Understanding your rights and responsibilities in business arrangements is vital to the success of your business. It is important to understanding when an agreement creates legally enforceable obligations and when it does not. Read on to learn about the difference between a contract and an agreement.
An agreement is an understanding or arrangement reached between two or more parties. Agreement are generally not legally binding as they do not possess the requisite intention to be legally bound. An agreement does not necessarily need to be in writing and can be verbal.
Example: Jane and Tabitha agree to share a bike. They do not intend this agreement to create any legally binding obligations.
A contract is an agreement which creates legally enforceable obligations between parties. This is the key difference between an agreement and a contract: the parties intend to enter into a legal relations. For the contract to be legally binding, both parties must evidence and intention to create legal relations. This can be express or implied from the circumstances.
For a contract to be binding under Australian law, certain elements must be satisfied. These include:
There is a strong presumption for agreements made in the context of business to be legally binding, however this is a rebuttable presumption.
Example: Maya and Anwar own and operate a grocery store. They sign a contract with their wholesale goods supplier for regular deliveries of certain goods. Both parties intend to be legally bound by this contract.
