Deed v Agreement – What’s the Difference?

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An agreement and a deed are two types of legal instruments that are sometimes used interchangeably. In commercial contracts, you may notice that some arrangements are formally expressed to be an ‘agreement’ while others are expressed to be a ‘deed’. However, they are two very distinct legal instruments, and their incorrect use may have adverse consequences for certain transactions.

What is an Agreement?

An agreement is an understanding or arrangement reached between two or more parties. The fundamental requirement for any contract is that the parties have reached an agreement for one party to do, or not do something, in return for something of value from the other party. This ‘something of value’ in legal terms this is called ‘consideration’ and is sometimes referred to as ‘quid pro quo’ (something for something).

Once the contract has been agreed on (whether verbally or in writing) by all parties, the agreement becomes legally binding; meaning that if a party fails to perform their obligations under the agreement, they will be in breach of contract.

What is a Deed?

Put simply, a deed is a binding promise to do something. In commercial terms, the signing of a deed indicates a serious commitment by the person or company executing it to perform certain duties and obligations.

A deed can:

  • Pass legal interest in property or other rights;
  • Pass equitable interest in property or other rights;
  • Create a binding obligation on a person; and
  • Affirm an agreement that passes legal or equitable interest in property or other rights.

Deeds can be used for many commercial arrangements or contexts. For example, in an insolvency context, a deed of company arrangement is an instrument which prescribes the conduct of the affairs of a company that has been under voluntary administration. Once the company’s obligations under the deed have been discharged, unfettered control of the company reverts back to the company’s directors.

Common types of Deeds

The following documents are common types of deeds:

  • Deed of Termination
  • Deed Poll
  • Deed of Indemnity
  • Deed of Forbearance
  • Deed of Settlement
  • Deed of Confidentiality
  • Deed of Guarantee
  • Deed of Novation
  • Deed of Escrow
  • Deed of Release

 
The reason for executing these types of documents in the form of a deed is often due to the potential issues that may arise if there is no ‘consideration’ provided for the undertakings within the document. Deeds are also generally considered to be more difficult to ‘get out of’, and further, there is also a longer limitation period to sue on a deed rather than a contract (12 years vs 6 years from the date of the cause of action arising).

How are Deeds validly created?

Deeds can be created and executed so as to be enforceable in one of the following ways:

  • According to legislation, specifically the Property Law Act 1974 (Qld) and the Corporations Act 2001 (Cth); or
  • At common law.

Legislation

An enforceable deed is usually created through legislation, such as the Property Law Act 1974 (Qld) and the Corporations Act 2001 (Cth).

Section 45 of the Property Law Act 1974 (Qld) states that an individual may execute a document as a deed in the following way:

“(1) Where an individual executes a deed, the individual shall either sign or place the individual’s mark upon the same and sealing alone shall not be sufficient.

(2) An instrument expressed—

     (a) to be an indenture or a deed; or

     (b) to be sealed;

shall, if it is signed and attested by at least 1 witness not being a party to the instrument, be deemed to be sealed and, subject to section 47, to have been duly executed.

(3) No particular form of words shall be requisite for the attestation.

(4) A deed executed and attested under this section may in any proceedings be proved in the manner in which it might be proved if no attesting witness were alive.

(5) Nothing in this section shall affect—

     (a) the execution of deeds by corporations; or

     (b) how instruments are validly executed under the Land Title Act 1994; or

     (c) any deed executed before the commencement of this Act”.

Sections 46 and 47 of the Property Law Act 1974 (Qld), respectively, deal with the execution of a deed by corporations under seal, by agent or by a person authorised under power of attorney in favour of a purchaser; and with the requirement of ‘delivery’ which section 47 defines as “the intention to be legally bound either immediately or subject to fulfilment of a condition”.

A description of the way a company may execute a deed which has broader application appears in section 127(3) of the Corporations Act 2001 (Cth). That section provides that a company may execute a document as a deed in the following way:

“(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) Two 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.

             (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).”.

Common Law

For a deed to be validly created and executed at common law, the deed must comply with these formalities:

  1. It must be written on paper, parchment or vellum;
  2. A personal seal must be placed on the document; and
  3. It must be delivered to the counterparty, or some other indication given that the person executing it intends to be bound by its terms,

(Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263).

Sealing means affixing a seal in the form of a rubber stamp, wax seal or any other impression on the document (Electronic Rentals Pty Ltd v Anderson (1971) 124 CLR 27). This is no longer necessary in Queensland provided the deed is expressed to be sealed and is properly signed and witnessed (section 45(1) of the Property Law Act 1974 (Qld)). Generally, for most Australian states, using the words ‘signed, sealed and delivered’ in the attestation clause at the end of the deed will ensure the deed is enforceable.        

Delivery means “… conduct indicating that the person who has executed the deed intends to be bound by it. Anything which shows that he treats the instrument as his deed will suffice … It ‘depends upon intention manifested by some words or by some act, either expressly proved or inferred from circumstances.” (Monarch Petroleum NL v Citco Petroleum Ltd [1986] WAR 310). Once again, using the words ‘signed, sealed and delivered’ will meet this common law requirement for an enforceable deed.

