Agreements and contracts are two of the most important documents used to protect both parties involved in a business transaction. Many people often use the terms interchangeably, however, there is a distinction between an agreement and a contract. There is a common saying “All contracts can be agreements but all agreements can not be contracts”, which indicates that contracts and agreements are not the same.

With the advent of technology, much of our everyday activities involve signing agreements. We often do this without realizing it; from downloading music or apps to taking out a loan. However, while many of these agreements may not be legally binding when it comes to exchanging goods and services. Contracts are those which bind us legally otherwise the rests are agreements.

Let’s understand the basic difference between contracts and agreements with the help of a chart.

Comparison chart

Basis	Agreement	Contract
Meaning	The meaning of agreement is the acceptance of an offer made by one party to another.	A legally binding agreement is referred to as a contract.
Elements	Agreement= Offer + Acceptance	Contract= Acceptance + Enforceable by law
In writing	Not necessarily	Mandatory
Legal obligation	Does not establish legal obligation	Establishes legal obligation
Risk	It has a higher risk factor since the legislation does not make it enforceable.	A contract ensures a minimal risk factor since it is upheld by the law.

 

What is an agreement?

Agreements are based on the principle of offer and acceptance. One party makes an offer and the other party either accepts it completely or proposes modifications to it. It is an understanding between two or more persons, which can be written, verbalized, or implied. An agreement may exist in any type of relationship, including business relationships and personal relationships. It is usually supported by consideration – each party promises to do something for the other in exchange for something else. There are many different types of agreements, each tailored to meet the specific needs of each individual transaction. 

Types of agreements

• An employment agreement: this agreement outlines the rights and duties between the employee and employer. It also deals with remuneration, benefits, vacation time, job security, and other related topics. 
• Purchase agreements: it outline terms related to price, delivery methods and payment schedule 
• Lease agreements: which describe requirements for tenants
• Service agreements: outlines services provided by a vendor 
• Partnership agreements: sets out ownership percentages
• Confidentiality agreements: non-compete clauses; and more

What is a contract?

A contract is an agreement between two or more parties with the intention of creating a legal obligation. It is an essential document in many aspects of life, especially when it comes to business and personal relationships. Contracts are generally written documents that lay out the terms and conditions of all involved parties, including everything from payment terms to rights, liabilities, and other details related to the agreement. 

Contracts can be either verbal or written depending on their purpose. In most cases, oral contracts are legally binding as long as they meet certain requirements such as being made in good faith and having adequate consideration exchanged between both parties. Written contracts provide a more comprehensive record of the agreement which is why they are preferred in business transactions dealing with large sums of money or important property rights. Many times written contracts may be required by law for certain types of agreements too.

The most common types of contracts include simple contracts, verbal agreements, express contracts, bilateral contracts, implied contracts, unilateral contracts, and special-purpose contracts. 

Types of contracts

• Simple contracts are agreements created with basic terms that are easily understood by both parties involved. 
• Verbal contracts rely solely on spoken words rather than written documents but still hold up in court if necessary. 
• Express contracts are clearly outlined in writing with all details included.
• Implied contracts do not have to be expressed in written words but rather exist through mutual understanding between two parties involved in a transaction.
• Bilateral contracts require an exchange of promises between two parties to perform certain obligations at some point in the future.
• Unilateral contracts on the other hand, only involve one side making a promise with no expectation of anything in return from the other side. This type of contract is often used when one party wishes to make a gesture without expecting anything in return.

The key difference between a contract and an agreement

Contracts and agreements are two terms that are often discussed in the context of business. Although both contracts and agreements involve an exchange of goods, services, or money for a mutual benefit, there is a key difference between the two.

A contract is a legally binding document that outlines all conditions and requirements of a specific agreement made between two parties. It typically details the rights, obligations, and responsibilities of each party involved in a particular transaction or relationship. 

In contrast to a contract, an agreement does not necessarily need to be in writing; verbal contracts can also form part of an agreement. Furthermore, while contracts must include explicit clauses which outline how each party will fulfill its obligations, agreements may simply specify what is expected from each party without any legal enforcement measures or remedies in place should either party fail to fulfill their duties as specified in the agreement.

Conclusion

So in brief, an agreement and a contract are not the same, but they do have similarities. An agreement is an exchange of promises between two or more parties that is not legally binding, while a contract is an enforceable promise between two or more parties. Agreements can be verbal, while contracts must generally be in writing. Additionally, agreements require consideration from both parties to be valid, while contracts only require consideration on one side.