The term ‘Deed’ is commonly used in the legal and business industry to describe certain types of agreements and documents that bind two or more parties. It is not always readily apparent, however, the difference between Deeds and other agreements.
There is a clear difference between Deeds and Contracts both in terms of how they are used and for what rights they create. As a point of comparison, consider the requirements of a Contract; they must consist of an offer, and an acceptance of such offer to create an agreement, valuable consideration from both parties, and a requirement that the agreement be in writing (usually) for the Contract to be legally binding, among other legally relevant considerations (such as the capacity of the parties to understand the legally binding nature of the agreement). In the absence of one or more of these key elements, there can be grounds for the agreement to be considered invalid, and set aside at law. Furthermore, contracts usually infer some form of commercial element, and can be very simple. A common example of a contractual obligation used in Law School’s is that of purchasing goods at a retailer, which is one of the simplest and most common legally binding contracts.
Deed’s are usually drafted to a much more formal standard, and operate in different ways. Firstly, and most crucially, a deed does not have a requirement of valuable consideration. Instead, deed’s have commonly been described as a mechanism for formally affirming the rights of individuals and corporations in relation to others. Put in a simpler way, deed’s declare to the public at large that some form of promise is taking place, and the signatories to the deed intend to uphold their promises under the penalty of the law. Examples of some of the uses for deeds include:
- Deeds of Agreement – similar to contracts, but perhaps one party is not providing any consideration
- Deeds of Release – releasing a party from financial or legal obligations that they might have otherwise been subject to from a previous contract or agreement.
- Deeds of Indemnity – sometimes following a settlement of a dispute or legal agreement, parties to these deed’s agree to indemnify another party from further legal action either with or without payment of some form of compensation
- Deeds of Rescission – a common mechanism for exiting a contract where the termination terms and conditions are not explicitly stated in the contract, or where a mutual decision has been made to rescind the contract on other terms. This is a very important use of deeds given that if the parties were to enter into a new contract to rescind the previous agreement, there would be no binding agreement due to the lack of valuable consideration, more importantly, the old agreement would be unaffected.
Deeds therefore have a number of important uses as seen by the above examples. The power of a deed comes from a point of tradition, as socially there is a need for a sincere method of instating a promise or a declaration to society that a person intends to commit to their promise, and agrees to subject themselves to the law should such a promise be broken. This is the function that a deed performs at law, as an affirmation of a promise and an acknowledgement that it is not a contract or commercial agreement, but a promise that the promisor intends to uphold to their best of their ability. These agreements in the form of deeds are powerful, and have significant legal consequences for their breach.
Another interesting aspect of deeds when compared to Contracts, is that a Contract requires both parties to sign for a binding agreement to exist. With deeds, however, the nature of the intention to promise is such that once a party has signed a deed, they become bound to immediately, irrespective of whether or not the other parties to the deed have signed¹.
In light of the serious consequences with non-compliance with duties under a deed, and the formalities associated with such documents, it’s best to speak to a qualified professional before signing anything. The nature of contracts and commercial agreements are complicated enough, but with the notion of deeds in the mix, it becomes an entirely different creature. Call RM Legal Sydney today to speak to one of our professionals regarding an agreement that you will be signing or have signed recently.