What is Agreement

What is an agreement?

An agreement is a mutual arrangement between two or more parties, often based on shared intentions rather than a legally enforceable promise. Unlike a contract, which includes defined elements that make it enforceable by law, an agreement might lack formal legal requirements such as consideration or clear obligations.

This flexibility allows agreements to be used when parties do not necessarily require a legal commitment but instead seek alignment on mutual interests or intentions. However, without legally binding signatures, an agreement cannot be managed using a contract management system—you can learn more about managing contracts effectively in this blog on contract management.

How do agreements differ from contracts?

While all contracts are agreements, not all agreements qualify as contracts. For an agreement to become a legally binding contract, it must include specific elements: offer, acceptance, consideration, legal capacity, and lawful purpose. Our blog on automated contract drafting explains more about automating contract elements and processes.

If these elements are absent, the agreement is unlikely to hold up in court. For example, informal arrangements, like agreeing to meet a friend at a set time and place, don’t carry legal weight. However, if the agreement is formalized and includes clear, enforceable terms, it may become a contract.

What are the different types of agreements?

1. Clickwrap agreements: Commonly used in digital settings, clickwrap agreements require users to click “I Accept” or “Agree” before proceeding. These agreements are widely accepted as legally binding, as they present clear terms before acceptance.
2. Browsewrap agreements: In these, terms are made accessible on a website but do not require explicit user acknowledgment. Because they lack direct acceptance, their enforceability can be limited compared to clickwrap agreements.
3. Scroll Wrap agreements: This type requires users to scroll through the terms before agreeing, ensuring visibility of the terms. Scroll Wrap agreements are generally enforceable due to their transparency and the active involvement of the user.

Agreements like these are often employed in business environments where contract automation software is in use, facilitating seamless contract creation and management.

What are the advantages of agreements?

This flexibility makes agreements especially useful for businesses that need agility in their operations, allowing them to pivot or adjust terms without formal processes that are typically required for contracts. However, as businesses grow, they may eventually move towards more formalized contracts, especially if they manage multiple agreements or deal with large-scale operations. At this point, enterprise contract management software can help businesses maintain efficiency.

How do agreements function in the context of a business?

In many business situations, agreements are essential in setting expectations without the need for enforceable terms. For instance, an organization may agree with a vendor to trial a product for a specified period before deciding on a purchase contract. Such arrangements are often beneficial in the initial stages, where flexibility and ease of modification are necessary. While agreements can set the stage for formal contracts, they also allow parties to adjust terms based on evolving needs.

Agreements offer businesses the flexibility to establish understanding without the formalities of a contract. They are a valuable tool for setting expectations and trial arrangements, especially in fast-moving environments. However, as operations grow, businesses may find it beneficial to formalize agreements into contracts to ensure clarity and enforceability.