Agreement vs Contract: What’s the Difference?

What is an Agreement?

We come across agreements and contracts on a daily basis. Most of the time people use these two terms interchangeably. The problem is both are not same. There is a difference between the two. In fact, every contract is an agreement but not every agreement is a contract. Simply put, contracts are a subset of agreements.

Also Read: Benefits of contract management software

What is a Contract?

Contracts are agreements that are enforceable legally. This means if you sign a contract with someone and he/she does not fulfill obligations, you can legally challenge the person in a court of law. But, in case of agreements, you cannot force the person to fulfil his/her obligations – even if an agreement is in place.

Agreement vs Contract

The lifecycle of an agreement and contract creation process starts with an ‘offer’ that one party makes to another. The offer is followed with a ‘consideration’ from the party that has been ‘offered’. Once the two parties agree on the terms of the ‘offer’ and the ‘consideration’. Once the terms are accepted by both parties, it becomes an agreement. 

But, to become a contract, there are additional ‘qualifications’ for the offer, consideration and the parties involved.

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Difference Between Contract and Agreement

Some of the differences between agreement and contract are:

• The agreement should be created with an intention to legal obligation and not just as a ‘social agreement or obligation’.
• The agreement should be legally enforceable as per the jurisdiction selected by the involved parties.
• The agreement should be between competent parties (for example both parties should be more than 18 years of age and mentally sound)
• The agreement should be signed for services or products considered legal in the jurisdiction where it is being implemented. You cannot create a contract for illegal items or services.

Depending on which country (legal jurisdiction) you are in, certain conditions are to be met by agreements to be considered contracts.  Thus, again reiterating, all contracts are agreements while all agreements are not contracts.

Also Read: Implied Contract Definition

Did you find this article worthwhile? More engaging blogs about smart contracts on the blockchain, contract management software and electronic signatures can be found in the Legitt Blogs section. You may also contact Legitt to hire the best contract lifecycle management services and solutions along with free contract templates.