All Contracts Are Agreements But All Agreements Are Not Contracts, there is no doubt that this statement is true. This statement has been propagated by Anson who emphasizes that there is no contract without an agreement. 

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All Contracts Are Agreements But All Agreements Are Not Contracts

Contracts are indispensable parts of our lives. In our daily life, we enter into several contracts, for example, buying books, vegetables, etc. 

This article aims to see the difference between agreement and contract and what are the essentials that are required for an agreement to become a valid contract. 

So let’s discuss this statement in detail with examples and cases.

All Contracts Are Agreements And Agreements Are Not Contracts explained below;

All Contracts Are Agreements But All Agreements Are Not Contracts: An Introduction 

All Contracts Are Agreement But All Agreements Are Not Contract, before criticizing this statement, we must know the exact meaning of the two important terms i.e. contract and agreement in contract/business law.

The definition of the contract and agreement of contract is defined under the Indian Contract Act, 1872.

Defintion of Contract

The definition of a contract is provided under section 2(h) of the Indian Contract Act, 1872, as “An agreement enforceable by law is a contract”.

As per this definition, we find that the contract essentially needs two elements, these are:

  1. An agreement
  2. Legal Enforceability

Example: X promises to Y to sell his horse for Rs.100,000 and B promises to buy a horse at that price.

Similarly, Sir Fredrick Pollock has defined the contract, “Every agreement and promise enforceable at law is a contract”.

Anson has defined a contract as “A contract consists of an actionable promise or promises. Every such promise involves two parties, a promisor and a promisee, an expression of the common intention and of expectation as to the act or forbearance promised”.

Salmond has defined a contract act as “Contract is an agreement creating and defining obligation of the contracting parties.”

In other words, we can say that a contract is an agreement which is enforceable by the law of the land.

Agreement 2(e) + Enforceable by law 2(j) = Contract 2(h).

OR

Legally Enforceable Agreement = Contract

Definition of Agreement

The definition of an agreement has been provided under section 2(e) of the Indian Contract Act, agreement in contract law is defined as “Every promise and set of promises forming the consideration for each other is an agreement”.

The agreement for the contract is a promise or set of promises which form the consideration for each other. This means an agreement is made of promise and consideration.

Promise [Sec. 2(b)] + Consideration [Sec. 2(d)] =Agreement [Sec. 2(e)]

OR

Offer [Sec. 2(a)] + Acceptance [Sec. 2(b)] = Consideration [Sec. 2(d)]

All Contracts are Agreements

All contracts are agreements? is this statement is true? Let’s see, to constitute a valid contract, it is essential to have an agreement and without an agreement, there is no contract. This means, that before the existence of the contract there should exist an agreement.

All Contracts are agreements as per the formation of a contract, there is no contract without an agreement. Without an agreement, a contract is never formed. 

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According to Anson, every contract is made up of an agreement, which means every contract is an agreement. For example, “where there is a cloud of smoke there is fire, without fire there cannot be smoke.”

Just as fire gives birth to smoke, an agreement gives birth to a similar contract. These are examples of all contracts are agreements.

All Agreements are Contracts?

All agreements are contracts? true or false? The answer is all agreements are not contract examples.

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As stated above, an agreement to become a valid contract must give a rise to legal enforceability. If an agreement is incompetent in creating a legal obligation, then it is not a contract. Thus an agreement is a wider term than a contract.

As per the Venn diagram, the outer circle is an agreement and when the agreement is enforceable by the law then it becomes a contract i.e. inner circle. In contract law, some contracts are enforceable on the part of the one contracting parties and not the other party has the option to enforce the contract, such contracts are known as voidable contracts. And, the red circle is about the voidable contracts.

As you can see in the diagram, the voidable contracts can be either valid contracts or void contracts. The red circle shows that they can be valid or void contracts. The voidable contracts are provided under sections 15 to 22 of the Indian Contract Act, 1872

To form a contract from an agreement, the agreement must fulfil some conditions and essential elements required for the formation of valid contract examples.

So, all agreements are contracts is a false statement.

What Agreements Are Contracts

Section 10 of the Indian Contract Act, 1872 provides, “All agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and not hereby declared to be void.”

After reading sec.10 of the Indian Contract Act, we can get the idea of when an agreement becomes a contract.

As per section 10 of the contract act, here, all the agreements are contracts if they are made by;

1. Free consent
2. Competent Parties
3. Lawful Consideration and Object
4. Not expressly declared to be void

When the above-required elements are fulfilled then the agreement can be enforceable and becomes a contract.

