Difference Between Contract and Agreement

Contract vs Agreement

Since the words contract and agreement are often used in legal contexts, it is very important for everyone to know the difference between contract and agreement. Contract is a legal agreement between two more entities, enforcing an obligation to do something or to refrain from doing certain things. However, 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 contract and agreement.

What is a Contract?

A contract is a legally binding agreement between two or 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 that 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.

What is an Agreement?

Agreement refers to meeting of minds at a certain point. Agreement may be on business views, commercial views or domestic views. If an agreement is not legally binding it cannot be enforced by law. Agreements where consent is not genuine are called voidable agreement s. An agreement becomes a contract when it is made legally binding and on meeting the three conditions.

When the parties enter into an agreement they define the terms and conditions of the agreement themselves, whereas in some specific contracts terms and conditions are implemented by law.

What is the difference between Contract and Agreement?

Difference Between Contract and Agreement

• The basic difference between contract and agreement is that the remedies for breach of contract and breach of an 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.

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 that in a domestic contract there is no intention to create legal relation and in a 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.


Further Reading:

  1. Difference Between Deed and Agreement