Many legal documents are designated as either “Deeds” or “Agreements”. What are the differences, and pros and cons, of Deeds and Agreements?
It is worth going back to basics to look at what these are before considering their relative merits or drawbacks.
The comparison should really be between deeds and contracts. An agreement is not really something that necessarily gives rise to legal rights or obligations. “Agreement” is a wider and more general concept than “contract”. This is explained in some references cited in Black’s Law Dictionary, 8th Edition:
“The term’ agreement’, although frequently used as synonymous with the word ‘contract’, is really an expression of greater breadth of meaning and less technicality. Every contract is an agreement: but not every agreement is a contract. In its colloquial sense, the term ‘agreement’ would include any arrangement between two or more persons intended to affect their relations (whether legal or otherwise) to each other. An accepted invitation to dinner, for example, would be an agreement in this sense; but it would not be a contract, because it would neither be intended to create, nor would it in fact create, any legal obligation between the parties to it. Further, even an agreement which is intended to affect the legal relations of the parties does not necessarily amount to a contract in the strict sense of the term. For instance, a conveyance of land or a gift of a chattel, though involving an agreement, is … not a contract; because its primary legal operation is to effect a transfer of property, and not to create an obligation.” 2 Stephen’s Commentaries on the Laws of England 5 (L. Crispin Warmington ed., 21st ed 1950).
“An agreement, as the courts have said, ‘is nothing more than a manifestation of mutual assent’ by two or more legally competent persons to one another. Agreement is in some respects a broader term than contract, or even than bargain or promise. It covers executed sales, gift and other transfers of property.” Samuel Williston, a Treatise on the Law of Contracts § 2, at 6 (Walter H.E. Jaeger ed., 3d ed. 1957).
What is a contract?
From the comments above, it is evident that a contract is an agreement that is intended to and does create legal obligations. This involves consideration of the somewhat arcane doctrine of offer and acceptance. This equates to the parties reaching an agreement. Apart from this, a simple summary of the requisite elements for a binding contract is that there must be:
- an intention by the parties to create legal relationships or obligations;
- certainty as to the terms of the contract;
- consideration given by a party seeking to enforce an obligation to the party required to perform the obligation (unless the contract is made in a deed);
- if applicable, compliance with any formalities or the contract, such as a requirement for the contract to be in writing; and
- legal capacity of the parties to enter into a contract.
A contract can be in writing or oral, or partly in writing or oral (“parol”). However, some contracts must be in writing, such as contracts for the sale of land. There are no requirements for signing or witnessing contracts, unless required by law.
What is a deed?
A deed is a document. It must be written on parchment, vellum or paper and cannot be written on other odd things like a wall or tattooed on someone.
The term indenture is often used synonymously with deed. Historically, an indenture was a deed in which the terms of the deed were written and repeated for each of the parties, and a copy for each of the parties was separated by cutting the paper or parchment with a jagged or wavy line (“indented”) so that the separate parts could be fitted together to show that they were indeed the same document. Indenting is not necessary now for a deed in South Australia (Law of Property Act 1936 section 41 (3)) and elsewhere.
The other kind of deed is a deed poll. This is usually made by one party, but can be made by more than one party expressing a common intention. Historically, such a deed was not indented but was cut evenly or “polled” at the top.
To be effective at common law a deed had to be signed by a signature or mark by a party to the deed and also by affixing a seal and by delivering the deed to the other party or parties. This is why signing clauses of deeds still often read “Signed, sealed and delivered” by parties. In South Australia, delivery is not necessary for an effective deed (Law of Property Act 1936 section 41 (3)).
Sealing is also not necessary for a natural person in South Australia. Section 41 (5) provides that:
Notwithstanding any other law, an instrument executed in accordance with this section is a deed if—
- the instrument is expressed to be an indenture or deed; or
- the instrument is expressed to be sealed and delivered or, in the case of an instrument executed by a natural person, to be sealed; or
- it appears from the circumstances of execution of the instrument or from the nature of the instrument that the parties intended it to be a deed.
Under section 41 (1)(a) of the South Australian Law of Property Act:
A natural person executes a deed by signing, or making a mark, on the deed,
and under subsection (2) the execution of the deed by a natural person must be attested (witnessed):
by at least one witness who is not a party to the deed.
There are different requirements under the Law of Property Act for companies and other bodies corporate. Section 41 (1)(b) provides that:
a body corporate executes a deed by affixation of the common seal of the body corporate to the deed in accordance with the rules governing the use of the common seal;.
However, the Corporations Act 2001 of the Commonwealth applies to companies and section 127 (1) and (2) provide that a company (but not other corporations) may execute documents either with or without a common seal if witnessed by two directors, a director and secretary or the sole director and company secretary. Subsection (3) provides that a company may execute a document as a deed if the document is expressed to be executed as a deed (and in accordance with subsections (1) and (2)).
In some States, but not South Australia, and for companies, electronic signatures can be used for deeds.
Deeds vs contracts/pros and cons
It will be apparent from the foregoing very brief summary of aspects of deeds and contracts that there are a number of differences which may, or may not, be useful depending on the circumstances of parties, including:
- Contracts, generally, do not have to be in writing and do not have any particular formalities. This may be useful in circumstances such as, for example, terms and conditions on a Website that are to be accepted by a user.
- Deeds, generally, have a longer period of limitation for the commencement of actions for breach or to enforce the deed. In South Australia, this is 15 years, and in some other States, it is 12 years, compared with six years for actions in relation to contracts.
- Deeds do not require consideration to be enforceable. This is often put forward as one of the main advantages of a deed. However, there is a substantial qualification.
To specifically enforce a contract made by deed, it is necessary for some consideration to be provided by the party seeking to enforce the contract, as specific enforcement is a remedy provided by equity, not by law, and the equitable maximum “equity does not assist a volunteer” applies. The remedies that are available at law are principally for damages.
In equity, as at law, there is no consideration given to the adequacy of consideration and the proverbial peppercorn will be sufficient. Accordingly, where a contract is made by deed, or not by deed, it is advisable to express or include a requirement for consideration, even if this is only a nominal $ amount or some other consideration.
This is not necessary if a deed is effective to complete a transaction on execution, such as a conveyance of property. Another example is a Deed of Release of a debt which, if expressed so as to give effect to the release on execution of the Deed, will not leave anything else to be done.
This is a very brief and necessarily incomplete examination of what is a very complex topic, but it will, hopefully, give some guidance as to the relative requirements and merits of deeds and contracts (agreements).