Conditions When Agreement Becomes Contract

An agreement becomes a contract when the following conditions are fulfilled;

1. Free Consent

The parties should enter into a contract with their free consent. There should not be any external factors or external forces on the parties to enter into a contract.

Section 14 of the Indian Contract Act, defines the term ‘Free Consent’ as “The consent is said to be free when it is not caused by’;

a) Coercion (Sec.15)
b) Undue Influence (Sec.16)
c) Fraud (Sec. 17)
d) Misrepresentation (Sec. 18)
e) Mistake (Sec. 20-22)

a) Coercion (Sec.15)

Coercion has been defined under section 15 of the Indian Contract Act, 1872 as “The Coercion is the committing, or threatening to commit, or any act which is forbidden by the Indian Penal Code, 1860 or unlawful detaining or threatening to detain any property, to the prejudice of any person to enter into an agreement.”

b) Undue Influence (Sec.16)

The undue influence has been defined under section 16 of the Indian Contract Act, 1872 as “A contract is said to be induced by the undue influence when the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other”.

c) Fraud (Sec. 17)

Fraud has been defined under section 17 of the Indian Contract Act, 1872 as the term fraud includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent with intent to deceive another party or his agent or to induce him to enter into the contract;

i) The suggestion, which is not true, by one who does not believe it to be true.
ii) The active concealment of a fact by one having knowledge of the fact or belief of the fact.
iii) A promise made without any intention of performing it.
iv) Any other act or omission fitted to deceive.
v) Any such act or omission as the law specially declares to be fraudulent.

d) Misrepresentation (Sec. 18)

The misrepresentation has been defined under section 18 of the Indian Contract Act, 1872 as “The misrepresentation means, one party presenting the false representation of the facts without any wrong intentions or to deceive the other party

e) Mistake (Sec. 20-22)

When one of the parties in the contract has given its consent to the contract under some kind of mistake,  misunderstanding or misinterpretation, then the consent is said to have been given by mistake.

2. Competent Parties to Contract

According to section 10, the parties entering into a contract must be competent. It is one of the essential elements given in section 10 of the Act.

This means every person is competent to the contract who has attained the age of majority, is of sound mind and is not disqualified by law from entering into a contract.

As per section 11 of the Act, the competent person to a contract is a person who is the;

  1. Age of majority (i.e. above 18 years of age),
  2. Sound mind persons, and
  3. The person who is not disqualified by the law to enter into a contract.

Thus, a minor, unsound mind person or any person who is disqualified by law from contracting is not a competent person for the contract.

3. Law Consideration and Lawful Object (Sec. 23 to 30)

The consideration and object of the contract should not be unlawful and do not violate any provision of the law of land. If any consideration or object violates any provision of law then such agreement is unenforceable and it is void.

As per section 23 of the Indian Contract Act, 1872, the consideration and object of an agreement are lawful, unless;

i) it is forbidden by the law
ii) is fraudulent
iii) is of such in nature that if it permitted, it would defeat the provisions of any law.
iv) implies or involves injury to the person or property of another.
v) is immoral or opposed the public policy

Example: A promises to give Rs 10,000 to B without any consideration, it will be a void agreement.

The object and consideration should not be unlawful. Any unlawful thing can be made an object or consideration unlawful in a contract. For every agreement in which the object or consideration is not lawful then the agreement is a void agreement.

According to section 24 of the Indian Contract Act, if the consideration or object is wholly or partly unlawful, the agreement is not enforceable and becomes void.

Example: If A wants to buy B’s bike for less amount, B won’t sell it. Then A kidnapped B’s daughter and forced B to sell the bike for less price.

4. Not Expressly Declared to be Void

If an agreement is expressly declared null and void by the law. Such agreements are void and unenforceable. Section 26 to 30 of the Indian Contract Act deals with the agreements that are expressly declared void. These are;

  1. Agreements in restraint of marriage (Sec. 26)
  2. Agreements in restraint of trade (Sec. 27)
  3. Agreements in restraint of proceedings (Sec. 28)
  4. Uncertain agreements are void (Sec. 29)
  5. Agreements for a wager are void (Sec. 30)

Conclusion

In a nutshell, an agreement is the basis of a contract. An agreement starts from an offer and ends on consideration of its enforceability. Due to this, an agreement’s breach does not give rise to any legal remedy for the aggrieved party. This concludes that there can be agreements that are not contracted but there can be no contracts that are not agreements.

Referred Books:

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