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*Prayag Kumar Paswan
Difference between Agreement and Contract

Basis of differences Contract
Agreement
Every promise and every set of Agreement enforceable by
promises, forming the consideration law.
Meaning for each other. (Agreement + Legal
(Offer + Acceptance) enforceability)
It’s a wider term including both legal It is used in a narrow sense

and social agreement. with the specification that
Scope contract is only legally
enforceable agreement.
It may not create legal obligation. An Necessarily creates a legal

agreement does not always grant obligation. A contract always
Legal obligation rights to the parties. grants certain rights to every
party.
All agreements are not contracts. All contracts are

Nature
agreements.
Essentials of a valid contract

In the term of Section 10 of the contract act 1872, what agreements are contracts.-“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.”
As given by Section 10 of Indian Not given by Section 10 but are also

Contract Act, 1872 considered essential
 Agreement/Offer & Acceptance  Two parties
 Free consent  Intention to create legal relationship
 Competency of the parties
 Lawful consideration
 Legal object
 Not expressly declared to be
void [as per Section 24 to 30
and 56]
Two Parties: One cannot contract with himself. A contract involves at least two parties- one
party making the offer and the other party accepting it.
1
Parties must intend to create legal obligations: There must be an intention on the part of
the parties to create legal relationship between them. Social or domestic type of agreements is
not enforceable in court of law and hence they do not result into contracts.
Example: A husband agreed to pay to his wife certain amount as maintenance every month
while he was abroad. Husband failed to pay the promised amount. Wife sued him for the
recovery of the amount. Here, in this case, wife could not recover as it was a social agreement
and the parties did not intend to create any legal relations. (Balfour v. Balfour)
Offer and Acceptance or an agreement: An agreement is the first essential element of a

valid contract. According to Section 2(e) of the Indian Contract Act, 1872, “Every promise
and every set of promises, forming consideration for each other, is an agreement” and
according to Section 2(b) “A proposal when accepted, becomes a promise”. An agreement is
an outcome of offer and acceptance.
Free Consent: Two or more persons are said to consent when they agree upon the same thing
in the same sense. This can also be understood as identity of minds in understanding the
terms viz consensus ad idem. Further such consent must be free. Consent would be
considered as free consent if it is not caused by
 Coercion (section15),
 Undue influence (section16),
 Fraud (section17),
 Misrepresentation (section18) or
 Mistake (section20, 21&22).
Capacity of the parties: Capacity to contract means the legal ability of a person to enter into
a valid contract. Section 11 of the Indian Contract Act specifies that every person is
competent to contract who
(a) is of the age of majority according to the law to which he is subject and
(b) is of sound mind and
(c) is not otherwise disqualified from contracting by any law to which he is subject.
A person competent to contract must fulfil all the above three qualifications.
Qualification (a) refers to the age of the contracting person i.e. the person entering into
contract must be of 18 years of age. Persons below 18 years of age are considered minor,
therefore, incompetent to contract.
Qualification (b) requires a person to be of sound mind i.e. he should be in his senses so that
he understands the implications of the contract at the time of entering into a contract. A
lunatic, an idiot, a drunken person or under the influence of some intoxicant is not supposed
to be a person of sound mind.
Qualification (c) requires that a person entering into a contract should not be disqualified by
his status, in entering into such contracts. Such persons are an alien enemy, foreign
sovereigns, convicts etc. They are disqualified unless they fulfil certain formalities required
by law.
Contracts entered by persons not competent to contract are not valid.
Lawful Consideration & object: It is referred to as ‘quid pro quo’ i.e. ‘something in return’.
The consideration and object of the agreement must be lawful. Section 23 states that
consideration or object is not lawful if it is prohibited by law, or it is such as would defeat the
provisions of law, if it is fraudulent or involves injury to the person or property of another or
court regards it as immoral or opposed to public policy.
Illustrations
2
A agrees to sell his house to B for 10,000 rupees. Here B’s promise to pay the sum of 10,000
rupees 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 the 10,000 rupees. These are lawful
considerations.
A, B and C enter into an agreement for the division among them of gains acquired or to be
acquired, by them by fraud. The agreement is void, as its object is unlawful.
Not expressly declared to be void: The agreement entered into must not be which the law
declares to be either illegal or void. An illegal agreement is an agreement expressly or
impliedly prohibited by law. A void agreement is one without any legal effects.
Sections 24-30 specify certain types of agreements which have been expressly declared to be
void. For example, an agreement in restraint of marriage, an agreement in restraint of trade,
etc have been expressly declared void.

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*Prayag Kumar Paswan

Difference between Agreement and Contract

It’s a wider term including both legal It is used in a narrow sense

It may not create legal obligation. An Necessarily creates a legal

All agreements are not contracts. All contracts are

Essentials of a valid contract

As given by Section 10 of Indian Not given by Section 10 but are also

Offer and Acceptance or an agreement: An agreement is the first essential element of a

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