Agreements and contracts are the same thing, right? Wrong. There is actually a difference and, when signing, it is important to know the difference.
An agreement is an arrangement or understanding between two or more parties. It is usually informal between two or more parties and is not binding or enforceable by law.
A contract, however, is legally binding and can be enforced in a court of law. All contracts must meet a certain set of requirements and are a more formal arrangements between two or more parties.
Parties only need a common understanding in order to reach an agreement as to their respective responsibilities and rights.
The requirements in a contract however are much more precise and a lot stricter.
Hereunder are a few essential points that a contract must contain:
The main purpose of a contract is to outline specific terms the parties have agreed in principle thus formalising them in writing.
Where a party fails to fulfil its obligation a court of law will use this to determine the severity of the breach of contract and instruct a proper remedy for the other party.
Even where the parties are friends, it is always advisable to enter into a contract as it provides both a guarantee and protection.