What is the difference between a contract and an agreement?
There is a lot of confusion between the terms “contract” and “agreement” because of the nature of each one. A contract is a legal agreement, but a legal agreement is not necessarily a contract. Contracts and agreements are standard parts of life, but even so it is important to know the difference between them.
What is a contract?
A contract is an agreement between two parties that is legally binding on both of them. Although an agreement is also considered to be binding, three conditions have to be met before it can become a contract. These are:
- An offer is made and accepted
- There is an intention to create a legal relationship
If any of these three conditions are not met, then the contract is considered to have been broken and is no longer binding on any of the parties involved. There are terms and representations involved in a contract. Terms are statements of the contract, but representations are not terms of the contract even though they are statements that might bring about a contract.
There are four ways in which a contract can be broken:
- Performance – all the jobs outlined in the contract have been completed
- Breach of contract – one of the parties violates the terms of the contract
- Frustration – the contract is impossible to complete
- Obtaining a different contract – the parties agree to terminate one contract and draw up another one.
What is an agreement?
An agreement is a meeting of minds on a certain topic. It can be with regard to business, a domestic issue or an issue of a criminal nature. If there is no legal agreement, then it is not binding on any of the parties it involves and cannot be enforced by law. In situations where the consent to an agreement is not genuine, then it is a voidable agreement. When it meets the three conditions needed for a contract, then it can become legal and binding. Usually when two parties enter into an agreement they set down the terms and conditions on their own, but there are some cases where these are determined by law.
The difference between an agreement and a contract
- There are differences in the way in which you can fix a breach of contract and a breach of agreement.
- A contract becomes binding on both parties when it meets the three conditions of a contract.
- An agreement is not binding on either party and is basically a meeting of minds.
- An agreement is not enforceable by law, but a contract is a legal document.
- A contract begins when an offer is made and accepted, but there is no offer or acceptance in an agreement.
An agreement is the basis for a contract. It doesn’t have to lead to a contract and can remain simply a meeting of minds. In order for it to become a contract it has to meet three conditions. There can be different kinds of contracts and agreements and while a contract is legally binding on the parties involved, an agreement is not. For example, in a domestic agreement there is likely no intention to create relation, while in business, there usually is. This means that a contract is needed in business.