A contract or contractual agreement is a legally binding agreement involving two or more parties. It is legally enforceable and prohibits or allows them to do things or activities specified in a contract. All parties must agree to the terms and conditions drawn up in a contract.
When someone fails to adhere to the specifications drawn up in an agreement it is usually a punishable offense.
What is the Difference Between a Contract and an Agreement?
It is common for someone to confuse between contract and agreement as they are often interchangeable. However, we must remember that there is a fine line between them.
| Contract | Agreement |
| A well-documented contract binds parties legally and is enforceable by law. | An agreement may not always be legally binding. Its foundation is usually based on goodwill and trust. |
What are the Examples of Contractual Agreements?
There are several examples of contractual agreements. You can always get professional help from the CLM Platform to understand your requirements before opting for one. Let us navigate through the examples:
- Non-Disclosure Agreement: As evident from its name, a non-disclosure agreement or an NDA guarantees not to disclose confidential or sensitive information that they might have shared during their business relationship.
- Employment Agreement: An employment agreement states the term of employment, which is legally binding and agreed upon by both employer and employee during their term of employment. It states their rights and responsibilities of both parties.
- Lease Agreement: This is a legal agreement between a tenant and the landlord. Both parties must enter into this agreement following specific terms and conditions and appropriate knowledge, such as, for the tenure and how the tenant will use the property.
- Partnership Agreement: A legally binding document that states the terms and conditions of a business relationship between two or more people to avoid conflicts, determine responsibility, and use as evidence of partnership in court.
- Indemnity Agreement: This is a legal contract that safeguards one party from financial loss or damage caused by the other party not taking into account who is at fault. The indemnitor is the party that pays for the damage and the indemnitee is the one that receives it.
What are the Three Primary Types of Contractual Agreement?
The three main types of contractual agreements are:
- Fixed-Price Contracts: FPC is a contractual agreement that sets or fixes the price of a product or service at the beginning of the establishment.does not change based on time, resources, or cost.
- Cost-Plus Contracts: A contract made between the client or the project owner and the contractor. The client pays the contractor the cost of the project and an additional payment of profit that is specified as a percentage of the contract’s full price.
- Time and Materials Contracts: The total cost of the T&M contractual agreement is not fixed. Instead, it depends on the cost of materials and hours worked on a project. House renovations and constructions typically use these types of agreements.
Other than these three, there are various types of contractual agreements, such as unilateral contracts, implied contracts, and aleatory contracts.
What are the Criteria that Make Contractual Agreement Legally Valid?
Parties must adhere to the following six criteria to make the contractual agreement legally valid:
- Contractual Offer: Primarily, every contract starts with an offer, i.e., one party requires something and the other party has the power or resources to fulfill it in exchange for a value.
- Acceptance of Offer: Secondly, a contract needs to be accepted. Though there is much debate about when a contract is acceptable, it is only logically and technically ac
- Awareness and Consent: Thirdly, for a contract to be legally binding both parties must be aware of all the terms and conditions of the contractual agreement document and also consent to them.
- Consideration: Fourthly, contracts are only binding when they provide something of value. This object of value does not always have to be money. It can be a service, commodity, object, or action that serves a particular purpose.
- Legal Capacity: Legal capacity is when both parties understand the contract’s terms, obligations, and consequences. Thus, parties who demonstrate legal capacities can only sign a contract. If lacking, the contract will be void.
- Contract Legality: A contract must follow the laws of the place where it was created and signed, even if local and federal laws differ.
Conclusion
To conclude, if you wish to ensure that contracts perform well for both parties, it is crucial to consider and cater to the issues you are facing regularly. Sirion.AI is a platform that serves this purpose by managing contracts to create business value. They are a common name that pops up when one considers drawing up contractual agreements.
Also Read: Why Choose a Licensed General Contractor for Your Santa Cruz Construction Projects?
