A contract and an agreement are both forms of legal arrangements between parties, but they have some important distinctions.
Agreement:
An agreement is a mutual understanding or arrangement between two or more parties. It involves a promise or commitment to do something or refrain from doing something. Not all agreements are legally binding. For example, a verbal promise between friends to meet up is an agreement, but it wouldn’t necessarily have legal consequences if one party doesn’t show up.
Contract:
A contract is a type of agreement that is legally enforceable by law. For an agreement to become a contract, it must meet certain essential criteria, such as:
- Offer and Acceptance: One party makes an offer, and the other party accepts the offer.
- Mutual Consent: Both parties agree to the terms willingly and knowingly.
- Consideration: Something of value is exchanged between the parties (e.g., money, goods, services).
- Capacity: Both parties must have the legal ability to enter into a contract (e.g., they must be of legal age and sound mind).
- Legality: The purpose of the contract must be legal (a contract for an illegal activity would be void).
- Intention to Create Legal Relations: Both parties must intend to enter into a legally binding agreement.
In essence, all contracts are agreements, but not all agreements are contracts. An agreement becomes a contract when it fulfills these requirements and is recognized by law.
Key Differences:
- Legally Binding: A contract is legally enforceable, while an agreement may not be.
- Formalities: A contract often requires more formalities like written documentation or signatures, whereas an agreement can be informal and may not require written proof.
- Enforceability: If one party fails to uphold a contract, the other party can take legal action to enforce it. For an agreement, there may not be any legal recourse if one party doesn’t hold up their end
