For example, if you lend your brother some money so he can buy a new car, and agree that he’ll pay it back in six months’ time, then you may have a verbal contract. Agreements can be written down, and signed, but that doesn’t make them contracts if they don’t include the elements mentioned above.Ĭontracts don’t actually need to be written down either – verbal contracts can still be legally binding, as long as they contain all the elements of a contract. Agreements are sometimes used to kick off contract negotiations as well (read more about how to negotiate a contract). And if there’s no money changing hands then an agreement might be a better option – it avoids the hassle of drawing up and agreeing a contract, which would probably be overkill. You might be happy with an agreement if you know the person well and you’re sure they won’t renege on what you’ve agreed (and pick up their towels). Why would you have an agreement instead of a contract? So if you then tell her she can’t come because you don’t want to put up with her leaving wet towels on the bathroom floor, drinking all the milk and coming home at 3am, she might have recourse to challenge your decision. the deposit she’s paid you) - there’s been an offer and acceptance, both parties have contractual capacity and you’ve indicated an intention to be legally bound. a stay at your house) for a consideration (i.e. That’s because you’ve agreed to exchange a service (i.e. So when you later remember that Sarah is a terrible house guest and tell her she has to stay in a hotel instead, she can’t sue you.īut if Sarah gives you a deposit, agrees to pay you some money for each night she’s at your place, and you set out in writing the arrangement in a document you both sign, you may well now have entered into a contract with her. It doesn’t fulfil the required elements of a contract. This is an agreement – there’s no consideration changing hands, there are no terms to comply with, you don’t intend it to be legally binding. Let’s imagine you tell your friend Sarah she can come and stay at your house while she’s in the area. Here’s an (extreme) example of the difference between an agreement and a contract. As discussed above, if a particular document lacks one or more of the vital elements that make it a contract, then it may well still be a useful agreement, but not a legally binding contract. What's a legally binding contract?Ī legally binding contract is a contract that fulfils and contains all the elements of a contract, meaning it can be relied upon and enforced in court. So if something is called an agreement but has all of these elements present, it’s actually a contract, and its terms and conditions are enforceable. You can explore contract requirements in more depth, but in a nutshell these are: In the UK non-binding - due to a lack of consideration, primarily.Ĭontracts also have certain elements which must appear to make them legally binding and enforceable. It’s usually money, but can also be other goods and services. something changing hands between the parties. Contracts are valid if they contain all the required elements of a contract, and once all the parties have accepted the terms (which usually means signing the contract).Ĭontracts always involve “consideration” i.e. That means if someone breaks them, the other party can seek legal redress. But its terms and conditions are legally enforceable - perhaps in court or through arbitration. Like an agreement, a contract is a formal arrangement between two or more parties to do, or not do, something. What's the difference between an agreement and a contract? Some examples of agreements include a letter of intent, or a confidentiality agreement that precedes a commercial discussion.Īgreements like these are based on trust, and aren’t legally enforceable in court or with arbitration – so if one party doesn’t do what they’ve said they will (for example if the builder or volunteer don’t turn up), the other party likely can’t seek a remedy or enforcement through the courts. It’s usually informal and sometimes unwritten (but not always). An agreement is a promise or arrangement between two or more parties to do, or not do, something.
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