What Is an agreement?

In general, all contracts are agreements. However, whether an agreement is legally binding depends on the circumstances.

A written agreement usually refers to an exchange between multiple parties, where one party provides goods/services to another party in return for ‘consideration’. Consideration is often monetary compensation, it can be anything of value.

Elements of an agreement

To be legally enforceable, an agreement must include:-

1. An offer and acceptance of the offer;
2. An intention by the parties to be legally bound by the agreement; and
3. Consideration, which is some form of exchange of value from one party to the other. Consideration is a very broad term that can mean much more than just money (although this is the most common form of consideration).

Agreements are enforceable regardless of whether they are in written or oral form.

For example, a typical agreement may state: I offer to mow your lawn (the offer), you accept (showing is an intention to create legal relations) and agree to pay me $50 (the consideration).

What is a deed?

A deed is a form of promise or commitment to do something. It indicates a party’s honest intention to follow through with what they have promised. It may be used to show a party’s intention to:

1. Create an obligation a party must act on; or
2. Transfer an interest in property.

Common types of deeds

Types of deeds include:

1. Deed of assignment;
2. Deed of termination;
3. Financial guarantee;
4. Indemnity deed;
5. Deed of variation;
6. Confidentiality deed.

How is a deed executed?

In NSW, to be enforceable:

1. a deed must in writing;
2. it must be signed, sealed and delivered to the counterparty; and
3. there must be a witness who is not a party to the deed.

What are the key differences between agreements and deeds?

The main differences between a deed and a binding agreement are that:

1. an agreement may be made orally or in writing but a deed must be in writing; and
2. consideration is not required for a deed to be binding.

How does a court determine whether a document is an agreement or a deed?

This is often decided by considering parties’ true intentions. If the person executing a deed intends that the document will be immediately binding on themselves, it’s likely to be considered a deed rather than an agreement.

Under contract law, agreements and deeds have different limitation periods. A limitation period is a set amount of time within which you can initiate legal proceedings if a dispute arises.

Limitation periods are in place to solve disputes and deliver justice as efficiently as possible.

For a breach of contract, the limitation period is usually 6 years after the breach. Given the unique nature of deeds, a limitation period of 12 years is common.

Can an agreement be executed as a deed?

Yes, if it is signed, sealed and delivered.

Take Aways

Deciding whether to execute a deed or an agreement will depend on the circumstances of each case.

To show your intentions and avoid confusion as to whether a document is an agreement or a deed, use words explicitly showing the intention of the document. For example, specify that the document is “to be executed as a deed”.

When parties are unsure as to whether there is sufficient consideration, including the words ‘signed, sealed and delivered’ ensures that the agreement is legally binding.

If you are unsure about what form of instrument or agreement to use, contact us for free, no-obligations legal advice by phone.