Within the legal world, the language and terminology used can be extremely complex. This often makes the law difficult to comprehend and can create confusion. Contracts will often take the form of an ‘agreement’ or a ‘deed’. These terms can be confusing and lawyers are frequently asked questions about the difference between them. It is imperative to distinguish the difference between an agreement and a deed and determine the circumstances in which it would be appropriate to use the respective documents.
This article will provide an insight into what the terms ‘deed’ and ‘agreement’ mean and explain the difference between them.
What is an Agreement?
Generally, all contracts can be considered as an agreement. An agreement involves an exchange between several parties. To simplify it, one party will provide goods/services to another party in exchange for the other party providing something of value such as a monetary sum. This monetary sum is known as ‘consideration’, an essential element of a contract. The circumstances of this agreement will determine whether the agreement is legally enforceable, that is that the agreement is binding upon both parties.
Elements of an Agreement
In order for an agreement to be binding, there must be:
- An offer and an acceptance
- A clear intention by the parties to be legally bound by the agreement; and
- Consideration, which is defined as an exchange of value from one party to the other (the most common form of value is money)
Agreements can be expressed both in writing and in oral form. However, the form of agreement does not deter its enforceability.
An example of a basic agreement is: I offer to repair your car, and you accept and agree to pay me $100 for it.
In this scenario there is a clear offer and acceptance by both parties as well as an intention to be legally bound by the agreement. The promise of the $100 payment constitutes the important element of consideration.
What is a Deed?
A deed constitutes a binding promise or commitment to do something.
The use of a deed ensures that a party indicates their intention to fulfill the promise they make.
Deeds will be used in situations involving the transfer of interests, rights or property. Examples include:
- A transfer in property.
- The creation of an obligation binding on a party.
- Documentation of an agreement made with another party following a dispute between them.
How is a Deed executed?
The finalisation of contractual documents such as a deed is known as the execution process. The execution of a deed differs from the execution of an agreement.
For a deed to be enforceable in NSW, it must be in writing. Additionally, deeds must be signed, sealed and delivered.
The execution of a deed also requires someone who is not a party to the deed as a witness.
How is an Agreement executed?
In contrast to deeds, agreements are not required to be ‘signed, sealed and delivered’ in the same manner as a deed. An agreement can be legally enforceable if the parties have an agreement in a contract, an oral agreement or one written via email.
However, it is preferable that agreements are in writing as it clearly identifies the terms the parties have agreed to.
What are the differences between an Agreement and a Deed?
The main differences between agreements and deeds:
- For a deed to be legally binding, consideration is not required.
- An agreement can be legally enforceable whether it is made orally or in writing, whereas a deed MUST be in writing.
- An agreement and deed differ in terms of their limitation periods. A limitation period refers to the length of time parties have to initiate legal proceedings, following the occurrence of a certain event. The limitation period to bring a claim to court is much longer in deeds than an agreement: for breach of contract, the limitation period is generally 6 years from the time the breach occurred whereas deeds commonly have a limitation period of 12 years.
What to take away from this article?
To determine whether something is an agreement or a deed, one should consider the words of the document in addition to the intentions of the parties.
To execute a legally binding deed, it must be in writing as well as signed, sealed and delivered. For a deed to be legally enforceable, it does not require consideration.
Each jurisdiction within Australia has their respective legislation, involving specific requirements to execute a deed in that specific state. Therefore, prior to executing a deed it is important that you consider the legislation to ensure that the deed is properly executed.
If the party enacting the contractual document intends it to be immediately binding on themselves, the solemn promise indicates that it is likely that the document is a deed rather than an agreement.
In comparison, an agreement can be executed in either a written or oral manner. It is also essential that consideration is given to ensure that an agreement is legally binding.
Something to consider when deciding to execute a document as an agreement or deed is the difference in limitation periods.
Deciding whether to execute either an agreement or deed will depend on the circumstances of the parties wishing to do so.
If you need help with any contracts, agreements, or deed, get in touch with our commercial lawyers via the contact form or by calling 1300 337 997.