Table of Contents

Sr.No Topic Page No

1. Introduction 4
2. Contract 4
3. Agreement 4
4. Promise 5
5. Similarities between Agreement and Contract 5
6. Difference between Agreement and Contract 6
7. Explanation to All contracts are agreements but all
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agreements are not contracts
8. Conditions when agreements become contracts 7
9. Conclusion 10
10. References 11

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1. Introduction
Contracts have always been an important part of our lives, whether in the modern or business
world. Every person comes into a contract in their day to day lives. For example, before an
owner of the house rents his/her house to other people, hands over the agreement regarding
the house rent and gets the signatures of both parties.
In order to make a full-fledged contract, one has to pass through several stages as follows:
OFFERPROMISECONSIDERATIONAGREEMENTCONTRACT

2. Contract
Under Section 2(h) of the Indian Contract Act, 1872, an agreement enforceable by law is a
contract. It means those agreements that are enforceable by law are contracts while others are
not considered to be a contract. For eg: an agreement to sell a cycle may be a contract, but an
agreement to go to the movie may be a mere agreement not enforceable by law. To go to a
movie is a social agreement and social agreements are not enforceable by law.

As per Sir Fredrick Pollock1, every agreement and promise enforceable by law is a contract.
As per Anson, a contract consists of an actionable promise/promises. Every such promise
involves two parties; a promisor and a promisee, having common intention and of the
expectation as to the act or forbearance promised.
As per Salmond, Contract is an agreement creating and defining obligation between the 2 or
more parties.

3. Agreement
As per Section 2(e) of the Indian Contract Act 1872, Every promise and every set of promises
that forms the consideration for each other, is called as an agreement. This means that, when
there is an offer or a proposal from one party that gets accepted then it becomes a promise
and a promise from the two parties to one another is known as an agreement.
For eg: A promises to deliver his cycle to B and in return B promises to pay Rs. 1000 to A.
This is said to be an agreement between A and B.

The essentials to form an agreement:

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 1) Parties: There should be two or more parties to form or make an agreement. Parties
are very crucial element for an agreement. Without any party, the agreement cannot
be run.
2) Offer/Proposal [Section 2(a)]– An offer or proposal is the first thing for making an
agreement.
3) Acceptance [Section 2(b)] –When the offer is accepted unconditionally by the party
to whom it is put forth, then it amounts to acceptance.
4) Promise [Section 2(b)] – A proposal or an offer that gets accepted, becomes a
promise.
5) Consideration [Section 2(d)]– Consideration is the price paid for the promise by one
party to the other party. Consideration can be benefitted for one party and may be a
detriment to the other party.

The agreement can be formal, informal, written or oral but the condition is that the agreement
should be understandable.

4. Promise
Section 2(b) of the Indian Contract Act, 1872, defines the term “promise”. It provides: “when
one person to whom the proposal is made, signifies his assent thereto, then the proposal is
said to be accepted. A proposal, when accepted, becomes a promise”.

Thus, an ‘agreement’ is a bilateral transaction between two or more than two parties which
involves proposal or offer by one and acceptance of such proposal by the other. In other
words, it requires ‘plurality of persons’ because a single person cannot enter into an
agreement with himself.

As stated above, an agreement to become a contract must give rise to a legal obligation. If an
agreement is not enforceable by law. It is not a contract.

5. Similarities between Agreement and Contract2

 A contract is a specific formal type of agreement while agreement generally refers to
all types of agreements, whether they are legally bound or not.

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  Offer and acceptance are two essential elements in a contract or any other agreement
in general.
 Both contract and agreement involve two or more parties.

6. Difference between Agreement and Contract3

Contract Agreement
A contract is a specific formal and legal An agreement refers to an agreement
agreement reached between two or more between two or more parties
parties
Legally binding and enforceable in a court of Not all agreements are legally binding
law
Requirements of a contract are stricter and Requirements are not as strict and precise
more precise

7. Explanation to All contracts are agreements but all agreements are not contracts
All contracts are agreements:4
We know that when an agreement is enforceable by law, it is a contract. A contract is an
agreement that is enforceable by law. It is an agreement or set of promises giving rise to
obligations that can be enforced or are recognised by law. In order to become an agreement
into contract, it has to satisfy all the essentials of a valid contract as mentioned in Sec 10 of
the Indian Contract Act 1872.

