What is a Mutual Agreement
In legal parlance, a mutual agreement is generally referred to as one in which all parties involved come to a consensus on how to address a situation. A mutual understanding implies the ability for all parties to discuss an issue and create binding language outlining necessary procedures, schedules, payment amounts, contingencies, etc. Most often, these processes take place for formal contracts, such as business or real estate where negotiation time periods and subsequently, closing procedures, must occur during a previously agreed-upon timeline.
Essentially , a mutual agreement involves individuals coming together to address a particular issue with the intent of creating a legally binding document.
While mutual agreements are frequently used for business and real estate contracts, they are also common for more casual situations. For example, one party may have a vehicle it no longer wants or needs. Instead of simply giving it to someone else, the former owner could enter an agreement that outlines the terms of the acquisition, such as the conditions of the vehicle, what is included in the exchange, and if and when other considerations will be made depending on the vehicle’s condition.
Because mutual agreements cover so many facets of life, these legally binding documents can complement all kinds of business or personal scenarios.
Mutual Agreement Essentials
The fundamental parts of a mutual agreement may commonly include:
Parties
It is a necessary component of a mutual agreement to identify each of the parties involved. More specifically, you want to be clear as to whom the parties to the contract are to avoid any ambiguity as to their responsibilities under the contract.
Terms and Conditions
Next, you want to specify the terms and conditions of the contract. It should explain what is required from each party to the contract. The term of the agreement and the actions of the parties should both be included in the terms and conditions.
Responsibilities
It is of utmost importance that each party is on the same page about its responsibilities under the agreement. Inevitably, a dispute will arise if one party has a different expectation about the responsibilities to the contract than the other party. One of the main purposes of the mutual agreement is to understand what is required by all of the parties.
Termination
Termination should detail how a party may end the contract. It should also specify any obligations to the other party should there be a termination. For example, an obligation to give notice to the party would be something that your mutual agreement should define.
Execution
Execution of a mutual agreement is akin to signing a contract. Once a mutual agreement is prepared, each party must execute it for it to be legally binding.
How to Write a Mutual Agreement
The process of drafting a mutual agreement involves several steps to ensure that both parties fully understand and agree to the terms being outlined. Here’s a step-by-step guide to creating a comprehensive and clear mutual agreement:
Begin by clearly identifying all parties involved in the mutual agreement. This includes both individuals and organizations, as well as their respective responsibilities.
Next, outline the objective of the mutual agreement. What is the purpose? Why are the parties coming together to draft this document? Be specific.
Once the objectives are clear, it’s time to draft the terms of the agreement. This includes specifics on what each party is obligated to do, how long the agreement will be in effect, and what mechanisms will be in place for monitoring compliance with the agreement.
Be sure to use clear and concise language to avoid ambiguity. Both parties should be able to easily understand the terms of the agreement without having to seek further clarification.
After drafting the terms of the agreement, take time to review this with the other party. This may require back and forth dialogue as each party may have additional requests or alterations to the document.
Once both parties have reviewed and are satisfied with the agreement, have both parties sign. It is also recommended to have the agreement witnessed and/or notarized to further establish its validity. This is especially pertinent if the agreement will involve legal action if any terms are violated.
Make copies of the signed agreement for all parties involved and ensure they are stored in an accessible yet secure place.
Finally, keep open communication after the agreement has been signed to discuss any clarifications or questions that fall outside of the written document.
Mutual Agreement Template: An Explanation of a Sample
A mutual agreement sample will generally begin with an introductory paragraph establishing the agreement with the full date and the full names of each party. Then each party will be designated in a numbered section that follows the introductory paragraph.
Next, the rest of the agreement will follow. For example, you might see a section that details what one party agrees to do, such as the following:
1. I agree to do the following things: (a) agree to cooperate fully with the other party in finding a suitable replacement; even at my own expense; (b) provide copies of all documents related to the shared asset or obligation to the other party within 15 days of my receipt of those documents; (c) make no unilateral changes to the asset without my ex spouse’s express written consent; (d) ensure the asset will not be placed in any state, regional or national database; and (e) reimburse the other party for any and all reasonable costs related to this issue, including but not limited to attorney’s fees.
Then, the sections detailing obligations of your creditor usually follow, such as the following:
2. (Here the creditor must provide his share of the agreement to you.) Each party (including but not limited to me) must agree to comply with the responsibilities enforced in this agreement if they wish to purchase or continue to hold the asset or if they wish to make a future purchase or cease to hold future assets. If either party fails to comply with these requirements, then the arrangement is null and void.
Finally, you will see a section entitled "Default." This tells you what to expect if you don’t meet the requirements of the agreement, and helps protect you in the process. For instance:
3. Failure to comply. I must use my best efforts to comply with this agreement at all times and under all conditions. If I fail to do so, then I will be considered to be in violation of an agreement that was formed legally and fairly.
Essential Legal Aspects of Mutual Agreements
Mutual agreements, such as tolling and standstill agreements and proposals to extend or renew contracts, can give rise to significant issues.
