All Contracts are Agreements but All Agreements are not Contracts
A contract plays a very important role in modern world, especially in Business World. In order to become a full fledged contract it needs to pass through several stages. The journey of a contract starts from an offer; an offer when gets accepted becomes promise, promise needs to back by consideration in order to become an agreement, now at last if an agreement is enforceable by law then it becomes Contract. From this one can have a fair idea why every contract is an agreement. Similarly, if an agreement is not enforceable by law then it won’t become contract. Hence all agreements are not contract.
This article gives a detailed overview on the given topic.
What is Contract?
Section 2(h) of the Indian Contract Act, 1872 says, “An agreement enforceable by law is a contract.” Briefly, Contract is a pack of promises which give rise to several obligations and those obligations are recognized by the law. It means a legal remedy is available in case of non performance. It is to be noted that all agreements cannot become contract i.e. only agreements which satisfy all the essentials mentioned in Section 10 of Indian Contract act, 1872 becomes contract. These essentials are discussed in later part of this article.
What is an Agreement?
Section 2(e) of the Indian Contract Act, 1872 says, “Every promise and every set of promises forming the consideration for each other is an agreement.” Here, promise flows from the sides. Promise has been defined in Section 2(b) of the Indian Contract Act, “When the person to whom proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes promise.”
In simple words, when a proposal is accepted it becomes promise and promise from the two parties to one another is known as an agreement.
Essentials needed for a valid contract
Section 10 of the Indian Contract Act, 1872 provides us with essentials for valid contract i.e. “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.”
From the given statement some essentials can be easily marked out which are necessary for valid contract. These essentials are discussed hereunder.
Parties should be competent to contract
The parties to the contract should be competent to each other. Section 11 of Indian Contract act, 1872 defines who are not competent to contract. This section provides us with three different categories, which are not competent to contract:
- Minor i.e. a person who has not attained the age of majority is not competent to contract.
- Unsound Mind i.e. a person who is of unsound mind cannot be a party to a contract. Section 12 of the Indian Contract Act, 1872 defines what is a sound mind required for making a valid contract.
- Disqualified from law i.e. a person who is disqualified from law cannot form a valid contract.
Lawful Consideration and Lawful Object
Section 23 of Indian Contract Act, 1872 says that every agreement which has unlawful consideration or Object is void. This section also provides with circumstances when object or consideration of an agreement is not unlawful. According to this section, Object and Consideration should not be forbidden by law; or is of such nature that it would defeat the provisions of law; or is fraudulent; or involves or implies injury to the person or property of another; or the court regards it as immoral, or opposed to public policy.
When something is forbidden by law then an agreement to do that is unlawful i.e. an agreement to commit a crime is unlawful.
If the object or consideration of an agreement is of such nature that, if it is not permitted, it would defeat the provisions of any law, such an agreement is void.
If the object or consideration of an agreement is to perform any fraudulent activity then also an agreement is void.
If the object or consideration of an agreement is to cause injury to the person or property of another, the agreement is unlawful and will not form a valid contract.
Similarly, if the court regards consideration or object of an agreement immoral or opposed to public policy then the agreement is unlawful and will be declared void by the law.
It is essential that all parties should enter into the Contract with free consent. According to section 14, consent is said to be free when it is not caused by Coercion (Section 15) or Undue Influence (Section 16) or Fraud (Section 17) or Misrepresentation (Section 18) or Mistake (Section 20, 21 and 22). If the consent is caused by any of the given factor then the consent is not said to be free and the contract is not a valid one. If the consent is caused by mistake then the agreement is void and in rest of all the cases the contract is voidable at the option the parties whose consent was so caused.
Not expressly declared to be void
In Indian Contract act 1872, there are some agreements which have been expressly declared void. It is to be noted that even if such agreements satisfies the conditions required for valid contract, they are not enforceable by the law. The list of agreements which have been declared void by the Indian Contract Act are Agreement in restraint of marriage (Section 26), Agreement in restraint of trade (Section 27), Agreement in restraint of legal Proceedings (Section 28), Agreement which is ambiguous and uncertain (Section 29), Agreement by way of wager (Section 30) and Agreement to do an impossible act (Section 56).
The journey from offer to agreement is quite easy in comparison to the journey from Agreement to Contract. An agreement needs to pass through several checks to become a contract. Conclusively we can say that all agreements are not enforceable by law therefore all agreements are not contract i.e. Some are enforceable and others are not enforceable. Only those agreements which satisfy the essentials provided in section 10 of the Indian Contract Act, 1872 are eligible to become contract.
Hence, it is now very clear that all Contracts are agreements but all agreements are not Contracts.
Author: RISHIKA VERMA,
AMITY UNIVERSITY MADHYA PRADESH, 1ST YEAR