Agreement and Contract Definition: Understanding the Legal Terms
Agreement and contract are two terms that are often used interchangeably, but they actually have different legal meanings. In this article, we’ll define both agreement and contract and explain how they differ from each other.
An agreement is a general term used to describe a mutual understanding or arrangement between two or more parties. It is often an informal agreement that is not legally binding. For example, if you agree to meet a friend for dinner next week, that’s an agreement.
Agreements can also be formal, such as a memorandum of understanding (MOU). An MOU is a document that outlines the terms and details of an agreement between two or more parties. It is not legally binding, but it can be used as evidence of the parties’ intentions.
A contract, on the other hand, is a legally binding agreement between two or more parties. It is an exchange of promises where each party agrees to do something in exchange for something else. Contracts can be written or verbal, but written contracts are generally preferred because they provide a clear record of the terms of the agreement.
A contract must have the following elements to be legally binding:
1. Offer and acceptance: One party makes an offer, and the other party accepts it.
2. Consideration: Both parties exchange something of value, such as money, goods, or services.
3. Mutual agreement: Both parties must agree to the terms of the contract.
4. Competent parties: Both parties must be capable of entering into a legal agreement.
5. Legal purpose: The contract must not violate any laws or public policies.
Examples of contracts include employment contracts, rental agreements, and sales agreements.
Differences Between Agreement and Contract
While both agreement and contract refer to mutual arrangements between two or more parties, there are key differences between them. The main difference is that a contract is legally binding, while an agreement is not.
An agreement can be informal and often involves only a verbal understanding between the parties. On the other hand, a contract must have a written record of the terms of the agreement. This is because a contract is legally enforceable, and a written record can be used as evidence in court.
Another difference between agreement and contract is the level of formality. An agreement can be informal and general, while a contract is typically a formal document that outlines the specific terms and details of the agreement.
In summary, an agreement is a mutual understanding or arrangement between two or more parties that may or may not be legally binding. A contract, on the other hand, is a legally binding agreement that must meet certain legal requirements to be enforceable. Understanding the difference between agreement and contract can help you navigate legal agreements and ensure that your rights are protected.