Competition law considerations Depending on the industry, mutual agreements may require competition law considerations – for example, in the case of agreements that are entered into by competitors, particularly in respect of pricing and distribution agreements, particularly where the terms may restrict trade, have an effect on prices or encourage economic co-operation between the parties. It is not uncommon for the Competition Commission to require one or more of the parties to apply to obtain approval prior to concluding the agreement. For many agreements, however, the provisions in these agreements will normally fall to be assessed under the provisions of the relevant exemption provided for in the Competition Act .
Consumer law implications Certain contractual provisions in mutual agreements may give rise to risks / exposure under applicable consumer protection laws if the mutual agreement purports to limit liability for breach of such agreement or to limit the rights of a consumer under a mutual agreement in any way which may expose the consumer to higher risk.
Legislation prescribing mandatory content of agreements Certain legislation prescribes mandatory content for mutual agreements, for instance, the Long-Term Insurance Act, 1998 and the Policyholder Protection Rules relating to life insurance policies. Any contravention of the mandatory content requirements may render such mutual agreement void and unenforceable. The parties must also ensure that they are suitably authorised to enter into the mutual agreement.
Mutual Agreements: Common Pitfalls
Mutual agreements can go awry if either party is not clear about the legal and business terms of the agreement. This is particularly true of mutual agreements when both parties are attempting to achieve a certain goal, and the agreement can be the key to help achieve that goal. However, if there is too much grey area in the agreement, then you could find yourself in a situation where you are not able to properly complete your obligations under the agreement, with the other party telling you that you are in breach of the agreement. If there are terms in the agreement where the parties need to work together to achieve something, those terms would be better expressed in terms that are less vague and more definite than if the parties each have their own obligations. For instance, if the parties have a joint obligation rather than their own individual obligations to complete a task, the task should be explained in detail rather than generally or simply.
Another common mistake to look out for is when the parties do not clearly set out what obligations they are mutually subject to under the agreement. This could lead to one party trying to place an unjustified burden on the other party simply because there is no clear reference to obligations between them. It is also important to ensure that you are actually entering into mutual obligations with the other party, rather than suggesting that you have mutual obligations with them when you do not. For instance, if you simply expect the other party to perform an obligation for you, you could be misleading them into thinking that the other party jointly or equally shares in the obligation and this will later cause potential miscommunication or conflict between you and the other party.
Legally Binding a Mutual Agreement
The enforceability of a mutual agreement is completely dependent on how it is drafted. A mutual agreement signed by both parties may not be enforceable if it does not contain legally binding elements. A mutual agreement is intended to be an enforceable contract. Therefore, there are certain steps that must be taken to ensure the mutual agreement is legally binding. In order for a mutual agreement to be legally binding, it must contain an offer and acceptance by both parties. Again, this seems obvious, but all good contracts must first be an offer. A legal offer is an arrangement to place the contracting party in a better situation that they are currently in. The second element required to make a mutual agreement legally binding is that both parties need to agree to the parts of the contract. For the mutual agreement to become legally binding, both contracting parties must agree to the terms of the contract. Once both parties have agreed to the specific conditions in the agreement, it is legally binding. However, both parties must be able to explain their agreement to the mutual agreement in order for it to become legally binding. If either party cannot provide a reasonable explanation as to why they agreed to the contract, the mutual agreement is therefore not legally binding. The third element necessary for making a mutual agreement legally binding is consideration. Consideration is a material benefit of the contract that both parties agree to. Consideration can be referred to as a mere cross-exchange of things, such as money for an item that has been purchased or vice versa. A mutual agreement is not legally binding until both parties have agreed to give each other a material benefit. Finally, in order for a mutual agreement to become legally binding and enforceable, the mutual agreement must be in writing. This is usually omitted from most contractual agreements. A written contract is reviewed by a judge or jury; judges and juries will enforce a contract when there is substantial evidence of the contract. In order for a mutual agreement to become legally binding, it must be in writing and have the signatures of both parties endorsing the mutual agreement. Not only must both parties sign the mutual agreement, the signatures must be written in such a manner as to indicate the contracting party’s intent of being legally bound to the agreement. However, in some cases, a merely handwritten signature will not convince a judge or jury that the contract was intended as a legal document. In some states, a witnessed contract or notarized signature will serve to make the contract enforceable. In other states, a contract must be witnessed by a third party or must be notarized in order to ensure the entire contract is legally binding. Once a mutual agreement is signed, both parties should keep a copy of the mutual agreement. Both parties should check the terms of the mutual agreement and initial any changes made to the contract.
Mutual Agreement vs. Other Types
While a mutual agreement can be between any two parties, there are other types of contracts that can be created involving more than two parties or in which the promise is on one side only. For example, a unilateral agreement is where one party makes a promise to do something for another party if the other party does something specific. This is not a mutual agreement, because the promise is only on one side. A multilateral agreement, or a multilateral contract is when a contract involves at least three parties. This is still not a mutual agreement, as it still may only involve promises on one side. One of the most common multi-lateral agreements is a franchise agreement . In this case, the franchisor makes certain promises and provides certain rights and privileges to the franchisee in exchange for providing certain things back to the franchisor. For example, the franchise will grant the franchisee the right to use its brand name and trademarks as well as its proven methods of operation if the franchisee pays a royalty. In return, the franchisee may only promise to do things in a certain way or not to do certain things. Parties should consider carefully whether they truly want a mutual agreement with the other party or whether they may be better served by some type of unilateral or multilateral agreement.
