Mutual agreement

From CEOpedia | Management online

A mutual agreement is also known as a contract and can be oral or written. A mutual agreement is when two parties undertake obligations to each other to do the defined actions. It is the concept which spans the spectrum of meanings and complexity. A contract can be used in any transaction. It can relate to a sale, a service or the transfer of property ownership. There can be more than two parties to a contract as the individuals, businesses, or governments. A mutual agreement can be also as informal as a marriage when two parties enter the legally binding contract of marriage. Also in business, you can stipulate in a contract any condition under condition that all parties agree to the terms. In much the same way, the contract can be canceled by mutual consent (Goddard C., Fellner A., Ormand R. 2019, p.22).

The early 20th century brought changes in protecting both contacting parties by a mutual agreements or contracts. The details required for the enforcement of mutual agreements were established and later enforced by courts. What is more, the greater consumer protection was achieved, ensuring actual mutual agreement between large corporations and consumers. For the conducting a business, agreements and contracts are important in all types of companies. Until the 20th century, there were not many written contracts. Usually personal deals were done just by a handshake. Nowadays, most of the agreements are documented in written form. Contracts have become important and detailed documents and every effort is made to cover all eventualities and business scenarios (Holmes O. W. 1881, Lecture 7).

Content of a mutual agreement contract

A mutual agreement contract which is legally binding should include:

  • An offer and its acceptance.
  • Consideration: the parties promise to exchange something valuable. The contract cannot restrict one entity without requiring the other to pay or provide a service in return.
  • A legal purpose.
  • Capable parties.
  • Mutual assent: both sides must agree to the terms and understand them.

The basics of mutual agreements

A mutual business agreement should contain:

  • Both names and addresses of the parties involved.
  • When the agreement takes effect.
  • A description of how the parties will work together.
  • The terms of the agreement.
  • What type of notice is required.
  • How the parties can complete the contract.

Mutual agreement procedure ( MAP )

The mutual agreement procedures are contracts between two countries. If a person considers that the actions of one or even both of the contracting parties result in taxation which is not in accordance with a tax treaty or the double taxation agreement (DTA), the MAP is an instrument for the resolution of such international tax disputes. It protects the taxpayer's rights of being taxed in accordance with a DTA. A double taxation agreement (DTA) is an agreement that regulates the purpose of taxation rights for income which is generated across borders. If actions by one or more countries make the taxation that is not in accordance with the double taxation agreement, the taxpayer can request a mutual agreement procedure (United Nations 2017, p.4).

Examples of Mutual agreement

  • A rental lease agreement between a landlord and a tenant is a mutual agreement. This agreement outlines the terms of the rental, such as the rent amount, duration of the lease, and other conditions.
  • A mutual agreement between a business and its customers, such as a service agreement, provides details about the services the business will provide, the fees associated with the services, and other conditions.
  • A mutual agreement between two companies that wish to partner on a business venture, such as a joint venture, will outline the terms of the partnership, such as the ownership structure, responsibilities of each partner, and other conditions.
  • A mutual agreement between two people who are getting married is a marriage contract. This agreement outlines the rights and responsibilities of each partner, including financial and legal arrangements.

Advantages of Mutual agreement

A mutual agreement has many advantages. Firstly, it provides legal protection to all parties involved, as it outlines the terms and conditions of the agreement and is enforceable in court if one party does not meet the conditions. Additionally, it ensures that all parties involved are aware of their duties and obligations, which helps to avoid any misunderstandings or disputes. Moreover, it creates clarity and transparency in the agreement, as all parties understand what is expected of them and have a clear idea of the consequences should the agreement be breached. Furthermore, it enables a better negotiation process, as the parties involved can come to a mutual agreement without having to resort to a court. Finally, it allows for flexibility in the agreement, as the parties can make changes to the agreement as needed. *All of these advantages make a mutual agreement an ideal choice for many types of transactions.

Limitations of Mutual agreement

A mutual agreement may be subject to certain limitations. These include:

  • Lack of clarity and/or specificity in the contract terms: If the terms of the agreement are not clear and/or specific, it can lead to ambiguities and disputes.
  • Changing circumstances: If the conditions or circumstances of the contract change, it can affect the enforceability of the agreement or the rights of the parties.
  • Unconscionability: If the contract is one-sided or overly oppressive, it can be deemed unconscionable and unenforceable.
  • Inadequate consideration: If the consideration or exchange of value is deemed inadequate or unequal, the agreement may be deemed unenforceable.
  • Capacity: If either party lacks the legal capacity to enter into the agreement, it may be deemed unenforceable.
  • Illegality: If the agreement involves activities that are illegal, the agreement may be deemed unenforceable.
  • Fraud: If either party has been misled or deceived in the formation of the agreement, it may be deemed unenforceable.

Other approaches related to Mutual agreement

A mutual agreement is a contract between two or more parties that outlines the terms of an arrangement. This agreement can be verbal or written, formal or informal. Other approaches related to a mutual agreement include:

  • Mediation - A process in which a third-party mediator helps the disputing parties to negotiate and reach a mutually satisfactory settlement.
  • Arbitration - A process in which a neutral third-party arbitrator hears the evidence presented by both parties and makes a decision that is legally binding.
  • Negotiation - A process in which two or more parties attempt to reach an agreement by discussing the terms of the agreement.
  • Collaboration - A process in which two or more parties work together to create a mutually beneficial outcome.

In summary, a mutual agreement is a contract between two or more parties that outlines the terms of an arrangement. Other approaches related to a mutual agreement include mediation, arbitration, negotiation, and collaboration.

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Binding contractExecuted agreementVitiating factorInchoate instrumentObjective theory of contractMaterial alterationDeed of surrenderMutual assentContractual relationship


Author: Anna Pietruszewska