Defining the Difference Between a Contract vs. Agreement

January 15, 2024

In this post, we will show contract vs. agreement differences and their legal implications. We also included an easy document creation solution for your needs.

James Fyfe
Co-founder - CEO

In the world of legal and business transactions, the terms "contract" and "agreement" are often used interchangeably. However, they are not one and the same. Understanding the nuances between a contract vs. agreement is essential, as it can impact the legal status and obligations of the parties involved.

Whether you're an entrepreneur, a legal professional, or simply curious about the intricacies of these terms, this article will delve into the key differences between contracts and agreements, shedding light on when and why you might need one over the other.

What is a Contract?

Portant's Contract Template

A contract is a legally binding agreement between two or more parties. It outlines the terms and conditions under which parties define an agreement to fulfill their obligations and responsibilities.

Contracts are typically formal arrangements with legal weight and enforceability in a court of law. Simply put, a contract is a written agreement that binds the parties to specific terms and conditions, with the understanding that failure to comply may result in legal consequences.

So, What's an Agreement?

Portant's Agreement Template

An agreement, on the other hand, is a broader term that encompasses various types of mutual understandings between parties. Not all agreements are legally enforceable, and they may range from informal, verbal agreements to more formal written contracts called agreements.

While an agreement does signify a mutual assent or consent between the parties, it may lack the legal obligations and structure associated with contracts.

Is a Signed Agreement Legally Binding?

Yes, a signed agreement can be legally binding, but whether it is legally binding depends on various factors. The key to understanding the legality of a contract process in a signed agreement lies in the presence of certain elements necessary to make a contract legally enforceable.

These elements typically include:

  1. Offer and Acceptance: There must be a clear offer from one party and an unequivocal acceptance of that offer by the other party. Both parties must understand and agree to the terms.
  2. Consideration: Consideration is something of value exchanged between the parties. This can be in the form of money, goods, services, or a promise to do or not do something.
  3. Legal Purpose: The purpose of the agreement must be lawful. Arrangements that involve illegal activities or go against public policy are not legally binding.
  4. Mutual Consent: Both parties must willingly enter the agreement without duress, coercion, or misrepresentation.
  5. Capacity: Both parties must have the legal capacity to enter into a contract. This means they must be of sound mind and at least the legal age required to enter into a contract in their jurisdiction.
  6. Writing (in Some Cases): While many contracts are written, not all agreements need to be in writing to be legally binding. An electronic contract can also be legally binding. However, certain types of contracts, like real estate transactions or contracts that cannot be completed within a year, often require a written document to be enforceable.

Once these elements are present and a signed agreement satisfies the legal requirements, it becomes legally binding. Being legally bound also means that both parties are obligated to fulfill the terms of the agreement, and failure to do so can result in legal consequences, including monetary damages or court intervention.

Not all agreements we sign are legally binding, and some are considered informal or social agreements, which are not intended to be legally enforceable. Even if an agreement is signed, it may have a different legal weight than a formal contract.

Showcasing the Difference Between an Agreement vs. Contract

To better illustrate the distinctions between an agreement and elements of a contract, let's look at a table highlighting the main differences:

When Would You Need an Agreement Instead of a Contract and Vice Versa

Generally, agreements are suitable for more informal arrangements where the parties involved trust each other and don't require the full legal protections of a contract.

Conversely, contracts are essential when a more structured, legally enforceable arrangement is needed, especially in business and legal contexts.

Agreement Examples:

  1. Verbal Agreement: An agreement made through spoken words, such as agreeing to meet a friend for lunch.
  2. Gentlemen's Agreement: An informal agreement based on trust and honor, often used in business dealings.
  3. Confidentiality Agreement: A legal agreement to protect sensitive information shared between parties.

Contract Examples:

  1. Employment Contracts: Formal agreements between employers and employees outlining job responsibilities, compensation, and terms of employment.
  2. Business Contracts: Contracts used in various business transactions, including partnerships, sales agreements, and vendor contracts.
  3. Real Estate Contracts: Contracts used in real estate transactions, such as purchase agreements and lease contracts.

What is the Difference Between Agreement and Contract in Procurement?

In the realm of procurement, the terms "agreement" and "contract" are often used interchangeably, but they do have distinct meanings and implications:

  1. Procurement Agreement: A procurement agreement is a broad term that refers to any mutual understanding or arrangement between a buyer and a supplier or vendor. It encompasses various stages of the procurement process, from initial negotiations to the final agreement on terms and conditions. Procurement agreements can include memorandums of understanding (MOUs), letters of intent (LOIs), and other preliminary documents. While these documents may express an intent to work together, they may not always be legally binding contracts.
  2. Procurement Contract: On the other hand, a procurement contract is a legally binding document that outlines the specific terms, conditions, and obligations of both the buyer and the supplier or vendor. Procurement contracts are formal agreements that define the scope of work, pricing, delivery schedules, quality standards, and other critical details. These contracts are enforceable by law, and parties can seek legal remedies in case of breaches.

Clarity in procurement is essential, and using the appropriate legal instruments, whether an agreement or a contract, ensures that the parties involved understand their rights and responsibilities, ultimately promoting a smooth and legally compliant procurement process.

Use Portant's Templates to Create Your Next Contract or Agreement

If you need to create either a contract or an agreement, Portant offers a valuable solution with its pre-built templates. These templates are crafted to help you with drafting and eSign contracts or agreements, saving you time and ensuring that your documents are comprehensive and legally sound.

Whether you're venturing into procurement agreements, business contracts, or any other legal document, Portant's templates provide a solid foundation. 

With the ease of customization, you can tailor these templates to your specific needs, ensuring that all the required elements and details are included. 

Portant also helps you automate the digital signing process for all parties involved using e-signature technology, enabling you to send the contract or agreement to each party effortlessly. 

Give our Google Docs contract template a go and leverage all its functionality.  Save yourself time and resources and let Portant automate your repetitive heavy-duty work so you can focus on other aspects of your business. 

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