What are Agreements and Contracts?

What is an Agreement?

When two or more people ‘agree’ on something in the ‘same sense’, they are said to be in agreement.

It is a fundamental concept in the field of law and business.

Essentials of an Agreement

In order for an agreement to be valid, it typically requires three essential elements: an offer, acceptance, and consideration.

Offer

An offer is a proposal made by one party to another, expressing a willingness to enter into a specific agreement. It must be communicated clearly and contain definite terms and conditions.

Acceptance

Acceptance is the unconditional agreement by the other party to the terms of the offer. It must be communicated to the party making the offer, and the acceptance must be in the same sense and in compliance with any specified methods or requirements.

Consideration

Consideration refers to something of value that is exchanged between the parties involved in the agreement. It can be in the form of money, goods, services, or a promise to do or refrain from doing something. Consideration is important to establish that the parties have bargained and reached a mutual agreement.

Once these essential elements are present the agreement is formed.

Note: Not all agreements are contracts, but all contracts are agreements!

What is a Contract?

A contract is an agreement that is legally enforceable. 

Section 10 of the Indian Contract Act mentions that all agreements are considered contracts if certain conditions are met. These essentials for contract include:

• Free Consent: The agreement must be made by parties who willingly and voluntarily enter into the contract without any coercion, undue influence, or misrepresentation.
• Competent Parties: The parties involved in the agreement must have the legal capacity to enter into a contract. This means they should be of sound mind and not be disqualified by law.
• Lawful Consideration: There must be a lawful consideration exchanged between the parties, which typically refers to something of value (e.g., money, goods, services) given in exchange for the promises made in the contract.
• Lawful Object: The purpose or objective of the agreement must be legal and not against public policy or prohibited by law.
• Not Expressly Void: The agreement must not be expressly declared void under the law.

What does “Legally Enforceable” Means?

It means that if one party fails to fulfil their obligations as outlined in the contract, the other party can seek legal remedies to enforce the terms of the agreement or seek compensation for any harm or losses suffered. 

The enforceability of contracts provides a level of security and reliability in business and legal transactions.

Important Points

An agreement can be either oral or written and involves a mutual exchange of promises between parties.

However, not all agreements give rise to legal obligations and are considered contracts. Some agreements are purely social or informal in nature.

The term “agreement” encompasses a broader scope, including both social agreements and legal agreements.

For example, if person A invites person B to a dinner and person B accepts the invitation, it is considered a social agreement rather than a legally binding contract.

Agreement v. Contracts

Here’s a table differentiating between agreements and contracts: