The words ‘agreement’ and ‘deed’ are used interchangeably. In commercial contracts, some arrangements are formally expressed to be an ‘agreement’ while others are expressed to be a ‘deed’ or ‘deed of agreement’. However, an agreement and a deed are very distinct legal instruments and their incorrect use may have adverse consequences for certain transactions.

What is an Agreement?

An agreement, also known as a contract, is an understanding or arrangement 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. This means if a party fails to perform their obligations under the agreement, they will be in breach of contract.

What is a Deed?

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

 
A deed is often used because of the potential issues that may arise if there is no ‘consideration’ provided for an undertaking. A deed is generally considered to be more difficult to ‘get out of’ than an agreement, and as at the time of writing, there is a longer limitation period to sue on a deed (12 years compared to six years from the date of the cause of action arising). However, this will reduce to 6 years once Queensland’s new Property Law Act comes into force.

How are deeds validly created?

Legislation
An enforceable deed is usually created through legislation. Note that the Property Law Act 1974 (Qld) will be replaced by the Property Law Act 2023 (Qld), likely sometime in late 2024 or early 2025.

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

• Signing the document;
• Expressing the document to be an ‘indenture’ (legal agreement), ‘deed’ or ‘be sealed’;
• Having the document signed and attested by at least one witness who is a not a party to the document.

 
Section 127(3) of the Corporations Act 2001 (Cth) provides that a company may execute a document as a deed by:

• Expressing the document to be ‘executed as a deed’; and
• Having the document signed by two directors, or a director and a company secretary, with or without a common seal.

 
Common Law
For a deed to be validly created and executed at common law, the deed must:

• Be written on paper, parchment or vellum;
• Have a personal seal;

 
be delivered to the other party, or there must be some other indication given that the person executing it intends to be bound by its terms.

Deed vs Agreement

As mentioned above, agreements and deeds are two very distinct legal instruments. 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):

• An offer;
• Acceptance of the offer;
• An intention to be legally bound; and/li>
• Consideration.

 
The major difference between an agreement and a deed is that there is no requirement for consideration for a deed to be legally binding. A party seeking to enforce a promise made in an agreement, whether oral or written, must have provided consideration for the promise.

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. If the guarantee is executed as a deed rather than as an agreement, any dispute about lack of consideration can be avoided.

Should I choose a deed or an agreement?

Deciding 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:

• Where legislation requires it;
• Where there may not be consideration for a promise; and
• When a party or the parties want to make it more difficult for the other party to “get out” of their obligations.

Action

If an agreement or deed has been breached, Fox Piper can assist you in seeking remedies.

Taking court action to enforce such remedies for breach of a deed is slightly less complicated than court action related to breach of an agreement because it is not necessary to prove consideration was given.

For breaches of either an agreement or a deed, the following remedies are available:

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.

 
Rescission

• Rescission is an equitable remedy that 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 that allows 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.

Cases

• 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. 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’ (Monarch Petroleum NL v Citco Petroleum Ltd [1986] WAR 310).

Seeking Advice

Understanding the nuances between agreements and deeds is crucial in navigating legal obligations effectively. At Fox Piper, our team is equipped to provide expert guidance tailored to your specific situation. Whether you’re considering entering into a deed or agreement, or facing issues regarding breach or enforcement, our legal professionals are ready to assist you. Make a booking today with Fox Piper if you wish to further discuss whether a deed or an agreement is best for your situation. We offer clear insights and actionable solutions to safeguard your interests and ensure compliance with legal requirements.

Conclusion

Distinguishing between agreements and deeds is essential to avoid potential pitfalls in legal transactions. Knowing when to opt for a deed, which may offer greater enforceability and longer limitation periods, versus an agreement requiring consideration, can significantly impact the outcome of contractual relationships. Seek advice from Fox Piper to navigate these complexities confidently and secure your legal position effectively.