DIFFERENCE BETWEEN AGREEMENT AND CONTRACT

DIFFERENCE BETWEEN AGREEMENT AND CONTRACT

Many people use the words Agreement and Contract as if they mean the same thing. In law, they do not. One creates an understanding while the other creates legal consequences.

An Agreement is a meeting of minds. One party makes an offer and the other accepts. At this stage, parties may agree, exchange messages or even write something down. But not every agreement is legally enforceable.

A contract, on the other hand, is a legally binding agreement. It is an agreement that the law will recognize and enforce.

What turns an agreement into a contract is the presence of certain important elements.

Firstly, there must be a clear offer and an acceptance. Vague promises or casual discussions are not enough.

Secondly, there must be an exchange of value. This means each party must give something of value, whether products, money, services or a legal promise. A one-sided promise without value in return is not a contract.

Thirdly, the parties must have capacity to contract. Persons below 18 years, of unsound mind or acting under force or undue influence lack the required legal capacity.

Fourthly, there must be an intention to create legal relations. Social or domestic agreements are not contracts because the parties never intended legal consequences.

All contracts are agreements, but not all agreements are contracts.

Knowing the difference can save you from making costly legal mistakes.

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