All Contracts Are Agreements but All Agreements Are Not Contracts: Explained Under the Indian Contract Act, 1872

Introduction

The relationship between the agreement and contract is one genus (agreement) and other one is species (contract). When an agreement is legally enforceable it becomes contract. Agreement is a broader term representing a mutual understanding or meeting of minds between parties whereas a contract is a special type of agreement that means all the legal requirements to be enforced in a court of law.

Any agreement that successfully crosses the trust hold of legal enforceability by satisfying all the condition of a valid contract in the Indian contract act 1872 becomes a contact all other remains mere agreements.

Definition

The term agreement is defined under section 2(e) of Indian contract act states “every promise and every set of promises forming the consideration for each other is an agreement” in simple term agreement=offer+acceptance+consideration

whereas the term contract is defined under section 2(h) as “an agreement enforceable by law is a contract”

contract=agreement+enforceability by law

Essential when agreement become contract

• Intention to create legal relationship
• Lawful consideration quid pro quo
• Competent parties must be legally capable sound mind no disqualified by law and attained then age of majority.
• Concern must be genuine not caused by undue influence fraud misrepresentation mistake or coercion
• Lawful object and consideration
• Not expressly declared void
• The purpose of the agreement must not be forbidden by law immoral or opposed to public policy
• Term must be clear, absolute, definite and not vague

Cases

Balfour versus Balfour 1919

In this case it was held that agreement of a domestic or social nature does not create legal relationship and therefore they are not contract, even though there was an agreement between husband and wife but there was no intention to create legal relations so it was not enforceable which shows all agreements are not contracts unless legally enforceable.

Lalman Shukla VS Gauri Dutt 1930

In this case it was held at if there was no knowledge of an offer then no contract can be created, Acceptance must be made with knowledge of the offer and must be communicated to offeror, if not than it is only an agreement without enforceability not a contract which shows that agreement without valid acceptance is not a contract.

Mohori bibee v. Dharmodas Ghosh

Agreement with minors are considered void, a minor is not a competent party as per section 11 of Indian contract act and any agreement with a minor is void ab initio and cannot become a contract we show that competency of parties is essential for enforceability.

Conclusion

Indian contract act 1872 clearly distinguish between agreement and contract and agreement becomes a contract only when it fulfils all essential legal requirement while every contract must begin as an agreement but only those agreement which are legally enforceable only attains a status of contract therefore the statement “All Contracts Are Agreements but All Agreements Are Not Contracts: Explained Under the Indian Contract Act, 1872” reflects the core principle of contract formation under Indian contract act.