The legal rules that apply to the execution of documents (and that ultimately determine whether an executed document is legally enforceable) depend on:
- whether the document is a deed or an agreement; and
- the type of person signing the document (i.e. a company or a natural person).
There are different rules for each type of document and each type of person. For example, unlike ordinary agreements, deeds executed by natural persons will generally need to be witnessed, a condition imposed by statute rather than common law (a point recently noted in Brown v Tavern Operatory Pty Ltd  NSWSC 1290). Further, all deeds only take effect when they are delivered (a legal concept focusing on when a party signing a deed intends to be bound) rather than simply executed.
By way of background, deeds and agreements are both ways in which a ‘deal’ can be committed to writing by negotiating parties. Used in this way, deeds share many similarities with agreements, including how they are interpreted, varied and discharged. The remedies for breach are also similar.
However, there are important differences between deeds and agreements. Perhaps the most important difference is that a party seeking to enforce a promise made to it in an ordinary agreement (whether written or oral) must have provided consideration for the promise. On the other hand, consideration is not necessary if the promise is contained in a deed.
For example, a third party guarantee of a loan will ordinarily be made by deed because arguably the guarantor does not receive any consideration from the lender for guaranteeing the loan to the primary borrower (unless the consideration is construed as being the benefit of the lender continuing to advance funds to the borrower, who the guarantor has an interest in supporting). If the guarantee is executed as a deed rather than an agreement, any dispute about lack of consideration can be avoided. On the other hand, execution of the guarantee as an agreement could result in the agreement being unenforceable for lack of consideration.
Although consideration is not strictly necessary if a promise is contained in a deed, it is still common for at least a nominal amount of consideration to be included in deeds where there is otherwise no consideration. This is because of the rule that equity will not assist a volunteer. The effect of that rule is to bar recourse to equitable remedies such as specific performance if there is no consideration given for a promise that is received. Nominal consideration can be provided for with a term to the effect that ‘Party A agrees to pay Party B the sum of $10.’
Another difference between deeds and agreements is that deeds have a longer limitation period, being at least double that for a breach of an agreement in all Australian jurisdictions.
The use of deeds can also be more complicated than the use of agreements due to additional requirements which may be imposed by law as to their execution (e.g. witnessing or sealing) or when they take effect: a deed takes effect when it is ‘delivered’ not when it is executed, delivery being a legal concept which is centred on the signatory intending to be bound rather than physical delivery. There are also greater restrictions on how a party can enter into a deed via a representative than exist with an agreement.
Deeds are typically used instead of agreements in the following circumstances:
- where there is, or may not be, consideration for the promise. For example, confidentiality agreements are often entered into in the form of a deed where there is a concern that the person receiving a confidentiality undertaking does not provide any consideration for doing so;
- where a longer limitation period is sought;
- because of the ritual or gravitas of using a deed: a deed has been defined as the most solemn act a person can perform with respect to a piece of property or other right. Deeds are a creation of the common law, dating back to around 700AD. In many instances parties prefer to use deeds rather than agreements because they are symbolic of the importance of the transaction as opposed to for any legally significant reason; and
- where statute requires it. For example, when conveying old system titles (non-Torrens system), deeds are required.