Agreement and contract are two terms that are often used interchangeably, but they actually have different meanings. Understanding the differences between the two is important for legal and business purposes.
An agreement is a mutual understanding between two or more parties. It can be written or verbal and doesn`t necessarily need to be enforceable by law. For example, an agreement between friends to split the bill at a restaurant would be considered an agreement. In this case, there is no legal obligation to pay what was agreed upon and the agreement is based on trust and good faith.
A contract, on the other hand, is a legally binding agreement between two or more parties that outlines specific terms and conditions. Contracts can be oral or written, but it`s always advisable to have them in writing to prevent any misunderstandings. Contracts include specific details such as payment terms, delivery dates, and legal remedies.
One of the key differences between an agreement and a contract is enforceability. When an agreement is broken, there may not be any legal consequences. In contrast, a contract breach can result in legal action and compensation for damages.
Another difference is the level of formality. Agreements are often informal, while contracts are typically more formal and include legal jargon and detailed clauses.
Lastly, another important difference between agreement and contract is the consideration. In order for a contract to be legally binding, both parties must exchange something of value, referred to as consideration. Consideration could be anything of value, such as money, goods, or services.
In summary, agreements and contracts are often used interchangeably, but they have distinct differences. Agreements are informal mutual understandings that are not necessarily enforceable by law. Contracts, on the other hand, are more formal, legally binding documents that outline specific terms and conditions, and are enforceable by law. Understanding the differences between the two is important for legal and business purposes.