Sec 10 of the Act says that, “All agreements are contracts if they are made by the free consent
of parties competent to contract, for a lawful consideration and with a lawful object, and are
not hereby expressly declared to be void”.

The essentials of a valid contract5:

1) There must be two parties
2) The agreement should be between the parties who are competent to contract
3) There should a lawful consideration
4) The object of the agreement must be lawful

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 5) There should be free consent between the parties
6) The agreement must not be one that has been expressly declared to be void.

All agreements are not contracts:6

An agreement is a set of promises. Sec 2(e) of the Indian Contract Act 1872 says, “Every
promise is a set of promises, forming the consideration for each other, is an agreement”. In an
agreement, there is a promise between the two parties. For eg: A promises to deliver his book
to B, and in return of B promises to pay Rs.1000/- to A. There is said to be an agreement
between A and B. After acceptance of the offer/proposal, it becomes a promise, promise is
the result of offer acceptance.
Thus, when there is a proposal/offer from the proposer and the acceptance of that proposal by
the propose it results in a promise. Promise and reciprocal promise from the promisor and
promisee form an agreement.
Hence, we can conclude only commercial agreements where parties are intending to shoulder
responsibility upon each other and when they are entering into an agreement keeping in mind
that in case of breach of agreement terms by one of the parties, the aggrieved party may go to
court against the party who breaches the terms and compel him by the process of law to pay
compensation as decided.

8. Conditions when agreements become contracts

The following conditions must be fulfilled to make an agreement, a contract:

1. Competent Parties
This condition is one of the essential elements, which states that the parties making or
entering a contract must be competent to each other.
According to Section 11 of the Indian Contract Act, of 1872, a person entering a contract is
competent to contract when:
 He has attained the age of majority i.e., 18 years of age.
A minor person who has not attained the age of 18 years entering into an agreement to make
a contract then it is void-ab-initio which means void from the beginning and hence cannot be
enforced. For eg: A boy who is 15 years of age entered into an agreement to sell a car to
another party then this agreement is void-ab-initio. This agreement was not enforced by law.
 Is of sound mind
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If a person is not in his/her state of mind or of an unsound mind while entering an agreement,
then the agreement is void. For eg: A person who signed an agreement regarding the property
of that person but was not in his state of mind as he was drunk and in a state of intoxication,
then the agreement is void.
 Is not expressly disqualified from contracting by the law
The agreement is void when a person at the time of entering into an agreement is disqualified
by law. For eg: X who was declared insolvent by the court and thus disqualified from
contracting, ordered by the court but still buys a house from the property dealer by making an
agreement the agreement is considered to be void.

2. Free consent of Parties

The second main essential is that all the parties should enter into a contract with free consent.
The consent can be either expressly by words – oral or written or impliedly by gestures or
surrounding circumstances. Section 14 of the Indian Contract Act, of 1872[8] has given the
definition of the term ‘Free Consent’ as “The consent is said to be free when it is not caused
by:
 Coercion (Section 15)
According to Section 15 of the Indian Contract Act, of 1872, — “Coercion” is the
committing, or threatening to commit, any act forbidden by the Indian Penal Code (1860) or
the unlawful detaining, or threatening to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into an agreement. Basically, it
includes unlawful detention of the property.
 Undue Influence (Section 16)
Section 16 of the Act defines the term “Undue Influence”. A contract is said to be induced by
“undue influence” where the relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that position to obtain an
unfair advantage over the other. ‘Undue’ means unnecessary or more than required and
‘influence’ means convincing the person to change his/her mind or will.
 Fraud (Section 17)
Fraud has been defined under Section 17 of the Indian Contract Act, of 1872, as the term
“Fraud” means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent with intent to deceive another party thereto of his agent,
or to induce him to enter into the contract: —

