Key Difference Between Contracts And Agreements

The main differentiation between a contract and an agreement is that an agreement refers to a mutual arrangement between two or more parties, whereas a contract is a formal and legal agreement between two or more parties.

A contract, as opposed to an agreement, is legally binding and, more crucially, enforceable in a court of law. Contracts and agreements both involve at least two parties.

What is a Contract?

Agreement vs Contract

A contract is a legally binding and formal agreement between two parties that is enforceable in a court of law. A contract’s standards are tougher and more precise than those of an agreement.

Every contract must explicitly specify a specific offer and the confirmation of that specific offer. It is critical in this case that the offer and acceptance of the offer are willingly accepted by the parties without any external coercion. It is critical that both parties grasp the grounds as well as what the contract will need. Furthermore, in order to make a binding agreement, all parties involved must accept the same conditions. Furthermore, a contract will be void if either of the parties engaged is a minor under the age of eighteen, a drug addict, an alcoholic, a mentally deficient person, or has any other issue that prevents him/her from properly understanding the terms of a particular contract.

What is an Agreement?

The word ‘agreement’ refers to a more generalized version of a ‘contract.’ To put it simply, every contract is an agreement, but not every agreement is a contract. To elaborate further, every contract has aspects of an agreement, such as the offer and acceptance. Nonetheless, not every agreement fulfills the most important and inevitable requirement of a contract: legal enforceability. As a result, not every agreement is a contract.

Any agreement consists of two primary parts. The first is the offer. In this case, a person makes an offer, expressing his or her willingness to accept an obligation in exchange for abstention, a promise, or an act. The other major component of an agreement is acceptance. In this case, the offeree gives his offeror either directly or indirectly. It is critical that the acceptance is notified to the offeror in the specified mode and within a suitable time limit.

Key Differences

The following points are significant in terms of the differentiation between agreement and contract:

  • An agreement is defined as promises and pledges that form consideration for the parties to the same consent. A legally binding agreement is referred to as a contract.
  • The offer and its acceptance by the same person to whom it is made, for adequate compensation, are the major components of an agreement. In contrast, the key components of an agreement are agreement and legal enforceability.
  • Every contract is not every agreement, but every agreement is a contract.
  • Although an agreement does not have to be in writing, contracts are usually drafted and registered.
  • The agreement does not legally bind any of the parties to perform. The people are legally obligated to execute their part under the Contract.
  • The agreement’s scope is broader than that of a contract because it encompasses all sorts of agreements as well as contracts. A contract, on the other hand, has a smaller scope than an agreement because it only includes those agreements that have legal enforceability.

Comparison Table

BASIS FOR COMPARISONAGREEMENTCONTRACT
MeaningAn agreement is formed when a proposition is accepted by the person to whom it is offered after due deliberation.When an agreement is legally binding, it is called a contract.
ElementsOffer and AcceptanceAgreement and Enforceability
In writingNot necessarilyNormally written and registered
Legal obligationDoes not creates legal obligationCreates legal obligation
One in otherEvery agreement need not be a contract.All contracts are agreement
ScopeWideNarrow

Similarities

  • A contract is a specific type of formal agreement, whereas agreement refers to all types of agreements, whether legally binding or not.
  • Offer and acceptance are two fundamental components of any contract or agreement in general.
  • Both a contract and an agreement involve at least two parties.

Conclusion

In summary, the crucial difference between a contract and an agreement is that a contract is a written and legal agreement that may be enforced in a court of law, whereas an agreement is any arrangement in general. To put it simply, every contract is an agreement, but not every agreement is a contract. Regardless of whether it is a legally binding contract or not, any type of agreement involves two or more parties, including the offeror/s and the offerees.