When it comes to the difference between agreement and contract, people often use the terms interchangeably. Agreements are formed when two or more persons agree on the same thing in the same sense. This state of the identity 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 gets 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. While a contract is also an agreement having enforceability in a court of law.
Definition Of Agreement and Contract
An agreement gets defined under section 2(e) of the Indian contract act 1872 while,
A contract gets defined under section 2(h) of the Indian contract act 1872.
According to section 2(e), an agreement gets defined as a promise or set of promises forming the consideration for each other and,
According to section 2(h), a contract gets defined as “an agreement enforceable by law is a contract”.
The main element of a contract is its enforceability.
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, when one person communicates a proposal to another person and 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 gets deemed to be made by the party offering the proposal.
Section 4 of The Indian contract act’s states the conditions when the communication of a proposal, acceptance and revocation gets deemed complete.
The completion of the communication of a proposal gets done when it comes to the person’s knowledge to whom it is made.
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 gets 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
There are some critical differences between an agreement and a contract. Let’s discuss here:-
- An agreement is an offer made by one party and acceptance by the other party with the consent on the same thing in the same sense while
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 entered between two parties either orally or by putting it down. At the same time, a contract needs to be put down and registered.
- In an agreement, the parties are not bound for the performance while
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 while
A contract consist of many ingredients which need to be satisfied to deem an agreement as a contract. These are:-
- Agreement
- 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 as it covers all types of agreements and contracts while,
The contract’s scope is narrower than an agreement as it covers only those agreements which are enforceable by law.
- The most basic difference between agreement and contract, which can get 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
Besides many differences between agreement and contract, There are also similarities between these two arrays. These are:-
- Proposal
In both an agreement and contract, one party must offer, also known as ‘proposal’ in simple terms. This offer needs to be accepted by the second party unconditionally to whom the offer is made.
- Acceptance
There must be acceptance by the party to whom the first party makes the offer. The acceptance of the offer must be unconditional.
Acceptance of the offer is essential in both the agreements and the contract.
It is not considered acceptance if the acceptance is made conditionally; it will be a cross-offer.
- Consideration
The offer and acceptance by the parties must be made in lieu of some consideration, and this consideration must be in a reasonable amount.
It should not be arbitrary or unreasonable. E.g.:- money, property or a promise to perform an act or refrain from doing an act.
Consideration gets defined under section 2(d) of the Indian contract act, 1872.
Conclusion
The difference between agreement and contract is many, but people often get confused between the two. Firstly, agreements are mainly informal, while contracts are formal. Agreements can get 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 under it.
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 to go to a court of law for the satisfaction of their claims and other parties as an injured party.
One should always enter into a contract to carry out any commercial transaction or services over a less stringent agreement that fails to protect parties against a breach of terms.
FAQs
What are the grounds for an agreement to be considered a valid contract?
An agreement gets considered a contract when made with the free consent of parties competent to contract, with a lawful object and for a lawful consideration and not expressly declared to be void.
An agreement in the restraint of marriage of minors is void or not?
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 restraint of trade or a business in which goodwill gets sold?
An agreement in restraint of trade or a business in which goodwill gets 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 is enforceable in a court of law which is also an exception to section 28 of the Indian Contract Act, 1872.
