AGREEMENT & CONTRACT

All contracts are agreements but all agreements are not contract. What conditions have been laid down in Indian Contract Act, 1872, for an agreement to become a contract?

In this statement i.e., “All contracts are agreements but all agreements are not contract”, two words ‘agreement’ and ‘contract’ are very important and section 2(e) and 2(h) of the Indian Contract Act, 1872, defines the term ‘agreement’ and ‘contract’ respectively.

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. According to Indian Contract Act, 1872, an agreement does not arise on its own.

There are various steps which the parties have to take to make an agreement. Proposal is the initial step for making an agreement. If a person makes an offer to another person and that person to whom offer has been made accepts the offer, then the promise comes into existence and when promise is coupled with consideration, then an agreement comes into existence.

According to Indian Contract Act, 1872, an agreement is made by parties and if any of two or more persons want to make an agreement, they can make it by following the procedure laid down by the Indian Contract Act, 1872.

There are no legal regulations which the parties have to follow to make an agreement. But, if parties want to enter into a contract, then after making an agreement, they have to take one step ahead. Because, according to section 2(h) of the Indian Contract Act, 1872, only those agreements which are enforceable by law can be considered as contracts and section 10 of the Indian Contract Act, 1872, deals with the provisions of enforceability of an agreement.

If parties want to make a contract, then they will have to prove that parties are competent to make a contract and they have given their consent voluntarily to make a contract. Here competency of parties means parties must be major i.e., have attained age of 18 years and must be of sound mind i.e., capable to understand the legal consequences of their acts.

In the leading case of Mohiri Bibee vs. Dharmodas Ghosh, the Hon’ble court held that to make a valid contract, it is essential that all the parties must be major and if any of the parties to an agreement is minor, then that agreement will be considered void ab- initio.

According to section 10 of the Indian Contract Act, 1872, if the parties want to enter into a valid and binding contract, then they will have to prove that the object of an agreement is lawful and the consideration paid by the parties is also legal and valid and an agreement is not declared void by any law. If the party is able to prove all these essentials, then only an agreement can be considered as contract.

In the leading case of Brij Mohan vs. M.P.S.R.T. Corp., the Hon’ble court held that to make a valid contract, the object of an agreement and consideration paid by parties must be lawful.

So, if all these conditions of section 10 of the Indian Contract Act, 1872, are fulfilled, then only an agreement can be considered a valid contract, otherwise an agreement cannot be considered a valid contract. Hence, it can be said that all agreements are not contract but all contracts are agreements because contract is made from an agreement which is enforceable by law.