Ever been asked to sign a deed? Ever been asked to sign an agreement? Ever wondered if there’s any difference in between the two? If your answers are ‘no’, ‘no’ and ‘not really’, then you’re better off reading another of our fabulous articles. However, if any of your answers were vaguely ‘yes’, then read on as below, we will look at the differences between a deed and agreement as well as the requirements for execution of both documents.
What is a Deed?
Most of us know that a Dirty Deed is done dirt cheap. But a regular, vanilla kind of deed is something else entirely. In fact, a deed is a promise or commitment to do something. As a guiding principle, entering into a deed is taken to be a serious indication that you intend to do what you have said you would.
In practical terms, you can enter into a deed in relation to a broad range of things. More often than not, deeds are used to:
- Create a binding obligation on a person to do something; and/or
- Transfer a legal or equitable interest in property (real or otherwise).
The form of the deed can vary depending on the kind of obligation you are seeking to create. For example, a deed of release in relation to litigation that has settled will have different operative parts to a confidentiality deed or a deed poll. Other instances in which you might see a deed include an escrow deed, indemnity deed or for certain financial instruments such as a letter of credit or personal guarantee.
What is an Agreement and How Does it Differ From a Deed?
To understand what an agreement is, we need to review some basic contractual principles. A contract – an agreement – is formed when:
- There is an offer and an acceptance;
- The parties demonstrate a clear intention to create legal relations;
- There is a valid consideration. Without oversimplifying matters, consideration is what is done or given in exchange for something else. For example, Party A washes Party B’s car in exchange for $50.
The most revealing test of whether a document is a deed or a contract lies in whether there is any consideration provided. If no consideration is involved, you are probably looking at a deed. Furthermore, if execution of the document appears to create an immediate obligation on a party and does not require execution by the other party, you are likely looking at a deed. We look in greater detail at execution of a deed in the following section.
The final point to note is that if the document contains express language along the lines of “Executed as a deed” then not surprisingly, the document is more likely than not a deed. If for whatever reasons there happens to be any ambiguity as to the nature of the document, a court will look at the party’s intention at the time of execution of the document.
How do I Execute My Deed?
Stevie Wonder once sang about being “signed, sealed and delivered”. Although it’s unclear whether Stevie attended law school to write his song, documents were traditionally considered deeds upon the act of signing, sealing and delivering a deed. ‘Signing’ was the act of writing down; ‘sealing’ was the act of placing a personal seal on the document; and ‘delivering’ was delivery to the counterparty. It’s also unclear whether Stevie Wonder expected to be written on or how he anticipated signing himself.
Nevertheless, the execution of deeds is now generally contained within State legislation. There are various rules that require compliance if you are executing the document in your personal capacity. As a general rule, if the document affects you personally, your signature must be witnessed. If however, you are acting through a company, the deed will be executed in accordance with section 127 of the Corporations Act namely, the document is signed by two directors or one director and the company secretary, with or without a common seal. No witness is required if you are acting through a company.
As indicated earlier, a deed generally creates an obligation immediately upon execution – there is no need for the document to be signed, whether by counterparts or otherwise, by the other party.
How do I Execute my Agreement?
As with a deed, assuming that we are dealing with companies, an agreement is also generally executed under section 127 of the Corporations Act. We should note that if you are the sole director and secretary of your company, you can sign the document without execution by any second person.
However, one huge practical advantage in using an agreement rather than a deed is that the document can be executed in counterparts – assuming that your lawyer has included a clause to that effect in the document.
Execution of documents by counterpart means that each party can sign different copies of the document. Of course, this also assumes that the copies are identical. Each of the signed agreements is taken to be an original and binding on the other party. Taken together, the two documents constitute the same agreement.
Practically speaking, a properly drafted agreement will outline precisely when the document commences – usually upon execution by the last party.
Should I use a Deed or an Agreement?
There are some issues to consider before deciding whether a deed or agreement is right for you. However, as a rule of thumb, consider whether:
- There is any difficulty in providing consideration;
- There are any tax implications for what you are trying to achieve;
- What kind of remedy you would seek if the ‘arrangement’ did not work out as you envisaged. For example, would payment of money be an adequate remedy?
As is always the case, if there is any doubt about what is the most appropriate form of document for what you are trying to achieve, consult your lawyer. Questions? Let us know.