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 a) The suggestion, as a fact, of that which is not true, by one who does not believe it to
be true;
b) The active concealment of a fact by one having knowledge or belief of the fact;
c) A promise made without any intention of performing it;
d) Any other act fitted to deceive;
e) Any such act or omission as the law specially declares to be fraudulent.
This means that fraud amounts to any false claim, unintentional promise carrying it out,
active concealment, deceptive act, or any act which is declared fraudulent.
 Misrepresentation (Section 18)
Section 18 of the Indian Contract Act, of 1872 has defined the term ‘misrepresentation’ as
“The misrepresentation means, one party presenting the false representation of the facts
without any wrong intentions or to deceive the other party. It can be called an untrue
statement of a fact made by one party to affect the decision of the other party and thus
contract becomes void.
 Mistake (Section 20-22)
When one of the parties in the contract has given its consent to the contract under some kind
of mistake, misunderstanding, or misinterpretation, then the consent is said to have been
given by mistake. The mistake is of two types- Mistake of law and mistake of fact.

3. Lawful consideration and object

If any consideration or object is unlawful or violates any provision of law then such
agreement is unenforceable and is known as void. So, it is very important to note that the
consideration and objectification to the contract should be lawful and not violate any
provisions of law.
Under Section 23 of the Indian Contract Act, of 1872, the consideration and object of an
agreement are unlawful if it is:
 Forbidden by law
 Fraudulent
 Of such a nature that if permitted, would defeat the provisions of any law
 Involves and implies injury to person or property
 Regarded as immoral or opposed to public policy by the law
If any above-mentioned consideration or object is contained in an agreement, then such
agreement becomes void. For any purpose, the object or consideration should not be
unlawful.
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Section 24 of the Act says that if the consideration or object is wholly or partly unlawful to
the agreement then the agreement is unenforceable and becomes a void agreement.

4. The agreement should not expressly be declared to be void

Some contracts are there which are expressly declared null and void by the law and these
agreements are known as an unenforceable and void agreement in the eyes of law.
There are some sections under the Indian Contract Act, of 1872 deal with the agreements that
are expressly declared null and void:
 Agreements in restraint in marriage (Section 26)
 Agreements in restraint in trade (Section 27)
 Agreements in restraint of legal proceedings (Section 28)
 Uncertain agreements are void (Section 29)
 Agreements for a wager are void (Section 30)
 Agreements contingent on an impossible event (Section 36)
 Agreements to do impossible acts (Section 56)
If the above-mentioned subjects are contained in an agreement, then such agreement becomes
unlawful and void.

9. Conclusion7
“All contracts are agreements but all agreements are not contracts” this statement is
absolutely true and valid. The agreement has a wider concept than a contract and so the
agreement is the basis of the contract. The agreement first starts with an offer and ends with
the consideration and the contract needs to have lawful enforceability to run between both
parties. In case of any breach of the agreement by one party, then the aggrieved party has the
right to go to court against the guilty party and compel them to pay the compensation decided
by the court.
From the above statement, it is concluded that there is a direct and positive relationship
between contract and agreement in many significant ways. Such as, if an agreement is
enforceable by law, then it becomes a contract and if it is not enforceable by law, there is no
contract. This makes a broad sense, that all agreements are not contracts.

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 References
1) The Indian Contract Act, 1872, No. 9, enacted by Imperial Legislative Council, 1872
(India)

2) Abhay Kumar Pandey (Mar 12, 2019), https://blog.ipleaders.in/conditions-when-an-

agreements-becomes-a-contract/

3) Anuradha (Nov 23, 2021), https://pediaa.com/what-is-the-difference-between-

contract-and-agreement/

4) Law corner (Dec 8, 2022), https://lawcorner.in/all-contracts-are-agreements-but-all-

agreements-are-not-contract/

5) Ayush Menon, (Oct 1,2021) https://libertatem.in/blog/all-contracts-are-agreements-

but-all-agreements-are-not-contract-explain/