What are the Differences Between a Deed and an Agreement?

Lawyers are frequently asked what the difference is between a deed and an agreement and when you would use what type of document.

Agreements

An agreement or contract must satisfy at least the following pre-conditions (there are others such as having legal capacity) to be valid and enforceable:

• there must be an offer from one party that is accepted by the other party;
• each party must have an intention to be legally bound; and
• consideration must flow between the parties.

Deeds

Deeds, to be valid and enforceable, must:

• be in writing;
• be signed;
• be witnessed by at least one person who is not a party to the deed;
• use wording to indicate that the document is a deed such as “this deed” or “executed as a deed” and “signed, sealed and delivered” in the execution clauses. The wording in the document needs to be consistent – it is not helpful to refer to an agreement and then use “signed as a deed” for the execution clauses;
• be delivered to the other party or parties; and
• be supported by evidence that the parties intended the document to be a deed and be bound by it.

Differences between Deeds and Agreements

1. Consideration is not required for a deed to be legally binding. Consideration is required for an agreement to be binding.
2. For consideration to be effective, it must flow with or after the agreement is made. Past consideration is not valid consideration for an agreement. Past consideration does not affect the validity of a deed.
3. 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.
4. Each State has specific legislation dealing with the period of time in which a claims or actions can be commenced. Usually, a claim following a breach of contract/agreement must be commenced within 6 years of the breach occurring. There is a longer period of time to commence action following the breach of the terms of a deed. The particular time period depends on the law of the State (which is why it is important to have a jurisdiction clause in your deed). Those time limits are 12 years in Queensland, New South Wales, the Australian Capital Territory, the Northern Territory, Tasmania and Western Australia; and 15 years in South Australia and Victoria.

Recent decisions

In a recent decision, 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245 (400 George Street), the Queensland Court of Appeal confirmed that deeds and agreements differ on the following basis:

• A deed must have formal wording covered in the format of the document – intention and language were found to be important; and

–       An agreement must have consideration flowing from one party to another, while under a deed that is not a requirement.

Further, in 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245, it was held that 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, the Court of Appeal decided that the execution of a deed by a proposed tenant did not constitute delivery because they only intended to be bound once all the parties executed the deed which was evidenced by the initial agreement to lease which was stated to be subject to a “mutually agreed legal document by both parties”.

By contrast, the Court of Appeal decided in In Roma Pty Ltd v Adams [2012] QCA 347 that execution of a deed by one party 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.

Corporations Act 2001

The Corporations Act 2001 (Cth) also deals with the execution of deeds by bodies corporate. Section 127(3) provides that:

“(3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).”

Subsections (1) and (2) state:

“(1)  A company may execute a document without using a common seal if the document is signed by:

(a)  2 directors of the company; or

(b)  a director and a company secretary of the company; or

(c)  for a proprietary company that has a sole director who is also the sole company secretary–that director.

Note:  If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.

(2)  A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

(a)  2 directors of the company; or

(b)  a director and a company secretary of the company; or

(c)  for a proprietary company that has a sole director who is also the sole company secretary–that director.

Note:  If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings in relation to the company.”

Please note that notwithstanding the above subsection (4) of Sn 127 states that “This section does not limit the ways in which a company may execute a document (including a deed)”.

Author: Rhonda King, Special Counsel

Published: July 2015