What’s the Difference Between a Contract and a Deed?
There are some major differences between a Contract and Deed. Read on to learn about what kind of documents you are signing!
Sign Your Life Away
Unsure of the difference between a contract and a deed? Many people don’t know the difference between these legal documents. However, the effect and execution of these documents are drastically different. Understanding these contracts isn’t just fun legal trivia, but it may help you appreciate their impact on critical commercial transactions. This article explores some of the key differences between the legal documents. Please note that this is not all of the differences.
Contracts and Deeds: Something for nothing
A distinct difference between a contract and a deed is the commercial exchange. The basis for any contract is offer, acceptance, consideration, and intention. An example of a contract would be the sale of a good like a box of fruit between parties. Once consideration for value ‘money’ occurs, the court can enforce that contract to protect the parties. However, a deed requires no payment. A deed for a box of fruit, for example, will not require consideration to be enforced against the parties. Certain transactions require deeds, for example, the sale of a property. Other deeds require no consideration at all, for example, a deed to create a trust. Hence, the commercial exchange is the fundamental difference between a deed and a contract.
One of the significant differences between a contract and a deed is the formalities required. Contracts occur all the time in everyday life. Contracts can be 100 pages long or a sentence. You engage in an oral contract every time you purchase a coffee from your local store. However, as a deed requires no consideration, more formalities solidify the transaction. Section 38 of the Conveyancing act 1919 (NSW) suggests the formalities include:
- the document includes ‘indenture,’ ‘deed,’ or be ‘sealed;’
- individual signs the document;
- and the document is signed and attested to by at least one witness not being a party to the document.
Always, seek legal advice when you wish to execute a deed. Therefore, always consider the formal requirements to ensure your deed is enforceable.
Limitation Periods of a Contract and Deed
Limitations periods are the period for which a person can claim in court. There are substantially different limitation periods between a contract and a deed. In NSW, a contract has a limitation period of six years. A deed, on the other hand, has a limitation period for 12 years. Businesses must recognise the importance of this difference to protect themselves from liability. Sellers which transact by way of deed are extending their liability. Using contracts can mitigate the risk for sellers. However, the opposite is true for buyers. Deeds allow the buyer to sue for an extended period if there is a defect within the product.
The Devil is in the Details
In conclusion, there are some core differences between a deed and a contract. A contract requires a commercial exchange while a deed does not. A deed requires specific requirements for it to come into effect. Finally, the limitation period between the deeds and contracts differs significantly. Therefore, always consider what type of legal document you are signing.
Josh is a Legal intern at Lawpath. He is a Commerce/Law student at Macquarie University. He has an interest in cyberlaw and blockchain technology.