While witnessing of a deed when it is being executed is not required at common law, it is a legislative requirement in Queensland due to section 45(1) of the Property Law Act 1974 (Qld) as referred to above.                      

The above list is not exhaustive; and other requirements may apply to create an enforceable deed depending on the circumstances of the case, and the jurisdiction where it is being created.

Deed vs. Agreement

As mentioned above, agreements and deeds are two very distinct legal instruments, and their incorrect use may have adverse consequences for certain transactions. It is a fundamental principle of modern contract law that in order to have a binding contract, there must be (at least):

  1. An offer;
  2. Acceptance of the offer;
  3. An intention to be legally bound; and
  4. Consideration

For other requirements, see our Elements of a Contract page.

The major distinction between an agreement and a deed is that there is no requirement for consideration in order for a deed to be legally binding.1 A party seeking to enforce a promise made in an agreement, whether oral or written, must have provided consideration for the promise. On the other hand, a promise contained in a deed does not require consideration to have passed from the promisee to the promisor, in order to be enforceable.

For example, a third-party guarantor of a loan may be able to argue that they did not receive consideration for guaranteeing the loan, because they never received any benefit of it. Although the bank may be able to say consideration existed through, say, love and affection, if the guarantee is executed as a deed rather than as an agreement, any dispute about lack of consideration can be avoided altogether.

Another consideration the Courts may take into consideration when asked to determine whether a document is a deed or an agreement, is whether the person executing the deed intended that the document be immediately binding on that person. If that was the intention, the Court is more likely to find that the document is a deed rather than an agreement.

Which one should I choose? Deed or Agreement?

Whether to use a deed or agreement to formalise legal obligations with another party involves a number of considerations. However, a deed is commonly used in the following circumstances:

  • Where legislation requires it;
  • Where there may not be consideration for a promise;
  • Where a longer limitation period to enforce a deed, as opposed to an agreement, may be available such as, for example, in a dispute concerning property held under a deed of trust; and
  • When a party or the parties want to make it more difficult for the other party to ‘get out’ of their obligations

The above is not an exhaustive list, and deeds may be used in other circumstances depending upon the nature of the transaction involved and the jurisdiction where it is taking place.

What remedies can I claim for breach of an Agreement?

Breach of an agreement is the same as breach of contract. The breach may result in a number of different legal consequences. Accordingly, a variety of legal remedies exist to enable the aggrieved party to be adequately compensated for the breach of contract. These remedies include, but are not limited to the following.

Monetary damages

The primary remedy for breach of contract is damages in the form of a sum of money paid as compensation for the aggrieved party’s actual loss resulting from the breach.

Restitution

Restitution is founded on the legal principle of unjust enrichment which allows one party to recover a sum of money from another if money had been incorrectly paid, or where a party is otherwise unjustly enriched at the expense of another.2

Rescission

Rescission is an equitable remedy which allows a party to a contract to cancel or ‘rescind’ the contract. Rescission effectively means setting aside the contract. Rescission may be used if the aggrieved party is the victim of vitiating factors, e.g. misrepresentation, mistake, duress, or undue influence.

Rectification

Rectification is an equitable remedy which allows the Court to allow the parties to re-write a part of the contract so that it reflects the parties’ original intentions more closely.

Specific Performance

Specific performance is an equitable remedy which allows the Court to require a party to perform a specific act such as, for example, complete performance of a contract.3

What remedies can I claim for breach of a Deed?

Breach of a deed attracts similar remedies to breach of an agreement, with the most common being to seek specific performance of the obligations in the deed, or damages for breach of the deed in the event that specific performance is either not practical or no longer available given the circumstances of the breach. Taking Court action to enforce such remedies is slightly less complicated than seeking to enforce an agreement because it is not necessary to prove that appropriate consideration was given by the promisee to the promisor when enforcing a deed.

Contact Gibbs Wright Litigation Lawyers

If you are considering terminating any agreement or contract, or walking away from your obligations under a deed, it is important to note that:
  • There needs to have been a breach of an essential term, a sufficiently serious breach of a non-essential term, or a repudiation of the contract by the other party to end an agreement or contract; and
  • Before you consider terminating a contract, it is prudent to consider whether it would be better to terminate the contract at common law, or pursuant to the terms and conditions of the contract itself.
Termination of a contract or relinquishing obligations under a deed, must always be done with great care. Not doing so, can prove to be very costly as the resulting dispute may end up being determined by a Court. Our contract dispute lawyers at Gibbs Wright, can assist regarding any matter concerning your rights and obligations under an agreement, contract or deed for a confidential consultation discussing your legal rights and options.

[1] 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245.

[2] Pavey & Matthews Pty Ltd v Paul (1986) 162 CLR 221, Roxborourgh v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Farah Constructions Pty Ltd v Say­Dee Pty Ltd [2007] HCA 22.

[3] Dougan v Ley [1946] HCA 3; Loan Investment Corporation of Australasia v Bonner [1969] UKPC 33.

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The content of this publication is intended as general commentary only and may not be suitable or applicable to your personal circumstances. It is not intended to replace independent legal advice. You can contact us at our Brisbane Office for a free consultation on a range of litigation matters on (07) 3088 6364.

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