There are many situations where people enter into agreements with one another. Whether it`s for a business deal or a personal arrangement, agreements are a way for two or more parties to come to an understanding on a particular matter. But when does an agreement become a contract? And what distinguishes a contract from a mere agreement?
First, it`s important to understand that an agreement is simply an understanding between two parties. It can be verbal or written, and it doesn`t necessarily have to be legally binding. For example, if you and your friend agree to split the cost of dinner, that`s an agreement. But there`s no legal obligation for either of you to follow through on that agreement.
A contract, however, is a legally binding agreement. In order for an agreement to become a contract, it must meet certain criteria:
1. Offer and acceptance: To form a contract, one party must make an offer to do something, and the other party must accept that offer. The offer and acceptance must be clear, unambiguous, and communicated between the parties.
2. Consideration: Both parties must receive some form of benefit or consideration from the contract. This can be anything of value, such as money, goods, or services.
3. Legal capacity: Both parties must have the legal capacity to enter into a contract. For example, minors and individuals with mental impairments may not be able to legally enter into contracts.
4. Legal purpose: The contract must have a legal purpose. Contracts that are illegal or against public policy are not enforceable.
Once these criteria are met, the agreement becomes a legally binding contract. This means that if one party fails to fulfill their obligations under the contract, the other party may have legal recourse to seek damages or other remedies.
It`s important to note that contracts don`t have to be in writing to be enforceable. Verbal contracts are just as valid as written contracts, although they can be more difficult to prove in court.
In conclusion, an agreement becomes a contract when it meets the criteria for a legally binding contract: offer and acceptance, consideration, legal capacity, and legal purpose. Understanding the difference between an agreement and a contract is important for protecting your rights and ensuring that all parties are aware of their obligations under the agreement.