People often use the terms agreement and contract interchangeably. Agreements are formed when two or more persons agree on the same thing in the same sense. This consensus of minds is called agreement.
The act of agreeing upon the same thing in the same sense is called consensus ad idem. ‘Consensus ad idem’ is a Latin term.
A contract is defined as ‘an agreement enforceable by law’.
In simple terms, a contract is a legally enforceable agreement for performing an act or omission.
An agreement incorporates a promise or set of promises or an act of agreeing on the terms and conditions for a course of action. A contract is also an agreement having enforceability in a court of law.
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Definition Of Agreement and Contract
An agreement is defined under Section 2(e) of the Indian contract act 1872.
A contract is defined under Section 2(h) of the Indian contract act 1872.
According to Section 2(e), an agreement is defined as a promise or set of promises that form the consideration for each other and,
According to Section 2(h), a contract is defined as ‘an agreement enforceable by law is a contract’.
A contract is enforceable
If a contract ceases to be enforceable by law, it becomes void when it ceases to be enforceable as per Section 2(j) of the act.
In simple terms, a contract is a condition when a person communicates a proposal to another person and the other person accepts the proposal. In a reasonable frame of time, it becomes an agreement.
The other person can revoke the proposal either by not replying unless clearly stated that his failure to respond will be deemed an acceptance or revoke it too by not accepting the proposal through communication.
As per Section 3 of the Indian contract act 1872, the proposal, acceptance, and revocation can be made by an act or omission if it is deemed to be made by the party offering the proposal.
Section 4 of The Indian Contract Act states the conditions when the communication of a proposal, acceptance, and revocation is deemed complete.
The communication of a proposal is deemed complete when the person to whom it is made understands it.
The completion of the communication of an acceptance is complete,
- Against the proposer when it is put transmission’s due course and becomes out of the acceptor’s power,
- Against the acceptor when it comes to the prosper’s knowledge.
The communication of the revocation is complete,
- Against the person making the revocation, the revocation is stipulated to be made when put in the course of transmission to the person.
- Against the person to whom it made when the revocation comes to his knowledge
Differences between agreement and contract
Agreement and a contract differ in the following aspects:
- An agreement is an offer made by one party with acceptance by the other party on some stipulations. A contract is an agreement between two or more people on particular terms and conditions in lieu of some consideration and is legally enforceable.
The Indian Contract Act, 1872, Section 2(e), defines an agreement.
The Indian contract act, 1872, Section 2(h) provides the definition of a contract.
- An agreement can be between two parties either orally or by putting it down. At the same time, a contract should be put on paper and registered.
- In an agreement, the parties are not bound for the performance, whereas in a contract, the parties are legally bound to perform their obligations or omission as per the terms and conditions of the agreement
- An agreement is one of the ingredients of the contract, whereas a contract consists of many ingredients that should be satisfied to deem an agreement as a contract. We have the following:
- Lawful consideration
- Lawful purpose
- Lawful object
- Capacity to contract
- Consent to contract
- Not expressly declared to be void.
- The scope of an agreement is broad and covers all types of agreements and contracts, whereas scope of the contract is narrower than an agreement because it covers only those agreements that are enforceable by law.
- The most basic difference between agreement and contract that can be deduced from the above points is that every agreement is not a contract. At the same time, every contract is an agreement.
Similarities between agreement and contract
Agreement and contract have the same similarities:
In both an agreement and contract, one party must make an offer, also known as ‘proposal’. This offer should be accepted by the second party unconditionally to whom the offer is made.
There must be acceptance by the party to whom the first party makes the offer. The acceptance of the offer should be unconditional.
Acceptance of the offer is essential in both the agreements and the contract.
If the acceptance is made conditionally, then it is considered to be a cross-offer.
The offer and acceptance by the parties must be made in lieu of some consideration, and this consideration should be of a reasonable amount.
The offer should not be arbitrary or unreasonable, for example, money, property or a promise to perform an act or refrain from doing an act.
Considerations are defined under Section 2(d) of the Indian Contract Act, 1872.
Agreement and contracts differ considerably. However, people are typically confused between the two concepts. First, agreements are informal, whereas contracts are formal. Agreements can be formed between two parties without any legal enforceability. The parties cannot seek courts to redress disputes arising out of failure to perform the terms and conditions mentioned.
Besides being an agreement, a contract has other elements to satisfy to become a contract. The advantage of a contract over an agreement is that it is legally enforceable, and the parties can seek a court of law for the satisfaction of their claims and other parties as an injured party.
An individual should always enter into a contract to perform any commercial transaction or services over a less stringent agreement that cannot protect parties against a breach of terms.
What are the grounds for an agreement to be considered a valid contract?
An agreement is considered a contract when made with the free consent of parties competent to contract to accomplish a lawful objective and lawful consideration and not expressly declared to be void.
Is an agreement in the restraint of marriage of minors void?
An agreement in restraint of marriage is void, but it will not be considered a void agreement in the case of minors.
What is the status of an agreement in the restraint of trade or a business in which goodwill is sold?
An agreement in restraint of trade or a business in which goodwill is sold is a valid contract and an exception to section 27 of the act.
If an agreement in restraint of legal proceeding is void, then what is the status of an agreement?
An agreement for referring a dispute to arbitration is a valid contract and enforceable in a court of law which is also an exception to Section 28 of the Indian Contract Act, 1872.