HR MANAGEMENT - Difference Between Contract and Agreement

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.