What Distinguishes an Agreement from a Deed?

What Distinguishes an Agreement from a Deed?

As a business owner, you will likely encounter numerous agreements and deeds. While these documents share similarities, it is crucial to select the appropriate one for your specific arrangement, as they entail different signing protocols. The key distinction in the realm of contracts lies in whether there has been an exchange of consideration between the parties involved.

For example, in an agreement, one party may deliver a specific product in return for payment from the other party. Conversely, deeds represent a distinct category of legal documents that signify a party's commitment to fulfill a particular obligation. This article will delve deeper into the differences between deeds and agreements.

What is a Deed?

A Deed is a formal and legally binding commitment to perform a specific action.

The concept of a deed arises from the necessity within communities to establish a distinct ritual or process that publicly signifies the seriousness of a binding promise that an individual intends to uphold.

In the modern business environment, this notion of a serious commitment is reflected in the use of deeds. Consequently, individuals resort to deeds when significant interests are involved, such as the transfer of rights, interests, or property.

You may find it necessary to utilize a deed in situations such as:

- Assigning intellectual property between affiliated companies;

- Entering into a non-disclosure deed to protect your confidential information from being disclosed by another party;

- Documenting an agreement reached with another party following a dispute;

- Providing a bank guarantee or letter of credit; and

- Transferring property, including the sale of real estate.

What is an Agreement?

An Agreement, commonly referred to as a contract, is established when:

there is a proposal and a corresponding acceptance (for instance, I propose to wash your car, and you consent to pay me $50 for the service);

the involved parties exhibit a definitive intention to establish legal relations; and

the parties engage in an exchange related to the offer, which is termed consideration.

The primary distinction between a deed and an agreement is based on the presence or absence of consideration for the promise.

The Distinction Between an Agreement and a Deed

Modern contract law is based on several key principles, which include:

- offer and acceptance;

- a clear intention to create legal obligations; and

- consideration.

Consideration is rooted in the concept that an agreement represents a mutual exchange or bargain between the parties involved. It serves as evidence that the parties have "purchased" the promise by performing an action or providing something in return.

In contrast to agreements or contracts, a deed does not require consideration to be enforceable. The absence of this requirement is based on the understanding that a deed represents a formal and serious commitment by the parties to be bound by its terms.

How Do I Execute My Deed?

The execution of deeds and agreements involves distinct requirements. Execution refers to the formal process of finalizing contractual documents.

For instance, a document can be executed by having both parties sign it.

When executing a deed, it is essential to adhere to specific regulations. If the deed pertains to a personal matter, such as a property deed, your signature must be witnessed by someone who can provide a legal seal. Conversely, if the deed is related to a company, it must be signed by either:

two directors; or

one director along with the company secretary.

In this case, a witness is not required for the company deed, and the other party's signature is also unnecessary. A deed becomes binding immediately upon execution by one party.

How Can I Implement My Agreement?

Agreements do not require the formalities of being ‘signed, sealed, and delivered’ as deeds do. An agreement can be legally binding if the involved parties have consented to it:

through a contract;

verbally; or

via written communication, such as an email.

The key consideration is whether both parties intended to enter into a binding contract.

Nonetheless, it is advisable for agreements to be documented in writing and signed by both parties. This approach clarifies the terms to which the parties are committing. Individuals can sign an agreement without the need for a witness. In the case of a company, the agreement may be executed by:

two directors; or

one director along with the company secretary.

A significant practical benefit of using an agreement instead of a deed is the ability to execute the document in counterparts. This allows both you and the other party to sign your respective copies of the agreement and exchange them. Together, these documents form a single agreement, which is especially useful when the parties are not located in close proximity to each other.

Key Insights

A Deed is a distinct type of document that represents an individual's earnest commitment to fulfill a contractual obligation. Under common law, the essential criteria for executing a deed include that it must be written, sealed, and delivered to the other party.

The primary distinction between an agreement and a deed lies in the fact that a deed does not require consideration.