All contracts are agreements but all agreements are not contracts

This Blog is written By Mr. Rajdeep Singh Chauhan Student of Lloyd Law College, Greater Noida.

According to Salmond-

“A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”

According to Pollack-

“Every agreement and promise enforceable at law is a contract”

Section 2(h) of the Indian Contract Act, 1872 clearly defines that “An Agreement enforceable by Law is a Contract”, it means such Agreements which is enforceable by Law will only consider as a Contract and apart from that those such Agreements which is not enforceable by law, could not consider as Contract. And such Section talk about only a particular Agreement which contains legal enforceability is a Contract, so now we can say all Contracts are Agreements. It is first and very important the aspect that clearly stated that all contracts are agreements but all agreements are not contracts.

There are two important elements of the Contract

1.      Agreement

According to Section 2 (e) of the Indian Contract Act 1872, “Every Promise and every set of promises, forming the consideration for each other, is an Agreement”. The word The promise is defined under Section 2 (b) of Such Act in these words “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise”. An Agreement is the meeting of minds or a mutual understanding between two or more persons about their reciprocal rights and duties regarding past or future performances as conditions of their Agreement. Therefore every Agreement is a composition of a proposal made by the first party and its acceptance from the second party.

2.      Agreement should be enforceable by Law

Agreements of moral, religious, or social nature e.g., a promise to dinner together at a friend's house or to take a ride together are not contracted because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences. The agreement may or may not create a legal obligation, but for the purpose of a contract must have legal binding. Section 2 (h) of the Indian Contract Act, 1872 clearly stated that “An Agreement enforceable by law is a Contract”. So for the purpose of fulfilling the conditions of a Contract, An Agreement must have legally enforceable otherwise it will be only consider as an Agreement.

Essential elements of a valid contract

A contract is an official agreement. It could be written or oral both. Contracts can be written by using formal or informal terms or entirely spoken or verbal. Some important elements which validate to a Contract-

1.      Free Consent

‘Consent’ means that the parties must have agreed upon the same thing in the same sense (Sec. 13 of the Indian Contract Act). According to Section 14 of the Indian Contract Act 1872, we only can say that Consent is free when there is an absence of coercion, undue influence, fraud, misrepresentation, and a mistake from Consent. The other party can either reject or accept the contract, if the agreement is induced by mutual mistake which is material to the Agreement; it would be void (Sec. 20 of Indian Contract Act, 1872).

2.      Capacity of Parties

If we go through Section 11 of the Indian Contract Act 1872 then we understand that the parties to an agreement must be competent to contract; otherwise, it cannot be enforced by a court of law. In order to be competent to contract the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject.

3.      Lawful Consideration

Consideration in a contract would mean the other person would be giving back something in return for the proposal of an offer. It would be considered as an exchange which would be made between the promisee and promisor. There should be lawful consideration in a contract so that it would be legally valid. And the court would find that each party's consideration has sufficient value.

4.      Lawful object

For the formation of a valid contract, it is also necessary that the parties to an agreement must agree for a lawful object. The object, for which the agreement has been entered into, must not be fraudulent, illegal, and immoral, opposed to public policy or must not imply injury to the person otherwise the agreement becomes void.

5.      Not expressly declared void

The agreement must not have been expressly declared to be void under this Indian Contract Act of 1872. There are some sections under this Act that declared to be void as section 24 to section 30 specifies certain types of agreements that have been expressly declared to be void.

Kinds of Contract

The contract can be divided into three important basis-

1.      Enforceability

On the basis of enforceability, the contract can be divided into the following five categories.

i.                    Valid Contract

A valid contract is an agreement when it enforceable by law. We can say an agreement is a valid contract when all the essential legal elements of the contract are fulfilled.

ii.                  Void Contract

A contract when it is not enforced by Law is called void. When a contract is made but after its formation, it becomes void due to certain reasons like the impossibility of performance, subsequent the illegality, rejection of a voidable contract, etc.

iii.                Voidable Contract

When an agreement is enforceable by law at the option of one of the parties to the agreement, but not at the option of another party of the contract, is called a voidable contract (Section 2 (i) of Indian Contract Act).

iv.                Unenforceable Contract

When a contract is not enforceable in the court of law due to some technical defects like the absence of writing, registration of the contract, stamp missing, or due to some other defects.

v.                  Illegal Agreement

When the performance of any Act is forbidden by the law, such an agreement is called an illegal contract. Such an agreement can never be considered as a contract.

2.      Formation

According to the formation, a contract can be divided into two kinds of

i.                    Express Contract

An agreement is only called express when it is made by words. So we can say that a promise made in words is called an express Contract.

ii.                  Implied Contract

An implied contract can be made other than words. An implied promise results in an implied contract.

3.      Performance

According to performance, there are the following types of contract

i.                    Executed Contract

Executed contract means when both the parties have completely performed their obligation. Means nothing is left to be done by all the parties under the contract.

ii.                  Unilateral Contract

Under this contract, only one party makes a commitment. Under this only one party is bound to perform while the other party chooses to be bound by it.

iii.                Bilateral Contract

Under this Contract when a contract is made all the parties to the contract are bound to perform. Under this, all the parties have to perform their obligation.

In a nutshell, an agreement is the basis of a contract and a contract is a structure constructed on this basis. An agreement starts from an offer and ends on consideration while a contract has to achieve another milestone that is legally enforceable. Due to this, breach of an agreement does not give rise to any legal remedy to the aggrieved party while breach of contract provides a legal remedy to the aggrieved party against the guilty party. Thus finally we can say that all contracts are agreements but all agreements are not contracts.