Signed, sealed and delivered—deeds in banking and finance transactions

By Emma Donaghue and Kate Dart

Agreements and deeds are types of written legal instruments used to record the understanding and promises made between parties.  While agreements and deeds may appear similar, it is important for parties to understand the key differences.

This article provides a brief summary of the differences between agreements and deeds and explain why certain finance documents should be executed in the form of deeds.

Consideration

For an agreement to be legally binding, valuable consideration must be provided by one party in exchange for the other party’s undertaking or promise.  Consideration is the benefit or price paid for the other party’s promise.  For example, in a loan agreement, a lender may receive security and interest payments in exchange for providing the loan.

A key difference between an agreement and a deed is that no consideration is required for parties to execute a legally binding deed.  So, if there is any question about whether a party has provided consideration, the document should be in the form of a deed.  This is one reason guarantee and indemnity documents are often made by deed.

Legislative requirements

Specific documents may be required by legislation to be executed as a deed, such as conveyances of land or powers of attorney.  For this reason, security documents which include a power of attorney are almost aways entered into in the form of a deed.

Acceptance

In addition to consideration, for an agreement to be legally binding it must be established that all parties agreed to, and accepted, the terms of the contract.  Acceptance is most commonly demonstrated by all parties signing the agreement.  An unsigned agreement can still be considered a legally enforceable contract if it is established the parties clearly accepted the terms through their conduct or other actions, for example, if the parties performed the contract in accordance with its terms.

In contrast, a deed is binding on a party upon being signed, sealed, and delivered to the other party, irrespective of whether the other parties have signed the deed.  A deed is regarded as ‘sealed’ under legislation if the document is clearly described as a deed or if it is stated to be ‘sealed’ and correctly witnessed.  Although a physical seal is not required, companies may still execute a deed under a common seal.  Recent legislative changes in each state and territory have modified how deeds are signed and witnessed.  For example, in Queensland the Property Law Act now provides an individual can sign a deed electronically without a witness.

It is important to be aware ‘delivery’ of a deed refers to the intention of a party to be immediately bound and not the transfer of possession of the actual document. Delivery is usually established by including the word ‘delivered’ in the signing clause.

Execution formalities of a deed may present difficulties in practice

Each state and territory has implemented differing legislative requirements regarding the execution of agreements and deeds.  It is critical you ensure a deed is correctly signed and delivered in accordance with the relevant legislation as a failure to duly execute renders the deed unenforceable. This is especially so due to the recent legislative changes in each state and territory with regard to the electronic signing of agreements and deeds.

Limitation period

The limitation period for an action under a deed is longer than an agreement.  Limitation periods vary across jurisdictions in Australia, and range between 12 and 15 years for action under a deed and between three and six years for an action under breach of contract.  While deeds may attract a longer limitation period, equitable remedies such as, specific performance, may not be available for an action under a deed with no consideration.

Summary

There are key differences between agreements and deeds which may impact upon the binding nature of the instruments.  It is important for certain finance documents to be made by way of deed to ensure their enforceability.  If you are required to sign a document and are unsure about the nature of the document or the execution requirements applicable to the document, please contact a member of our team to discuss.