Differences between a contract and an agreement: In our daily life, we enter into contractual relationships either by entering into an agreement with a person or by entering into a formal contractual agreement with a person. For example: when you go out of your house to buy an item from a nearby store, you enter into a contract because you are going to offer money to the trader to collect the desired goods from his store, if the price is high enough right, the merchant will accept your money and give you the goods.
It is a perfect illustration of a contract because the three main ingredients of a contract: offer, acceptance and consideration are all present in this scenario. So, invariably in daily life and activities, we enter into contracts and agreements either to purchase goods or to provide services. Take for example, you want to build a house, you need to hire an engineer, you need blog content, you have a freelance writer, and provide due consideration for their services.
It follows that in all aspects of our life, we enter into contractual agreements and generally these agreements are called Contract and used interchangeably. However, there is a clear distinction between an agreement and an actual contractual arrangement which gives rise to a Contract.
This article examines this distinction that exists between a contract and an agreement. Before continuing with these differences, let me lay the groundwork on what a contract and agreement mean.
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What is an agreement?
An agreement can be defined as an informal arrangement in which two or more parties agree to perform an action with a common goal in mind. An agreement is considered an informal agreement because it often occurs orally and has no legal implications. For example, I do not honor my agreement with a person; there is nothing such a person can do to make me respect such an agreement. This is why an agreement is often called ‘gentleman’s agreement’ for all it takes is a gentleman to honor an agreement.
An agreement can also be defined as a promise or commitment that promotes the manifestation of mutual consent between two or more people. When this consent is given, all parties involved fulfill their obligation. For example, if I need a flyer, I just have to go to a graphic designer, we both agree on what he will do for me and I agree to send him half payment to begin work, this is an example of an agreement. It is usually done orally with the consent of all parties to the agreement.
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From the above, we can see that an agreement is very simple, flexible in nature and very common, especially in developing countries. Truth be told, many people in these developing countries do not understand the formality of a contract and even though they do not give it much priority, so it is well neglected and people, even in workplaces, employ workers through a simple agreement.
For example, if you own a restaurant and are looking for a salesperson to help you run your business, you end up finding a candidate. In a developing country, an employer in your place will employ this candidate by simply interviewing her, indicating her duties and her monthly salary or other allowances. No contract is usually signed, just an oral agreement. It is almost the same in most business relationships in developing countries, it is mainly national and multinational companies that move away from this trend of oral agreement and enter into a contract.
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What is a contract?
A contract is a type of agreement that meets certain requirements aimed at creating legal relationships and legally binding obligations between the parties to a contract, and these obligations are enforceable by a court.
These requirements are what we call elements of a contract. For there to be a valid contract between the parties, these elements must be present and when one or more of these elements are missing, a contract is said to be void.
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The elements of a contract are:
a. To offer: The offer essentially means the clear expression of the will to conclude a contract on certain articles. For example, if I want to buy goods, I can contact a wholesaler and tell him to deliver a specific quantity of goods at a specific price. This is an offer made by me, the offeror, to the wholesaler who is the consignee; i.e. the person to whom an offer is made.
b. Acceptance: Acceptance is the second essential element of a contract. After I made an offer to this wholesaler, it is now up to this wholesaler whether or not to accept my offer. If, for example, this wholesaler agrees with my offer, the wholesaler must notify me of the acceptance of the offer.
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vs. Consideration: The consideration is the price to pay. It basically refers to the exchange of something of value. For example, in this case, the wholesaler promises to deliver the goods within two days, and I promise to make payment or even make partial payment. This is an example of Consideration.
D. Legality: The final element of a contract is legality. Legality generally refers to the factors that determine whether the contract is valid in the eyes of the law, such as: the contract must be in writing, there must be an intention to create legal relations, the parties to the contract must have legal capacity and there is no form of fraud in the contractual agreement. I hope this has given you a good idea of what a contract and an agreement mean distinctly.
For clarity, let’s take a detailed look at the distinction between them.
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Differences between an agreement and a contract
1. An agreement is an informal agreement between two or more parties to perform an obligation and an agreed course of action while a contract is a formal agreement between two or more parties to perform an obligation and an agreed course of action.
2. Since an agreement is informal, it lacks the special legal ingredients and as such is not enforceable by a court. However, a contract is enforceable by a court. An agreement is usually made orally in the form of a promise, while a contract must be in writing, except in certain special circumstances.
3. An agreement is usually formed without consideration, while a contract cannot be formed without consideration because consideration is what gives life to the formation of a contract between two or more parties.
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4. An agreement does not create a legal obligation, while a contract creates a legal obligation between the parties.
5. An agreement involves considerable risk because a party to an agreement can breach an agreement and nothing can be done to ensure the performance of its obligations. On the other hand, a contract has a very low risk factor because if a contract is breached, the party that is breached can sue the other party and can get damages for that breach as well than a court order requiring the defaulting party to perform its contractual obligations.
See also: Differences between a void contract and a voidable contract
In conclusion, I hope you may have thought before that every agreement is a contract. If you did, you are highly mistaken as there is a clear distinction between a simple agreement and a contractual agreement as illustrated above in this article. You can never enforce an agreement if someone breaks it, so if you are entering into a business relationship with someone, it is very important to formally infer your agreement as a sealed and signed contract. It will definitely save you a lot in the long run. I hope this article was insightful? For more informative articles, please stay glued to this blog.
Edeh Samuel Chukwuemeka ACMC, is a law student and certified mediator/conciliator in Nigeria. He is also a developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is determined to change the legal profession by creating web and mobile applications that will make legal research much easier.