It is said that all contracts are agreements but not all agreements are contracts. In business we tend to use the terms ‘agreement’ and ‘contract’ interchangeably, which is fine most of the time, but not always. There is also a general perception that a contract only comes into existence when it is contained in a written and signed document.
I frequently consult with clients on contractual matters. When they explain their dilemma to me, I often hear words to this effect:
“We entered into this business transaction, but we do not have a contract and now I have this problem and don’t know what to do about it”.
Sure, it would have been better if there was a written contract in place to regulate the situation, but a contract can also be concluded orally (by words) or tacitly (by conduct). In addition, the terms of a contract can be express (specifically discussed or recorded in an email, document or text message), implied (incorporated by legislation, common law or trade usage) or tacit (deduced from the surrounding circumstances or conduct of the parties or from the other terms).
It often happens that even a written contract is silent on one or more aspects which the parties did not foresee when the written contract was negotiated, and which then results in uncertainty, disputes and litigation. As a litigator, I deal with this a lot.
There are some contracts that have become so refined over time that they are regarded as ‘standard’ and where the scope for uncertainty has been reduced significantly. But, sometimes, templates are used incorrectly, or commas are put in the wrong places, or key terms are deleted by parties using templates for DYI-contacts, in which case implied and tacit terms usually come to the rescue – albeit at a cost.
And when it comes to more bespoke written contracts, they are often negotiated under severe time pressure. Where a specific eventuality is not catered for, the bespoke contract will be interpreted according to certain established canons of interpretation to give effect to the true intention of the parties, as supplemented by implied and tacit terms. It should be noted that an implied or tacit term must always be consistent with the express terms of the contract and that inconsistent or contradictory terms will not be inferred.
Lastly, and to answer the question posed in the subject-line. The difference between a contract and an agreement is that a contract creates legally enforceable rights and obligations whereas an agreement does not necessarily do so. By way of example: If Tom and Jerry agree that the Stormers will beat the Sharks in the URC Rugby Tournament this weekend, Tom won’t be able to claim specific performance against Jerry if the Stormers should lose the game. No court in this country will be able to enforce that agreement. For that reason, it’s not a contract.
However, if Tom and Jerry agree at a braai that they’ll go watch the Stormers play the Sharks in the final at Cape Town Stadium, that Tom will buy the tickets for R 5000 each, and that Jerry will reimburse Tom for his ticket, Tom will be able to issue summons and obtain judgment against Jerry for the cost of Jerry’s ticket if Jerry should renege on that deal. Because the Court will enforce that agreement, it is a contract.
I hope that these simple examples have shed some light on the core difference between a contract and an agreement.
The law of contract is much more nuanced and technical, and it is always best to obtain legal advice before entering into a business transaction to ensure that your agreements are legally binding and you are adequately protected.