In business and law offices, two words are often used interchangeably: agreements and contracts. Although contracts are always agreements, agreements are not always contracts. How exactly do they differ?
A contract is a formal written document with legal implications. Meanwhile, an agreement can be informal, indicating nothing has to be witnessed or recorded.
Let’s compare contracts vs agreements and see which would best suit your needs.
Table of Contents
- What Is an Agreement?
- What Is a Contract?
- How Do Agreements and Contracts Differ?
- When Is a Contract Necessary?
- Which Is Better: an Agreement or a Contract?
What Is an Agreement?
An agreement is a commitment or arrangement about a shared aim among two or more persons or parties. We can say that an agreement is reached when two parties make a proposal and both accept it. It can be as straightforward as two neighbors verbally promising to swap gardening equipment. A simple handshake from a friend or family member means that an agreement has been made.
Alternatively, it can be as complex as the terms and conditions you would commonly see when downloading mobile apps. Clicking the “Accept” button lets a user receive access to an app’s offerings, subject to certain terms.
Since they are usually built on trust, agreements are not necessarily enforceable in court. If one or both parties violate the agreement, there are no legal consequences to their actions.
Benefits of an agreement
- Simple
- Informal
- Flexible
Agreement examples
- Compromise agreement
- Memorandum of understanding
- Non-compete agreement
- Non-disclosure agreement (NDA)
- Quit-claim agreement
What Is a Contract?
Contracts are formal agreements with legal standing. It binds two or more parties and outlines their obligations, expectations, and duties. It serves as a means for everyone to recall what was agreed upon and protects the interests of everyone involved.
Using exact and straightforward language is essential to writing a good contract, especially if a conflict arises. There may be legal and financial repercussions if such requirements are not met, which constitutes a breach of contract.
Benefits of a contract
- Legally binding and enforceable
- Tangible proof of a partnership or deal
- Reduces risk and conflict
- Outlines the terms and obligations of all parties
Contract examples
- Deed of sale
- Employment contract
- General business contracts
- Insurance contract
- Lease contract
What Makes a Contract Legally Binding?
A contract is valid if it meets the following conditions:
- Mutual assent. This includes both parties’ willingness and intent to reach an agreement. The signatures of both parties indicate mutual assent, provided that they were not obtained through coercion or fraud.
- Offer and acceptance. This is met when one party proposes something of value, which the other party accepts.
- Consideration. Consideration signifies that appropriate compensation will be provided in return. An employment contract is an excellent illustration of this. The employee consents to perform a specific task in exchange for a salary.
- Legality. The objective of the contract should not break the law.
- Capacity. Capacity simply refers to whether or not the parties to a contract are able to sign it lawfully. Factors like age or a disability may prevent you from signing a contract.
How Do Agreements and Contracts Differ?
The primary distinction between a contract and an agreement is the latter’s lack of legal force. A contract must contain concrete conditions that have a lawful basis. This differs from an agreement that merely requires that all parties are aware of their rights and obligations.
So why are these two documents often regarded as synonyms? That’s because an agreement may be considered a contract if it satisfies the conditions mentioned above. A good example of this are non-disclosure agreements. NDAs are considered as contracts since they meet all the requirements to be deemed enforceable.
When Is a Contract Necessary?
A contract is required when you sign a deal with another party and wish to safeguard your rights. It is necessary for most instances involving a transfer of money, assets, or intellectual property.
Here are the most common situations when contracts are required by law:
- Loaning money or taking on debt
- Renting or leasing property
- Acquiring or selling real estate
- Receiving or providing medical services
- Offering or accepting employment.
Which Is Better: an Agreement or a Contract?
If you have a choice, opt for a contract for added security. It’s always better to have a legal document on hand.
Agreements are fine if there is a high level of trust between the parties. Remember that an agreement exposes you to the risk of being unable to obtain legal assistance when needed.
Create Contracts and Agreements With Fill’s Templates
With Fill, the process of contract management is streamlined. You don’t need to worry about what to include in a contract or agreement. Thanks to Fill’s customizable templates, you can easily create valid paperwork and close important deals.
What’s more, its beginner-friendly workflow allows you to expedite the signing process. With your laptop, desktop, or mobile device, you can generate online forms and add electronic signatures to PDFs. You will also have access to real-time audit trails and logs, which detail the changes that happened in a contract.
Fill is an integrated platform solution that ensures your data is safe, thanks to 256-bit encryption and signer ID verification.
Start using Fill for free.
