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Difference between Contract and Agreement

Although these terms are used interchangeably sometimes, they differ from each other in terms of enforceability, law and order, and more. Let us see what makes them different from each other.

Contract

The contract is agreement plus enforceability. For example, there are two parties in an agreement. One wants to sell the property, and another wants to purchase the property. If this agreement is enforceable in that case it becomes a contract. Both parties have the capacity, both are agreeing together without any force, so this is a contract. Some features of the contract are given below;

• The contract is binding between two or more parties.
• The contract is made by law and order.
• A consideration is required in the contract.
• There is a guarantee to claim any damage.
• No writing is required in the contract. But in the same specific contracts such as the land and other partnership-based contracts, the same papers are required.

We can say that the furtherance of agreement, which is enforceable by law and order is a contract. So, if an agreement is enforceable by law, then it becomes a contract. For example, Consider person ‘J’ wants to sell his car for rupees of five lakhs, and person ‘B’ wants to buy that car for rupees of 5 lakhs. So here, both parties agree on the condition. So it is a contract.

Major features of a Contract:

1. Proposal: Proposal is the first step of the contract. In other words, it is an initial stage. A person who proposing or who kept the proposal is called a promisor or offerer and to whom he proposing is a promise or offeree. The proposal should be free consent, which means there should be a consensus of both parties on the proposal. The proposal should not be simply giving a gesture or saying yes to any contract, officially not saying anything, silently nodding the head it is no contract. For example, A asked B will he sell yours flat, B nodded his head. But what rate he wanted to sell, to whom he wanted to sell, when he wanted to sell, no details are given. That will not become a contract. Because In this case proposal is there but acceptance is not there.
2. Offer and the acceptance: The offer is given by a party and accepted by another party. When promisor gives proposal to someone. The person who is proposed that is the promise. The promise is to give acceptance. He gives the acceptance as per the given date, as per the agreement, as per the condition, as per the talk. The promise gives the acceptance with no condition, and if he kept any condition, the contract becomes invalid. If there is a third party is giving an acceptance, then it is not a contract. Here only two parties are present in the contract. In between these two parties, the contract has to form. For example, A asked B for a 50 thousand rupees loan. B did not say anything but C is ready to give the loan to A. So it does not become a contract because C is entering between A and B.
3. Intention to create a legal relationship: There should be a legal intention for a contract.
4. Lawful consideration: In that, one party expects something from another party. For example, between a teacher and the students or between the customer and a salesperson.
5. The capacity of parties: Capacity should be needed for a contract. The contract is not completed if one of the parties is a minor or a person of unsound mind, then it is disqualified by a law to which they are subjected. When the promiser kept the proposal to the promise, both of them have the capacity to perform the contract. For example, A wants to sell his property, and B is ready to purchase that property. But B should have financially strong. So here, both parties have capacity. In that condition contract is possible. Cases in which parties have no capacity are as follows;
   • Minor: Minor means a person whose age is less than 18 years. Void-ab-Initio is said which means any contract with any Minor is invalid.
   • Unsound mind: promiser and promise both parties should be in sound mind. If one of them is not in sound mind, then it is an invalid contract.
   • Insolvent: Any party should not be declared as insolvent who cannot pay the amount back to anyone. If anyone either promiser or promise is insolvent, the contract becomes invalid.
   • Not disqualified from the contract: Any party should not be declared as disqualified as per the law. For example, a person goes to jail, or he is illegally proved in CBI or somewhere else. Then he will be disqualified from entering into any kind of contract.
6. Free consent: Two or more parties should be agreed upon the same thing in the same sense. The consents are considered free when any of the following things do not include coercion, misrepresentation, fraud, mistake, and undue influence. Free consent means without any force, and the normal formal contract should be there. There should not be any kind of force, for example. A is forced to B to sign on property paper, so this is an invalid contract.
7. Consideration: For any kind of transaction of any kind of acceptance, proposal there should be solid consideration. It is in money form, service form. Something as consideration is needed. If there is no consideration, that will not become a contract. For example, A wanted to give a 2 lakh donation to the charitable trust, but due to unavoidable circumstances, A could not give a 2 lakh donation to the charitable trust. Charitable trust makes the case on it. But charitable trust does not win the case because A just wants to give a donation. There is no consideration for A. So, it is not a contract.

