is most suitable for your transaction? You may have seen these different commercial documents but never asked what the difference is and what requirement or effect they have.

Choosing whether to use a deed or agreement for a transaction may have huge consequences later on, should a dispute arise between the parties. Making the right decision at the start could save you a lot of unnecessary time, money and stress.

What is a Contract?

One of the fundamental principles of contract law is that in order to have a legally effective contract certain legal elements must be met. These elements are:

1. An offer by a party;
2. Acceptance of that offer by another party;
3. Consideration (exchange of something of value); and
4. Intention to create legal relations.

For example: Joe wishes to purchase a car from Sam (an intention to create a legal relationship). Joe offers Sam $10,000.00 for the car and Sam accepts. In consideration of Sam providing the car to Joe, Joe gives Sam the $10,000.00. In this simplistic scenario it is clear that all 4 elements have been met.

What happens if one or more of the contract elements are not met?

If any of the four key elements are missing, your ‘contract’ will not be a contract under law. Therefore, if something goes wrong in the transaction, you may not be able to sue under the written or oral terms of the ‘contract’. Of course, you may be able to sue under another cause of action, under specific legislation or under equity – but this is likely to be a more complex and costly exercise to do so (especially when it comes to obtaining evidentiary proof). As well, it is likely that the remedies available to you (including damages) will be different depending on whether you can sue under the breach provisions of the contract, under specific legislation or under equity.

What is a Deed?

A deed is essentially a binding promise or commitment to do something. Unlike a contract, a deed does not require the element of consideration. The elements required are that it be:

1. In writing;
2. Signed by all parties (can be in counterparts if there is a specific clause included);
3. Witnessed by at least one person not a party to the deed;
4. Expressed to be a deed in the document itself (e.g. “This Deed hereby....”);
5. Delivered to all parties (although some states specifically  require deeds to state that they are “signed, sealed and delivered”; and
6. Supported by evidence that the parties intended to be legally bound by its terms.

A unilateral promise unsupported by consideration, is not a legally binding or enforceable contract. However, if this unilateral promise is made by deed, then it will be enforceable.

Some Examples

An agreement must exist for a contract to exist, but on its own is not sufficient to meet the elements required for a contract. Simply put, all contracts are also agreements, but not all agreements are legally enforceable contracts. In order for an agreement to be a legally enforceable contract consideration must be provided as well as the intention to be legally bound.

Here are some scenarios to consider:

1. Sam says to Joe “I am going to give you $1,000.00”.
2. Sam owns the company Red Rubber Pty Ltd (“RR”), which is a subsidiary of its parent company Silver Steel Pty Ltd (“SS”). SS offers to pay Joe $1,000.00 to on behalf of RR in return for Joe providing machinery to RR’s rubber factory. RR itself provides no consideration in return for Joe providing the machinery.

In both scenarios Joe would be unable to enforce the promise under a normal contract as he provided no consideration to Sam or to SS. However, if either agreement was made with a deed, then Joe would be entitled to enforce the terms of the promise in both scenarios.

Should I Use a Deed or a Contract for my Transaction?

There may be some circumstances, like the above scenario with Sam and Joe, where there is no choice but to use a deed. Deeds are commonly used for changing your name (by deed poll), financial guarantees, confidentiality agreements, terminations or indemnities. As a general rule, if the existence of consideration is in doubt (or if consideration has been provided only in the past), then you should use a deed instead of a contract. Other factors to consider are:

1. When it is to be binding on a party: deeds are binding when they are signed, sealed and delivered by one party to the other - even if the other party has not yet executed the deed document (see Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 QB 609 at 619 per Lord Denning).
2. Limitation periods: each State or Territory has its own legislation regarding limitation periods. The limitation period is extended for deeds and varies between 12 and 15 years, depending which State or Territory the deed is governed by. The limitation periods for contracts are 6 years in the States and the ACT, whereas in the Northern Territory it is only 3 years.
3. Corporate restrictions: some company representatives are not allowed to sign deeds on behalf of the company, therefore a contract is necessary.
4. Remedies: legal remedies differ between deeds and contracts, therefore this should be considered

Conclusion

Hopefully this discussion has helped you better understand the differences between deeds and contractual agreements. It is important to note that this is not a simple area of the law and sometimes even the Courts don’t agree on this issue.

In the recent case of 400 George Street (Qld) Pty Limited & Ors v BG International Limited [2010] QSC 66 (“George Street”) the Queensland Supreme Court ruled that the document in question was not a deed, and was rather a contractual agreement because of a number of factors. However, on appeal in 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245 (“George Street Appeal”), the Queensland Court of Appeal found that the document was in fact a deed, and not a contractual agreement.

Platinum Members read on for a detailed summary of this case and its subsequent appeal...

Related documents:

• Family Trust
• Self Managed Superannuation Fund Deed
• Independent Contractors Agreement
• Employment Contract
• Terms of Trade (Non ROT)