What’s the Difference Between a Contract and a Deed?

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.

Formalities

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:  

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.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Most Popular Articles
You may also like
Recent Articles

Get the latest news

By clicking on 'Sign up to our newsletter' you are agreeing to the Lawpath Terms & Conditions

Share:

Register for our free live webinar today!

Drafting & Negotiating Contracts: Essential Tips to Protect Your Small Business

12:00pm AEDT
Thursday 10th October 2024

By clicking on 'Register for webinar' you are agreeing to the Lawpath Terms & Conditions

You may also like

Thinking about managing your trust using a company as trustee? Read our guide on how to create a corporate trustee structure.
How to prevent yourself as a company director from being personally liable: 101 Guide
Some legal documents require a person's signature to be witnessed. So who can be a witness? Read our guide to find out more.

Thank you!

Your registration is confirmed. Keep an eye on your inbox for an email with details on how to watch the webinar.