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. These two predominant reasons why this agreement would not be legally binding upon the parties:
- Jim and Jane did not intend to be legally bound, and
- 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 topic in equity 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:
- 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 contract terms.
Intention to be legally bound – this requirement means that the parties must have intended to enter the agreement and the contract terms. 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. On the other hand, a deed 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 bind the parties legally.
The limitation period for someone to sue a contracting party is six years. At the same time, 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 deeds’ signatures to be witnessed.
- There are various forms of agreements.
- Contracts and deeds are legally binding agreements upon the parties who agree to them.
- An agreement without consideration or not set out in a deed may constitute a legally unenforceable promise.