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

Question: All contracts are agreements, but all agreements are not contracts. What conditions have been laid down in the Indian Contract Act for an agreement to become a contract? [HJS 2000, Gujarat JS 2020]

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Answer

Sir Fredrick Pollock has defined the word “Contract” as: “Every agreement and promise enforceable at law is a contract”.

A contract is an agreement; an agreement is a promise and a promise is an accepted proposal. Thus every agreement, in its ultimate analysis, is the result of a proposal from one side and its acceptance by the other.

When does the agreement become a contract?

As per section 2(e) of the Indian Contract Act, 1872: “Every promise and every set of promises, forming the consideration for each other, is an agreement”.

According to Section 2(h) of the Act: An agreement is regarded as a contract when it is enforceable by law. In other words, an agreement that the law will enforce is a contract. The conditions of enforceability are stated in Section 10. According to this section, an agreement is a contract when it is made for some consideration, between parties who are competent, with their free consent and for a lawful object.

Every contract is an agreement, but every agreement is not a contract. An agreement becomes a contract when the following conditions are satisfied:

(1) There is some consideration for it. [Ss. 2{d) and 25]

(2) The parties are competent to contract.’ [Ss. 11 and 12]

(3) Their consent is free. [Ss. 13-22]

(4) Their object is lawful. [Ss. 23-30]

It means only those agreements which are enforceable by law are contracts and others are not. For example, an agreement to sell a pen may be a contract, but an agreement to go to the dinner by the husband may be a mere agreement not enforceable by law. To go to dinner as promised by husband if his wife cooks good food is a social agreement and social agreements are not enforceable by law.

But where, A promises to deliver his car to B, and in return, B promises to pay 2 Lakhs to A. There is said to be an agreement between A and B.

“All contracts are agreement”

As aforementioned it is clear that when an agreement is enforceable by law it becomes a contract. In other words, a contract is an agreement or set of promises giving rise to obligations that can be enforced or are recognized and made enforceable by law. To make an agreement enforceable under law, section 10 of the Contract Act lays down certain mandatory essentials which need to be fulfilled for forming a valid contract out of a simple agreement.

Section 10 of the Act states:

“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”.

The essentials of a valid contract are outlined as below:

• There must be two parties.
• The agreement should be between the parties who are competent to contract.
• There should be a lawful consideration.
• The object of the agreement must be lawful.
• There should be free consent between the parties.
• The agreement must not be one that has been expressly declared to be void.

“All agreements are not contracts”

Section 2(e) defines agreement as, “Every promise and every set of promises, forming the consideration for each other, is an agreement”. Thus, in an agreement, there is a promise between both parties to fulfill their legal obligations towards each other. For example, when X promises to deliver his bike to Y, and in return of B promises to pay Rs. 50,000 to X, there is said to be an agreement between X and Y. After acceptance of the offer of X by Y it becomes a promise, thus an agreement is the accepted offer.

Thus, when there is an offer from the offeror and the acceptance of that offer by the offeree, results in a promise. Promise and reciprocal promises from promisor and promisee to each other form an agreement. Hence, where in an agreement the parties have the legal intention to shoulder upon the responsibility to fulfil the promises made to each other, and in case of a breach they may compel the party in default to fulfil the promise by taking help of the law of land, such agreement is said to be a valid contract enforceable by law.

To constitute a valid agreement in order to form a contract:

• There must be two or more separate and definite parties to the contract;
• Those parties must be in agreement and there must be consensus on specific matters (i.e. consensus ad idem on the terms of the agreement);
• Those parties must intend to create legal relations in the sense that the promises of each side are to be enforceable simply because they are contractual promises
• The promises of each party must be supported by consideration

The law of contract is also not able to take care of the whole range of agreements. Many agreements remain outside their purview because they do not fulfill the requirements of a contract. In addition, there are some agreements that literally satisfy the requirements of a contract, such as a proposal, acceptance, consideration, etc., but which do not catch its spirit and are not enforced because it does not sound to be reasonable to do so. They are excluded under the legal device that the parties must not have intended legal consequences.

So we can say that all contracts are an agreement but all agreements are not contracts.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X