Commercial contracts: deeds or agreements?

Presented by: Barbara Yu Shan Tan

Definitions

Simple contract/ agreement – 3 elements:

Offer and acceptanceIntention to be legally boundConsideration

Deed = special type of binding promiseSolemn indication to community about one’s commitment to uphold a promise

DifferencesDeed

No need considerationCan consist of only 1 party, eg. deed poll for name changes

Binding when signed, sealed and delivered, even if other party have not yet executed the deed Executing party unable to withdraw from commitments, even prior to execution by counterparty – must have equitable relief from court

AgreementConsideration needed Must consist of at least 2 parties

Binding when all parties have completed the necessary requirements Party able to revoke agreement if counterparty has not acted

Execution and consequences (1)

Then: deed = signed, sealed and delivered according to certain formalitiesNow: codified with certain modifications under State legislationseg. Part 6 of Property Law Act 1974 (Qld) – signed by executor and witness + expressly referred as a deed

-- no longer require delivery unless specified

Execution and consequences (2)

Deeds for corporate bodiesCorporations Act 2001 (Cth)

Signed by 2 directors/ 1 director + 1 company secretaryANDneeds to be expressed “to be executed as a deed”

Common seal not necessary (CA s 127)

Execution and consequences (3)

Immediate lock ineg. Construction contractor signs = bound immediately, even if principal has not yet sign

Availability of remedies for breach of deed less than agreementeg. Specific performance unavailable to enforce deed because there is no consideration(maxim: equity will not assist a volunteer)

Why choose deed? (1)When there may be a dispute about the existence of considerationeg. Financial guarantees, confidentiality, deeds of guarantee and indemnityEnforceability of documents cannot be challenged on the basis that no consideration has passed between the parties

Example: Financial guarantee

Why choose deed? (2)Conferral benefits on third partiesObligation is undertaken in return for past consideration (already been provided)Required by law, eg contracts regarding interests of land (except Queensland)

Conveyances/ leases for real property exceeding 3 years

Why choose deed? (3)Appointment of agent whose authority is given through deed executed by principalFor documents that include power of attorney – to execute deed on behalf of principal, effect a settlement of claims etc.Obligation imposed on third partiesTax implications

When not to choose deed?

Specific corporate restrictions on executions of deeds (some delegated authorities do not allow company representatives to sign deeds on behalf of company)Possibility of execution in counterparts

Limitation periodsSimple contract: 6 years from date of breach(Northern Territory: 3 years)

Deed: 12 years from date of breach(Victoria and South Australia: 15 years;Western Australia: 20 years)

Deeds concerning “buildings” or “subdivisions”: 10 years

ConclusionDeed preferable:

If parties are unsure whether there is valid consideration Binding upon delivery even if the counterparty has not signed Have traditional execution process of signature and witnessing = more robust than simple agreement Longer limitation period

Questions?