26 Jun 2014

Aren't they just contracts? The difference between deeds and agreements

by Stuart MacGregor, Bernard Wall, Damien Cooling

A deed is a special type of binding promise or commitment to do something.

You may have noticed that some formal commercial documents are called an "agreement" while others are a "deed". Ever wondered what the difference is? Are they just different names for a contract, or do they have different requirements and effect?

In this article we'll briefly discuss what a deed is, how deeds are executed and the key differences between deeds and agreements, and then give you some practical tips on how to avoid confusing the two.

What is a deed?

A deed is a special type of binding promise or commitment to do something. The substantial requirement of a deed is that it be intended by the executing party to be the most serious indication to the community that she or he really means to do what has been agreed between the parties.

The subject matter of a deed can vary greatly. It may, for instance, do one or more of the following:

  • pass or confer legal or equitable interests in property or some other rights;
  • create an obligation binding on some person; or
  • simply affirm an agreement that passes a legal or equitable interest in property or some other rights.

Are there differences between deeds and agreements?

It is a basic principle of modern contract law that in order to have a binding agreement there must be:

  • offer and acceptance;
  • an intention to be legally bound; and
  • consideration (this stems from the idea that the promises or obligations must be part of a "bargain" between the parties and the parties must show they "bought" the promise by doing some act in return or providing a counter-promise).

The major difference between a deed and an agreement is that there is no requirement for consideration in order for the deed to be binding. In short, the lack of consideration is overcome by the idea that a deed is intended by the executing party to be a solemn indication to the community that she or he really means uphold their promise.

Another important difference between a deed and an agreement is that a deed is binding on a party when it has been signed, sealed and delivered to the other parties, even if the other parties have not yet executed the deed document: Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 QB 609 at 619 per Lord Denning.

In terms of determining whether a document is a deed or an agreement, the courts have said that it depends on whether the person executing the deed intends for the document to be immediately binding on that person. If so, the document is more likely going to be construed as a deed rather than an agreement.

In 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245, the Queensland Court of Appeal stated that the words used in the document "executed as a deed" and "by executing this deed" unequivocally expressed an intention that the document was a deed rather than an agreement.

What types of documents are commonly executed as deeds?

The following types of documents are often executed in the form of a deed:

  • Deed Poll;
  • Escrow Deed;
  • Financial Guarantee or Letter of Credit;
  • Confidentiality Deed;
  • Deed of Termination; and
  • Indemnity Deed.

Executing them in the form of a deed is often to overcome any difficulty that may arise if there is no consideration provided for the undertakings in the document.

For example, during a project A may be under an obligation to provide B with a financial guarantee to secure its obligations. In this context, a bank guarantee or letter of credit may be provided by a financial institution (on behalf of A) to B. However, there may be no consideration between the financial institution and B for this guarantee. To ensure that the guarantee is binding even though there is no consideration, the guarantee is often in the form of a deed.

There are also specific documents which are required by legislation to be executed in the form of a deed. For example, in some Australian States, conveyances of land are void for the purpose of conveying or creating a legal estate unless made by deed.

How are deeds executed?

Traditionally, in order to be a deed at common law, an instrument needs to comply with a number of formalities:

  • it must be written on parchment, vellum or paper;
  • a personal seal was placed on the document; and
  • it must be delivered to the counterparty.

This is the origin of the expression "signed, sealed and delivered".

Today, parchment and vellum are more the domain of wedding planners and scrapbookers and the execution of deeds is now dealt with under legislation in each Australian State, for example, Part 6 of the Property Law Act 1974 (Qld) deals with the execution of deeds under Queensland Law. Section 45 states that an individual may execute a document as a deed if:

  • the individual signs the document;
  • the document is expressed to be an "indenture", "deed" or be "sealed"; and
  • the document is signed and attested to by at least one witness not being a party to the document.

Section 46 deals with the execution of deeds by corporations under seal, by agent and by a person authorised under a power of attorney, while section 47 deals with the requirement of delivery (defined as the intention to be legally bound under section 47(3)).

The execution of a document in the form of a deed does not itself imply delivery unless it appears that execution was intended to constitute delivery (delivery can be inferred from any fact or circumstance, including words or conduct). In 400 George Street (Qld) Pty Ltd v BG International Ltd, the Court of Appeal decided that the execution of the deed instrument by a proposed tenant did not constitute delivery because they only intended to be bound once all the parties executed the deed, which had not occurred in this case.

By contrast, the Court of Appeal decided in In Roma Pty Ltd v Adams [2012] QCA 347 that execution was intended to constitute delivery because the party relying on the document did not wait until the counterparty had executed the deed before sending the signed forms necessary for registration. This case also differs from 400 George Street (Qld) Pty Ltd where negotiation was subject to a "mutually agreed legal document by both parties".

The Corporations Act 2001 (Cth) also deals with the execution of deeds by bodies corporate. Section 127(3) provides that a corporate may execute a document as a deed provided the document is:

  • expressed to be "executed as a deed"; and
  • the document is signed in accordance with sections 127(1) or (2) of the Corporations Act (signed by two directors or a director and a company secretary, with or without a common seal).

Limitation periods

An important point to note about deeds relates to the period of time in which a claim can be brought for the breach of an obligation set out in a deed.

Each State has specific legislation dealing with the period of time in which a claims or actions can be commenced (in Queensland this is the Limitation of Actions Act 1974). In general, under this legislation, a claim following a breach of contract must be commenced within six years from the breach occurring. However, because of their special nature there is a longer period of time to commence action following the breach of a deed (often referred to as "specialty").

The particular time period depends on the law of which State the deed is governed by (the deed should specify which State law it is governed by):

  • 12 years in Queensland, New South Wales, the Australian Capital Territory, the Northern Territory or  Tasmania and Western Australia; and
  • 15 years in South Australia and Victoria.

Should I choose a deed or agreement?

These extended limitation periods should be considered when deciding to execute a document as an agreement or a deed. Other considerations when deciding to execute a document as an agreement or a deed include:

  • whether there are any specific corporate restrictions on the execution of deeds (for example, some delegated authorities do not allow company representatives to sign deeds of behalf of the company);
  • whether any obligations are imposed on third parties;
  • tax implications;
  • any difficulties in proving consideration;
  • whether a deed can be executed in counterparts (this is a technical argument based on the common law's requirement for a deed to be "delivered" in order to be effective); and
  • the availability of particular remedies for the breach of a deed.

How to avoid confusion between deeds and agreements

If a deed is desirable in the circumstances, it is imperative that the deed instrument clearly describes itself as one to avoid it being construed as an agreement.

Courts have pointed to many matters to construe documents as deeds:

  • the document uses language commonly associated with deeds;
  • the document does not use language associated with agreements e.g. "'covenants'" and '"consideration'";
  • conditions for delivery are expressly stipulated in the document;
  • the document includes the phrase 'by executing this deed' at the execution panel; and
  • the surrounding circumstances indicate that the parties intend to be bound upon delivery.

So there you have it, now you know a bit about deeds, how to execute a document as a deed and the effect of a deed on statutory limitation periods. Whether to execute a document as a deed or an agreement depends on the particular circumstance. If in any doubt, seek specific advice.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.