Agreement

The agreement is a combination of offer and acceptance in which one person is offering and another one is accepting. For example, you have two movie tickets and you would like to go to that movie along with your friend. You ask your friend to join you. Now you have made an offer and if he agrees for the same that is called an acceptance and when that cycle completes, it becomes an agreement as there is one person who is offering and another one who is accepting.

The term ‘offere’ is defined under the contract act section 2a, which says when one person shows to another his willingness to do or to abstain from doing anything for it.

Common features of an agreement;

1. It occurs between two or more parties.
2. The agreement is not enforceable by law and order.
3. No consideration is required in the agreement.
4. There are no guarantees by law to claim any damage.
5. Writing is not required in the agreement.

What is a void agreement?

It is a formal agreement between two parties, which is not enforceable by law due to many legal reasons. It also refers to an agreement, which is no longer enforceable.

Indian contract Act, 1872 sec 2(g) defines the void agreement. It is not necessary that void agreement should be prohibited by law.

Void agreement cases:

• An agreement with a child is a void agreement.
• The subject for which you make an agreement is destroyed. If two people made a bike agreement and the same bike gets damaged in an accident. So in this case, this agreement is considered an invalid agreement. Because the bike is not present here or the subject (bike) is destroyed.

Types of void agreement

1. Minor and unsound person:Agreement with the minor and with the mentally unfit person is a void agreement.
2. Bilateral mistake: Suppose there is any mistake in the agreement that is also void agreement. Person ‘A’ has two houses, one in Delhi and one in Mumbai. Person ‘A’ wants to sell the Delhi house to Person ‘B’. But Person ‘B’ is feeling that Person ‘A’ is selling the house of Mumbai. So there is a mistake in this agreement. Then agreement will be void. This type of mistake known as bilateral mistake.
3. Unlawful object: Something not valid as per the law. An example of this is you give me two lakhs, and I will provide you drugs. These are unlawful objects. It is not valid as per law.
4. Restraint of marriage: This is an agreement that interrupts the marriage or interfaces the marriage.
5. Restraint of trade: An agreement that prevents one from doing business and developing one’s idea. So this agreement is a void agreement.
6. Uncertain: This type of agreement is impossible. For example, build a building that will touch the sky. So it is impossible. This type of agreement is a void agreement.

What is an Illegal agreement?

The agreement that violates the law is an illegal agreement. If you did this illegal agreement, you could be punished. To do any act if the law forbids then it is called a prohibited act. If you break the law, you will be punished, and you will have to pay a fine.

Examples of the illegal agreement;

• If a person ‘A’ gives money to person ‘B’ to kidnap person ‘C’. So, this is an illegal agreement.
• Someone tells you to smuggle by giving it then it is also an illegal agreement.
• If you sell a car without documents and a license, it is also an illegal agreement.

All illegal agreements will be automatically considered void agreements. But all void agreements are not illegal agreements.

Differences between Contract and Agreement

Contract	Agreement
The contract is discussed under section 2(h) of Indian Contract Act, 1872 which says a contract is an agreement enforceable by law.	The agreement is discussed under section 2e. The agreement is not enforceable by law and order.
Every contract is legally enforceable.	Every agreement is not legal.
It includes an agreement.	It does not include a contract.
Now the scope of the contract is quite limited because it considers only commercial agreement.	The scope of the agreement is quite wider because it consists of both the commercial as well as the social agreement.
In a contract, the legal obligation part of the contract is quite clear. Every contract contains a legal obligation.	In the agreement, it is not necessary for every agreement to have a legal obligation.

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