The Difference Between a Contract and an Agreement
In business, it’s common for individuals and organizations to enter into legal agreements to define the terms and conditions of their relationship. Two common types of legal agreements used in business are contracts and agreements. Although the terms are often used interchangeably, there are some key differences between the two.
What is a Contract?
A contract is a legally binding document that outlines the terms and conditions of a transaction between two or more parties. Contracts are created with the intention of establishing a formal agreement between the involved parties, with specific obligations and duties outlined for each party. Contracts are typically used in situations where a significant amount of money or other assets are being exchanged, or where there are potential risks involved.
Contracts can be oral or written, but written contracts are generally preferred because they are more formal and enforceable in court. Contracts must include certain essential elements, such as an offer, acceptance, consideration, and mutual agreement, to be legally binding.
What is an Agreement?
An agreement is a legal document that outlines the terms and conditions of a relationship between two or more parties. Like contracts, agreements can be oral or written, but written agreements are typically preferred to minimize misunderstandings and provide a clearer understanding of the terms.
Unlike contracts, agreements are often less formal and are used to define the rights and obligations of the involved parties, without the need for specific performance requirements. Agreements are commonly used in situations where the risk of a transaction is low, or where relationships are more informal, such as in partnerships or collaborations.
Key Differences
Although contracts and agreements are similar in many ways, there are some key differences between the two. Contracts are typically more formal and enforceable in court, while agreements are often less formal and focus more on defining the rights and obligations of the involved parties. Contracts may involve significant amounts of money or assets, while agreements are often used in more informal relationships.
Additionally, contracts typically require specific performance, meaning that each party must meet the obligations outlined in the contract, while agreements may focus more on defining the scope of the relationship and the expected outcomes, without the need for specific performance requirements.
In summary, contracts and agreements are both legal documents used in business to define and formalize relationships between parties. While there are some key differences between the two, both are important tools for minimizing risk and ensuring that all parties are clear on their respective obligations and responsibilities.
Table difference between contract and agreement
| Contract | Agreement |
|---|---|
| A legally binding agreement between two or more parties that defines the terms and conditions of the parties’ relationship | A less formal agreement that can be written or verbal and usually requires less legal documentation |
| Is usually more complex than an agreement and is often drafted by legal professionals | Is often simpler than a contract and can be created by the parties themselves without the need of legal assistance |
| Is enforceable by law if one of the parties violates the terms and conditions of the agreement | Is also enforceable by law, but the level of legal protection may vary depending on the nature and formality of the agreement |
| May require additional legal documents such as signatures, witnesses or notarization | May not require any additional legal documents, but it is always recommended to document the agreement in writing to avoid any misunderstandings between the parties |