Dec 20th, 2010 | By Andrew
Contract vs Agreement
Contract is a legal agreement between
two more entities, enforcing an obligation to do something or to refrain from
doing certain things. But all legal agreements are not contracts.
Contract and agreement are a part of life. Many
people tend to think that contract and agreement are similar terms; it is not
so. As we enter into contracts and agreements essentially in many aspects of
our life, we need to know the difference between those two terms.
Contract
A contract is a legally binding agreement between
two more entities but a legal agreement is not always a contract. Any agreement
is considered to be legally binding and becomes a contract when three
conditions are met. The conditions are; Offer and Acceptance, intention to
create legal relation and consideration. If any one of these conditions is not
met then the contract is not legally binding and it cannot be enforced on the
other party.
A contract comprises of terms and representations.
Terms are contextual statements that become binding whereas representations are
statements which might induce a contract but are not terms of a contract.
Contract may be terminated in four ways: through performance, breach of
contract, frustration and through another contract. Mostly where contract is
terminated by performance, the performance is 100%. Complete. If a serious term
of a contract is breached then the affected party can terminate the contract.
When the conditions are such that contract becomes impossible to perform then
the contract is terminated due to frustration. Parties of the contract may
enter into another contract with mutual consent and can terminate the previous
contract.
Agreement
Agreement refers to meeting of minds at a certain
point. Agreement may be on business views, commercial views or domestic views.
If the agreement is not legally binding it cannot be enforced by law.
Agreements where consent is not genuine are called voidable agreement. An
agreement becomes a contract when it is made legally binding and on meeting the
three conditions.
When the parties enter into agreement they define
the terms and conditions of agreement themselves, whereas in some specific
contracts terms and conditions are implemented by Law.
Difference between contract and
agreement
The basic difference between contract and agreement
is that the remedies for breach of contract and breach of agreement are way too
different.
Contract becomes enforceable once three conditions
of legally binding agreement are met while agreement can be worked upon when
two minds meet at a certain point.
A gentlemen agreement is not enforceable by law
whereas a contract can be enforceable by law.
Contract starts when there is an offer and
acceptance, whereas it is not necessary for an agreement to be started from
offer and acceptance.
Conclusion
Contracts come into existence through agreement.
Agreement, if not legally binding cannot be enforced by law. Contracts and
agreements can be of various types. There are certain presumptions of intention
to create legal relation in contract. It is presumed in domestic contract there
is no intention to create legal relation and in business contract it is highly
intended to create legal relation. Agreements on the other hand do not have
such presumptions; they can be between domestic as well as business parties
until they intend to be legally bound on that.
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