A short guide for business transactions: Should you use a deed or an agreement?

Most commercial transactions are set out in a contractual agreement. Generally, for the contractual agreement to be binding, there must be ‘consideration’. For example, A agrees to purchase a car from B. The consideration here will be money for the car. When there is no consideration, you should use a deed, as these do not require consideration to be binding. Examples of deeds include deeds of confidentiality, deeds of guarantee, trust deeds and deed polls. A deed is binding on a party when it has been signed, sealed and delivered by that party to the other parties, even if the other parties haven’t executed the deed.

Accordingly, you should be aware when executing the deed, it will be immediately binding on you unless the deed includes words to require all parties to sign the Deed to bind them all only then.

To be binding, you should ensure that the deed be:

  • in writing;
  • properly signed or executed (corporations should refer to section 127(3) of the Corporations Act 2001);
  • witnessed by a person not a party to the document;
  • executed as a deed; delivered and drafted in the form of a deed; and
  • contain terminology commonly used in specific deeds.

The circumstances giving rise to the transaction differs greatly from one transaction to another. We recommend that you contact us if you want to ensure that your agreement is binding.