Defining a Deed and a Contract
The definitions of deed and contract are discussed below. Deeds and contracts are frequently confused with one another. This is understandable since both deeds and contracts are used to conclude legal transactions. A contract is simply defined as "an agreement between two or more persons to do or not to do something legally enforceable" (Warneke v St Marys Cathedral Land Ltd [2004] WASCA 118; Rose v Jarvis [2006] NSWCA 39; Spiers Earthmoving Pty Ltd v Linter Mineral Ltd [2001] WASC 268). A contract is not required to be in writing or signed; but the Statute of Frauds prescribes limited circumstances in which a contract relating to real estate must be in writing to be enforceable.
A deed is simply defined as "a deliberate and intentional act" (Australian Securities and Investments Commission Act 2001 (Cth) s 127(1)(c)). A deed must be written and signed by an individual in the presence of a witness , or in writing by, or on behalf of, a body corporate and witnessed by 2 persons. The persons witnessing the deed are not required to inform themselves of the contents of the deed. Some statutes impose additional requirements on deeds. For example, under the Conveyancing Act 1919 (NSW) s 23C, a deed of settlement of a claim must be signed by each party and, if the party is a corporation, signed on its behalf by an authorised signatory and authenticated by the corporation’s common seal. Further, a contract to be performed outside Australia by an individual who is a foreign citizen must be executed by the person as a deed under the Foreign Acquisitions and Takeovers Act 1975 (Cth) s 26 and regulations reg 7.
Contrasts Between Deed and Contract
The key differences between deeds and contracts are: Execution Requirements – A contract is required to be signed by the parties executing the deed. Whereas, a deed must be executed and properly attested or witnessed. Consideration – A contract requires valuable consideration from all parties to the contract to make it a legally binding obligation. A deed only requires a natural love and affection between family members, or the donation of some other property (such as the sale of shares). Normal commercial consideration is not required to transfer a property under a deed. Formalities – A contract is only required to be in writing if the land transfer falls under the statute of frauds. Whereas, a deed must be signed, sealed, delivered and witnessed.
The Law Regarding Deeds
Given that a deed is executed without consideration, it follows that the enforcement of a deed is not dependent on a breach of contractual obligations by one party such that a remedy is needed. The significance of this is evidenced by the fact that deeds are often required in particular statutory contexts, such as the sale of real property by deed as required by s 54A Conveyancing Act 1919 (NSW), the creation of easements by way of deed under s 88E Conveyancing Act 1919 (NSW) and the creation of easements by statute such as in the case of the establishment of easements by the Roads Act 1993 (NSW).
Further, the ability to sue in respect of a deed can potentially extend into circumstances where it would not otherwise exist. For example, it is possible to sue a person you think at the time you are executing a deed does not have sufficient power to legally commit him or herself to the promises made by way of that deed. In Zhao v Weidera [2010] NSWSC 964, for example, the court held that a warranty binding a widow to pay $50,000 to her husband’s estate after his death was enforceable despite the wife’s underlying actions being unlawful and the deed being executed before their marriage took place. If the same facts were to arise outside of the deed context and as an ordinary contract it is reasonably likely that the court would have found that the husband’s estate would be unable to enforce the warranty if he was found to have known that he had no capacity to bind his wife to the deed. In this regard, it was also stated in Zhao v Weidera that "In a certain sense, the signature [of a party] can be likened to a signature made to the Minister of Community Services in the case of Foster, and is not a proper contract; but a proper deed."
This also highlights a potential risk to health professionals calling into question the normal protections afforded under the doctrine of privity, because in essence the recipient of the benefit of a deed by virtue of having it executed is entitled to directly enforce the terms of the deed without the need for them to be a party to the deed.
When a Deed Functions as a Contract
There are circumstances when a deed can act as a contract – usually where the deed purports to grant rights not otherwise conferred by the operation of law, or seeks to impose obligations that would otherwise be unenforceable. One obvious example is execution of a deed of novation – a document that extinguishes a liability between two parties and substitutes the liability of a third party. This is often seen in relation to loans where pre-existing loan liabilities have been passed on to another entity i.e. an associated company. Another situation is a property agreement for sale that purports to be a deed of land transfer. Under statute this does not create an enforceable agreement for sale because the conveyance and contract cannot be in the same deed. But if the parties intend it to be a deed they will be locked into the contract effects of that deed.
Illustrations of Deeds
Some deeds are used for transfers of real property, such as warranty deeds, grant deeds, and quitclaim deeds. Other deeds are used to give an interest in personal property, such as a bill of sale for the transfer of a motor vehicle. Deeds may also be used to transfer interests or rights in intellectual property rights, such as patents or copyrights . Some deeds are used to create other rights, such as a Declaration of Covenants, Conditions and Restrictions permitting enforcement of those covenants and restrictions by a homeowners association against homeowners in a track. Deeds are commonly used to create management rights in conjunction with LLCs and other entities. A mortgage, deed of trust and a trust deed can all be used to dedicate real property to secure a loan.
Deed Form and Execution
In order to be enforceable, a deed must be in writing, signed by the party executing it (uploading a file with your signature scanned into it is not necessarily a signature, despite what computer programs assure you), and witnessed. Witnessing can be subtle – your witness need not know the content of the deed nor that they are witnessing a deed – but can also be strict. A local court will sometimes refuse to enforce deeds signed by witnesses not resident in the county, so you should check local law to confirm whether alternative methods such as an affidavit or videoconference would satisfy any particular rule. The deed itself must meet various format requirements to be enforceable, depending on the circumstances. There are many local laws governing deeds, so if you are unsure what the precise local requirements are for the type of deed you are working with, check with a lawyer from the area before executing the deed.
Typical Questions Regarding Deeds and Contracts
Contract law and conveyancing law have always been separate branches of the law, but that doesn’t stop people from treating them as if they are interchangeable.
For example, consider the situation where a buyer is entitled to be registered as the owner of a certain property, but the buyer and seller entered into the contract without obtaining a signature from the seller’s co-owner, so the buyer’s application to the land titles office to be registered as the owner of the property is opposed by the seller’s co-owner.
In this situation, the buyer will sometimes argue that they signed a contract to buy land, that they paid the full contract price and that it would be inequitable for the seller’s co-owner to refuse to join the seller in executing the transfer of the property to the buyer , so the court should allow the buyer to overcome the objections so the buyer can be registered as owner of the property.
This argument is not successful because a contract that is subject to specific performance cannot be relied on to create ownership of property. And a person who is not registered as the owner of property has no right to deal with property. In this case, only the seller is entitled to deal with the property. Without the consent of both the seller and seller’s co-owner, the buyer has no right to deal with the property.
This misconception can also lead to problems for conveyancing professionals. Some conveyancers will tell their buyer clients that they should execute a sale contract and pay the full contract price to have immediate rights in the property and immediately be entitled it. Unfortunately, many buyers accept that advice thinking it will give them immediate ownership of property, which is incorrect.
Anyone purchasing property should always receive clear advice regarding the circumstances in which they will not be sufficient.
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