What is an Agreement?

The ordinary meaning of an agreement is where two or more parties agree to some form of arrangement. 

For example, Jim promises to buy Jane lunch. There two predominant reasons why this agreement would not be legally binding upon the parties:

  1. Jim and Jane did not intend to be legally bound; and
  2. There was no consideration.

In some cases a promise may be enforced if the promisee can show that a promise was made, the promisee relied on that promise which caused the promisee a detriment. However, this is a topic in equity that is not covered in this article.

What is a Contract?

A contract is an agreement that is legally binding upon two or more parties and sets out the rights and obligations of those parties.

There are four essential elements to a contract, which are:

  1. Offer
  2. Acceptance
  3. Consideration
  4. Intention to be legally bound

Offer – the proposed agreement that one party (Offeror) puts forward to the other party, or parties (Offeree) to the agreement for them to consider before acceptance.

Acceptance – occurs when the offer is accepted by the Offeree – usually when the parties sign the contract.

Consideration – refers to the value, usually in the form of money which is paid according to the terms of the contract.

Intention to be legally bound – this requirement means that the parties must have intended to enter the agreement and the terms of the contract. For example, if a non-English speaking person signs a contract without it being interpreted, that person can argue that they didn’t intend to be legally bound by that agreement, as they couldn’t understand its terms.

While the above requirements are the main elements of a contract, there are many other requirements. For example, having the capacity to enter the contract. Capacity can relate to age or one’s mental state. Further, some contracts such as real property contracts must be in writing.

So what is a Deed?

A deed is another form of a legally enforceable agreement.  We discussed earlier that a contract requires four elements: offer, acceptance, consideration and intention to be legally bound.  A deed, on the other hand, does not require consideration to be legally binding upon the parties.

For example, a non-disclosure agreement, also called a deed of non-disclosure, is a deed that parties enter where one or both parties agree not to disclose confidential information to third-parties. In such circumstances there is often a lack of consideration, therefore, a deed is the appropriate legal instrument to legally bind the parties.

The limitation period in which someone can sue a party to a contract is six years. Whereas, a deed in Queensland has a limitation period of 12 years. A deed’s limitation period varies among the Australian States and Territories. Also, unlike contracts, deeds require the signatures on the deed to be witnessed.

Summary

  • There are various forms of agreements.
  • Contracts and deeds are agreements that are legally binding upon the parties who agree to it.
  • An agreement without consideration or that is not set out in a deed, may constitute a legally unenforceable promise.