Contracts and other forms of agreement

By Jasmine Morris

You may have wondered what the difference between a contract and a deed is, or whether different types of agreements are binding. This article provides a brief summary of some of the more common forms of documents in the arts, and the differences between them. Remember that regardless the form, you should always seek legal advice before entering into arrangements with others in relation to your arts practice. If you have a document you would like reviewed, contact Arts Law for advice.

This article looks at four types or forms  of document:

1.    Contract;

2.    Memorandum of understanding;

3.    Heads of agreement; and

4.    Deed.

1.    Contract

What is it?

A ‘Contract’ is also known as an ‘Agreement’. A Contract may be in writing or may be made orally.

In order to form a legally enforceable Contract there are six elements that need to be satisfied.  These include:

a) an intention to create a legal relationship;

b) an offer and an acceptance of that offer;

c) consideration from both parties (for example money (consideration) for a service (consideration));

d) legal capacity (for example consider age and health);

e) genuine consent is provided (for example genuine consent may not have been provided if a party accepted an offer due to a threat); and

f) the objective of the Contract is legal (for example criminal activity cannot be the subject of a legally enforceable Contract).

If all of these six elements are satisfied a legally binding contract will be formed.  This means that if a party does not carry out the promises they make under the contract then the other party can legally enforce those promises through, for example, a court process.

When should I enter into a Contract?

You should enter into a Contract when you want to be able to legally enforce promises made by another party and are happy for promises that you make to be legally enforceable against you.

2.    Memorandum of Understanding

What is it?

A ‘Memorandum of Understanding’ is also known as an ‘MOU’.

MOUs are generally used to document a relationship of goodwill between the parties to the MOU.

MOUs are generally not legally binding (however note that a MOU may be legally binding if it satisfies all of the six elements of a Contract).

If the parties to a MOU do not intend for the MOU to be legally binding (i.e. neither party wants to be able to enforce the MOU in a court) then the parties should ensure that the MOU:

A.    states something to the effect that “The Parties do not intend this MOU to be legally binding”; and

B.    does not set out obligations for both parties using language such as “Party A shall do xyz” but instead uses language such as “Party A may do xyz”.

When should I enter into a Memorandum of Understanding?

You should enter into a Memorandum of Understanding when you and the other party to the MOU are not making promises that you or the other party want to be able to legally enforce in a court or through some other legal process.

3.    Heads of Agreement

What is it?

A Heads of Agreement (‘HoA’) is a document that specifies the intentions of the parties to enter into a Contract at some point in the future and sets out a summary of the provisions to be included in that future Contract.

A HoA is generally not legally binding but it may be legally binding if the parties intend for it to be legally binding and it satisfies the six elements of a Contract.

If the parties to a HoA do not want the HoA to be legally binding they should ensure that the HoA:

A.    states something to the effect that “The Parties do not intend this Heads of Agreement to be legally binding”; and

B.    does not set out obligations for both parties using language such as “Party A shall do xyz” but instead uses language such as “Party A may do xyz”.

A Heads of Agreement should specify a timeframe for when the parties will enter into a Contract in relation to the subject matter dealt with under the HoA.

When should I enter into a Heads of Agreement?

You should enter into a Heads of Agreement when you want to document a summary of the key provisions that you and the other party intend to later include in a legally enforceable Contract.  A HoA may be useful if you are waiting for funding to be approved by a third party but you want to start negotiating the terms of a Contract with another Party in the form of a HoA.

4.    Deeds

Deeds are contracts whereby Party A promises to do something for Party B but Party B does not provide Party A with any consideration.  For example, Party A promises to write Party B some music for nothing in return.

Deeds must be in writing and signed in the following way:

“Signed as a Deed:

Signed, sealed and delivered by

Signature: __________________

Name:______________________

Witness Signature: ___________

Witness name: _______________

Date:________________________

It is imperative for the purposes of signing a Deed that you follow the following formalities:

1. state prior to the signature that the document is ‘Signed as a Deed’;
2. have your signature witnessed; and
3. include prior to signing, the statement, ‘signed, sealed and delivered’ (not legally required in all Australian States and Territories but best practice).

If these formalities are not followed the Deed may not be legally enforceable.

Conclusion

Whether a document you sign or agree to means that you are bound by its terms a very important question. It is also essential you understand your rights and obligations under the document. You should seek legal advice on the document to make sure that you have the information you need to make an informed decision about whether to sign the document, or what you have to do if you have already signed it. Arts Law provides legal advice on documents including contracts on a day to day basis. In the last year, the issue of on contracts, heads of agreement, memoranda of understanding and deeds arose 653 times. Arts Law has a number of very useful sample agreements and deeds which can be downloaded and adapted to your purposes. If you require advice on a document, you should contact Arts Law on (02) 9356 2566, or lodge a query online.

*Jasmine Morris is in house counsel at Australian National University.