There is an old statement, “All contracts are an agreement, but all agreements are not contracts” which implies that agreement is different from a contract. Without knowing the fact, we enter into hundreds of agreement daily, which may or may not bound us legally. Those which bind us legally are known as a contract, while the rest are agreement.
In this way, the Indian Contract Act came into force, which was enacted by the British Government because at that time they were ruling on India. The act gives a base to all the agreements and contracts. This act was applicable in all over the country except in the state of Jammu & Kashmir.
Now let’s understand the basic and special differences between Agreement and Contract concerning the Indian Contract Act, 1872.
Definition of Agreement
When a person (promisor) offers something to someone else (promisee), and the concerned person accepts the proposal with equivalent consideration, this commitment is known as the agreement. When two or more than two persons agree upon the same thing in the same sense (i.e. Consensus ad idem), this identity of minds is agreement. The following are the types of agreement are as under:
- Wagering Agreement
- Void Agreement
- Voidable Agreement
- Implied Agreement
- Express Agreement
- Conditional Agreement
- Illegal Agreement.
It can also be defined as the contract which lacks enforceability by law is known as the agreement.
Definition of Contract
To be precise, a legally enforceable agreement for doing or not doing an act is known as a contract. A contract must contain these elements: Offer and Acceptance, Adequate and Unconditional Consideration, Free Consent, Capacity, Lawful object, Certainty, Intention of creating legal obligations, and the Agreement should not be declared void.
The contract may be oral or written. The major types of contract are as under:
- Void Contract
- Voidable Contract
- Valid Contract
- Unilateral Contract
- Bilateral Contract
- Express Contract
- Tacit Contract
- Contingent Contract
- Implied Contract
- Executed Contract
- Executory Contract
- Quasi Contract etc.
Key Differences Between Agreement and Contract
The points given below are substantial so far as the difference between agreement and contract is concerned:
- Promises and commitments forming consideration for the parties to the same consent is known as an agreement. The agreement, which is legally enforceable is known as a contract.
- The agreement is defined in section 2 (e) while a Contract is defined in section 2 (h) of the Indian Contract Act, 1872.
- The major elements of an agreement is the offer and its acceptance by the same person to whom it is made, for adequate consideration. Conversely, the major elements of an agreement are agreement and its enforceability by law.
- Every agreement is not a contract, but every contract is an agreement.
- An agreement needs not to be given in writing, but the contracts are normally written and registered.
- The agreement does not legally bound any party for the performance. In the Contract, the people are legally bound to perform their part.
- The scope of the agreement is wider than a contract because it covers all types of agreement as well as contract. On the contrary, the scope of a contract is relatively narrower than an agreement because it covers only that agreement which have legal enforceability.
- Mohan and Rishabh decided to go for lunch on Sunday. Mohan did not come for lunch, and this resulted in the waste of Rishabh’s time. Now Rishabh cannot compel Mohan for the damages as the decision to go for the lunch is not a contract but a domestic agreement.
- Varun promises his younger brother Anuj to pay his debts, and the agreement was in writing as well as registered. This is a valid agreement and can be enforceable.
At the beginning of this article a question is asked whose answer is here, i.e. only the legally enforceable agreements are contracted means they must have a consideration, a lawful object, the parties makes their consent freely, they are competent to contract, and the agreement is not declared void. If any one of the above conditions does not satisfy, the agreement will cease to become a contract. Therefore, it can be said that all agreements are not contracts.