Difference between Agreement and Contract

Key Difference: An agreement is an informal compromise between two or more parties, which may or may not be legally binding. A contract is a legally-binding agreement that is entered into voluntarily by two or more parties, with the intention of creating one or more legal obligations among them.

An agreement and a contract are similar in nature as they both describe two or more people that seem to agree on the same thing; however they are different in meaning and detailed explanations. Contracts and agreements are a part of life and people enter into them even without knowing that they are entering into a contract. For example, if you go to a doctor and know that you have to pay a certain amount for the check up, it is actually considered as a contract and if you leave without paying it will be a breach of contract. The differences are quite minor in general terminology resulting in these words being used interchangeably, but in legal terms there are vast differences between the two.

An agreement, also known as a gentlemen’s agreement, is an informal agreement between two or more parties. This agreement could be oral, written, or implied but all members of the agreement should be on the same page. An agreement is also used to refer to meeting of minds at a certain point; this agreement could refer to a number of things including business views, world views, commercial views, domestic views or even wagers. An agreement may or may not be enforceable by law, depending if the agreement is legally binding. In order to form an agreement, all participating members should be consensual. An agreement, where consent is not genuine is considered as a voidable agreement.

In the early 20th century, a gentleman’s agreement referred to "an agreement between gentlemen looking toward the control of prices." These types of agreements have been reported in almost all industries with the majority being in the steel and iron industries. When two parties enter into an agreement, they themselves define the terms and conditions of the agreement, whereas in contracts a few terms and conditions are defined by the law. The Encyclopedia of the United Nations and International Agreements defines ‘agreement’ as, “an international term for an agreement made orally rather than in writing, yet fully legally valid.”

Merriam Webster defines ‘agreement’ as:

  • harmony of opinion, action, or character : concord
  • the act or fact of agreeing
  • an arrangement as to a course of action
  • compact, treaty
  • a contract duly executed and legally binding
  • the language or instrument embodying such a contract

A contract is actually an agreement that is entered into voluntarily by two or more parties, with the intention of creating one or more legal obligations among them. Contracts are almost always legally binding. In order for an agreement to become a contract, it is expected to meet three conditions: Offer and Acceptance, intention to create legal relation and consideration. Offer and Acceptance is basically that the contract must have one party who is making an offer, while another party must accept the offer, or in case it does not it should make a counter offer to the first party. The contract must also be done in accordance with trying to create a legal relation. Consideration means that one party must offer or promise something of a value to the opposing party in exchange of receiving something of value to the promising party. Both the parties must exchange something that is valuable to the opposing party. It could include goods in exchange of payment, or goods in exchange of goods, or could also include a promise in exchange of goods.

If any of these three conditions are not met, then the contract is not legally binding and cannot be enforced on the opposing party. Though most contracts are done in writing, oral contracts are also considered law binding, however in case of oral contracts proof or terms and conditions must be listed or noted somewhere. Another form of contracts includes implied contracts, where contracts are implied in law, but they may not be in written form. For example, if a person walks into a store and asks for a pack of gum, it is implied that the person must pay in exchange for the gum and failure to do so results in breaching of an implied contract. These contracts are known as quasi-contracts. If a contract is breached, the party that breaches the contract could be sued by the opposing party and may have to remuneration for compensation.

Merriam Webster defines ‘contract’ as:

  • a binding agreement between two or more persons or parties; especially : one legally enforceable
  • a business arrangement for the supply of goods or services at a fixed price (make parts on contract)

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So brilliant


good language



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