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What is a contractual agreement?

Contractual agreement is another term sometimes used in place of “contract.” Thus, a contractual agreement is a legally enforceable agreement entered into by two or more parties to do, or refrain from doing, one or more things specified in the contract. To be enforceable, legal consideration must exist; the parties must have legal capacity to contract; all parties must assent to the contract; and the subject matter of the contract must be legal.

We often hear people use the following terms interchangeably: “contract;” “agreement;” and “contractual agreement.” While one’s choice to use either the term “contract” or “contractual agreement” does not have legal significance, there can be legal significance to use of the term “agreement.” The important distinction is that “contracts” meet all the requisites necessary to be legally enforceable. “Agreements,” on the other hand, lack one or more of the formalities required to constitute a contract, and therefore are not legally enforceable.  

We certainly don’t mean to suggest that agreements are unimportant or irrelevant. People, both in their personal lives and in the business world, make agreements, which are not binding contracts, every day. Many such people are trustworthy, have good intentions, and follow through on such agreements. After all, having trust among partners is crucial to a good business relationship. However, the problem arises if the parties disagree on the requirements of the unenforceable agreement, or if one party simply elects not to perform. At that point, the other party has no legal contract upon which to rely.

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