Punjab group of Colleges Khanpur

Assignment: Business Law

Submitted to: Muhammad Yousaf Faridi

Submitted by: Rabia Iqbal

Roll no: 5

Degree: ADP (A&F

Discuss all contracts are agreements but
all agreements are not contracts.

INTRODUCTION:
No doubt it is a valid and true statement.
Before critically discussing the statement, we must know the
exact and basic meanings of the two terms contract and
agreement in the context of business law. For understanding
the meaning, we have to go to the contract act 1872 that is
applicable in subcontinent.

All contracts are agreements:

For a Contract to be there an agreement is essential; without
an agreement, there can be no contract. As the saying goes,
“where there is smoke, there is fire; for without fire, there can
be no smoke”. It could will be said, “where there is contract,
there is agreement without an agreement there can be no
contract”. Just as a fire gives birth to smoke, in the same way,
an agreement gives birth to a contract.
Definition of contract
” An agreement enforceable by law is a contract.”
A contract therefore, is an agreement which creates a legal
obligation i.e., a duty enforceable by law.

Example;
A promises to sell a horse to B for Rs.100,000, and B promises
to buy horse at that price

All agreements are not contracts

As stated above, an agreement to become a contract must give
rise to a legal obligation. If an agreement is incapable of
creating a duty enforceable by law. It is not a contract. Thus an
agreement is a wider term than a contract.
Agreements of moral, religious or social nature e.g., a promise
to lunch together at a friend’s house or to take a walk together
are not contracts 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
On the other hand, legal agreements are contracts because
they create legal relations between the parties.

Definition of agreement
An agreement is a form of cross reference between different
parties, which may be written, oral and lies upon the honor of
the parties for its fulfillment rather than being in any way
enforceable.

Essentials of valid contract:

Thus an agreement becomes a contract when at least the
following conditions are satisfied.

1. Offers and Acceptance

2. Legal Relationship
3. Lawful Consideration
4. Capacity of Parties
5. Free Consent
6. Lawful Objects
7. Writting and Registration
8. Certainity
9. Possibility of Performance
10. Not Expressly Declared Void

1. Offers and Acceptance

For an agreement there must be a lawful offer by one and
lawful acceptance of that offer from the other party. The term
lawful means that the offer and acceptance must satisfy the
requirements of Contract Act. The offer must be made with the
intention of creating legal relations otherwise, there will be no
agreement.

Example:
A say to B that he will sell his cycle to him for Rs.2000. This is an
offer. If B accepts this offer, there is an acceptance.
2. Legal Relationship
The parties to an agreement must create legal relationship. It
arises when parties know that if one for the failure of a
contract. Agreements of a social or domestic nature do not
create legal relations and as such cannot give rise to a contract.
It is presumed in commercial agreements that parties intend to
create legal relations.

Example:
A father promises to pay his son Rs.500 every month as pocket
money. Later, he refuses to pay. The son cannot recover as it is
a social agreement and does not create legal relations.

3. Lawful Consideration
The third essential of a valid contract is the presence of
consideration. Consideration is “something in return.” It may be
some benefit to the party. Consideration has been defined as
the price paid by one party for the promise of the other. An
agreement is enforceable only when both the parties get
something and give something. The something given or
obtained is the price of the promise and is called consideration.

Example:
A agrees to sell his house to B for Rs.10 Lac is the consideration
for A’s promise to sell the house, and A’s promise to sell the
house is the consideration for B’s promise to pay Rs.10
Lac. These are lawful considerations.
4. Capacity of Parties:
An agreement is enforceable only if it is entered into by parties
who possess contractual capacity. It means that the parities to
an agreement must be competent to contract. According to
Section 11, 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. A contract by a person of unsound mind is void ab-
initio (from the beginning).

If one of the parties to the agreement suffers from minority,

madness, drunkenness etc., the agreement is not enforceable
at law, except in some cases.

Example:
M, a person of unsound mind, enters into an agreement with
S to sell his house for Rs.2 lac. It is not a valid contract
because M is not competent to contract.

5. Free Consent:
It is another essential of a valid contract. Consent means that
the parties must have agreed upon the same thing in the same
sense. For a valid contract it is necessary that the consent of
parties to the contact must be free.

Example:
A compels B to enter into a contract on the point of pistol. It
is not a valid contract as the consent of B is not free.
6. Lawful Objects:
It is also necessary that agreement should be made for a lawful
object. The object for which the agreement has been entered
into must not be fraudulent, illegal, immoral, or opposed to
public policy or must not imply injury to the person or property
of another. Every agreement of which the object or
consideration is unlawful is illegal and the therefore void.

Example:
A promise to pay B Rs.5 thousand if B beats C. The agreement is
illegal as its object is unlawful.

7. Writing and Registration:

According to Contract Act, a contract may be oral or in writing.
Although in practice, it is always in the interest of the parties
that the contract should be made in writing so that it may be
convenient to prove in the court. However, a verbal contract if
proved in the court will not be considered invalid merely on the
ground that it not in writing. It is essential for the validity of a
contact that it must be in writing signed and attested by
witness and registered if so required by the law.

Example:
A Verbally promises to sell his book to y for Rs.200 it is a valid
contract because the law does not require it to be in writing.
8. Certainity:
According to Section 29 of the Contract Act, “Agreements the
meaning of which are not certain or capable of being made
certain are void.” In order to give rise to a valid contract the
terms of the agreement, must not be vague or uncertain. For a
valid contract, the terms and conditions of an agreement must
be clear and certain.

Example:
A promised to sell 20 books to B. It is not clear which books A
has promised to sell. The agreement is void because the
terms are not clear

9. Possibilty of Performance:
The valid contract must be capable of performance section 56
lays down that. “An agreement to do an act impossible in itself
is void.” If the act is legally or physically impossible to perform,
the agreement cannot be enforced at law.

Example:
A agrees with B to discover treasure by magic, the agreement
is not enforceable.
10. Not Expressly Declared Void:
An agreement must not be one of those, which have been
expressly declared to be void by the Act. Section 24-30 explains
certain types of agreement, which have been expressly
declared to be void. An agreement in restraint of trade and an
agreement by way of wager have been expressly declared void.

Example:
A promise to close his business against the promise of B to pay
him Rs.2 lac is a void agreement because it is restraint of trade.

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