Memorandum Of Agreement vs Contract: What’s Different?

When seeking to enter an agreement with various parties, it is vital to recognise what documents will be considered legally binding. This will ensure any terms or conditions you wish to be enforced upon another party, can be imposed legally. Confusion in relation to this area often leads to further legal complications and misunderstanding.

What is a Memorandum of Agreement?

A memorandum of agreement is a document that conveys a consensus between two parties to cooperate in order to achieve an agreed objective. The purpose of this document is to have the mutual understanding between parties transferred to written form.

This type of agreement is similar in nature to a memorandum of understanding. These documents tend to not contain legally binding terms. Often the parties have no intention for their agreement to be legally enforceable. This is what generally separates memorandums from contracts.

What is a Contract?

A contract essentially takes the understanding between parties in an agreement and makes them legally binding. This can only occur where the parties have intended to enter an agreement that is legally enforceable. In order for a legally binding contract to be formed in Australia, various elements must be present. The essential elements require:

  • An offer
  • Acceptance
  • Intention to create a legal relationship
  • Consideration from both parties

Provided these elements are satisfied the agreement will be considered to be a legally binding contract. As a result, if a party fails to fulfil a promise agreed upon within the contract, the burdened party can have it legally enforced. Contrastingly, parties in a non binding memorandum would not be afforded the same ability when a breach occurs.

Conclusion

Complications often arise in instances where parties assume that the memorandum is legally binding by default. In circumstances where a legally enforceable document is desired, it is best to have the terms clearly defined in written form and reviewed by a lawyer to avoid any uncertainty or confusion.

Need to find out more? Contact a LawPath consultant on 1800 529 728 to learn more about what business structure is right for you, customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
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