At its simplest, a deed is a promise that is not supported by consideration (payment). This means that to be valid, deeds must comply with much more specific requirements than contracts. You cannot simply infer the parties’ intentions to bound as you may be able to with a contract or agreement. This article explains the difference between an agreement and a deed.
Definition of a Deed
A deed is a special type of binding promise or commitment to do something.
The essence of a deed stems from the need in every community to have a special type of ritual or procedure which publicly indicates the solemnity of a binding promise that a person intends to make.
In today’s commercial world, this idea of a serious commitment continues in the form of a deed. Therefore people use a deed when substantial interests are at stake, such as when a person passes an interest, right or property.
The Difference Between an Agreement and a Deed
The fundamentals of contract law are that there must be:
- offer and acceptance;
- an intention to be legally bound; and
Consideration stems from the idea that when two parties agree, they have reached a bargain. The parties need consideration to show that they have ‘bought’ the promise by doing some act or providing something in return for the promise.
In contrast with a contract or agreement, there is no requirement for consideration for a deed to be legally binding. A deed does not need consideration because of the idea that a deed is the most solemn indication that the parties intend to be bound.
Common Types of Deeds
- deed of termination;
- escrow deed;
- financial guarantee or letter of credit;
- deed poll;
- indemnity deed; and
- confidentiality deed.
Example: Tristan is lending money to Mani. Tristan requires Mani to provide a financial guarantee for the money. Mani’s parents provide a financial guarantee to Tristan on behalf of Mani. There may be no consideration between Mani’s parents and Tristan. Therefore, to ensure that the guarantee is binding even though there is no consideration, the guarantee is in the form of a deed.
Execution of Deeds
At common law, for an instrument to be a deed, the parties must comply with certain formalities:
- the deed must be in writing;
- a personal seal is placed on the document; and
- it must be delivered to the counterparty.
These requirements are the origin of the expression “signed, sealed and delivered”.
However, in most cases, you should check legislation for specific requirements for creating a valid deed. These requirements are dependant on relevant laws for each state and territory and for the type of deed involved.
For example in NSW, the Conveyancing Act 1919 provides that a deed passing an interest in property must be signed, sealed and attested by at least one witness not being a party to the deed (section 38).
It is important to refer to the legislation specific to your state as the failure to duly execute a deed means that the deed is unenforceable. The requirements for executing deeds are much more stringent than that for contracts. Therefore, you should seek specific advice if you are unsure about how to execute a deed or whether you need a deed for a particular situation.
A deed is a special form of document which indicates an individual’s most sincere promise to do something that she or he has contracted to do. At common law, the requirements for executing a deed are that it must be in writing, sealed and delivered to the other party. The key difference between an agreement and a deed is that a deed does not need consideration. Furthermore, each Australian state and territory has legislation that sets out specific requirements for executing a deed. You should check legislation to ensure that you properly execute your deed.
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