When it comes to legal agreements, the terms “letter agreement” and “agreement” may seem interchangeable, but they actually refer to two different types of contracts.

A letter agreement, also known as a letter of agreement or a letter of understanding, is a non-binding document that serves as a precursor to a more formal agreement. It outlines the terms and conditions that the parties have agreed to for a specific project or business deal.

A letter agreement is typically used in situations where the parties are in the early stages of negotiation and want to establish a framework for the deal before investing too much time and resources into drafting a full agreement. It may also be used to clarify certain aspects of an existing agreement or to modify a contract that has already been signed.

While a letter agreement is not legally binding, it is still an important document that should be taken seriously. It sets the tone for the negotiations and can help ensure that both parties are on the same page before moving forward with a more formal agreement.

On the other hand, an agreement (also known as a contract or a formal agreement) is a legally binding document that outlines the rights and obligations of each party. It provides a detailed framework for the deal and includes specific provisions for things like payment, delivery, and dispute resolution.

Unlike a letter agreement, an agreement is enforceable in court and carries legal consequences if either party fails to uphold their end of the bargain. It is a more comprehensive document that should be carefully reviewed and negotiated before signing.

In summary, a letter agreement is a non-binding precursor to a more formal agreement, while an agreement is a legally binding document that outlines the specific details of a business deal. Both documents have their place in the negotiation process and should be used appropriately to ensure a successful outcome.