Legal Guide

Difference Between Agreement and Contract

by Nikky Jha · 2 min read

difference between agreement and contract

Any understanding or arrangement that two or more parties achieve is referred to as an agreement. A contract is a particular kind of agreement that is enforceable in court due to its provisions and constituent parts.

The difference between an agreement and a contract is that an agreement is a non-legally binding arrangement between two or more people. An agreement is only deemed valid if all or all of the parties concerned agree to it. 

It is not required to be in writing or given any thought. Any of the essential components of a contract must be present for an agreement to have legal force.

A legally unenforceable agreement between two or more persons is known as an agreement. Typically, such agreements are informal. An agreement is only deemed valid if all or all concerned parties accept it on equal terms. 

Both a written request and consideration are not necessary. An agreement without any of the essential components of a contract is not enforceable in court.

Whereas a Contract is a formal agreement between two or more parties that is legally enforceable according to its terms and constituent parts is called a contract. Its legitimacy is predicated on the agreement of all parties. 

Except for some specified types of contracts, such as those involving land or that cannot be executed within a year, a contract need not be in writing. A contract must include consideration as a necessary component. Additionally, a contract has legal force and may have its provisions upheld in court. This is the difference between an agreement and a contract.

Indian Contract Act 1872

To know more about the difference between an agreement and a contract, we ought to look at the Indian Contract Act. The Indian Contract Act of 1872 governs every contract made in India. This law ensures that a contract is properly governed and legitimate.

A contract must be followed in order to be legitimate and lawful, according to Section 10 of the Act. The following are these circumstances:

  • Offer – A contract initiates with an offer. A request has been made by one side to the other. The other party has the means to fulfill it in exchange for value exchange. The result is “the offer,” which outlines each party’s obligations.
  • Acceptance – Acceptance is the second component of a contract. Although the exact concept of contract acceptance has long been debated, technically, a contract is deemed accepted after it is signed. 

A counter-offer, which includes any acceptance of conditions or the negotiating of additional terms, is viewed as rejecting the initial agreement since it restarts the bargaining process.

  • Mutual Consent – Both parties must be aware that they are entering into a new agreement for a contract to be considered legally binding. The parties must have what is known as “a meeting of the minds,” in which they acknowledge the existence of the contract and their consent to be bound by its terms.
  • Consideration – A contract’s objective is determined by the provisions it makes. Contracts aren’t deemed legally binding until something of value is traded between the parties in order to make them so. Contractual concerns include things like insurance, property ownership, and services.
  • Capacity – Contracts may be intimidating, particularly if you’re signing them on behalf of a business. Therefore, only parties who can prove their legal ability before signing a new contract may do so. 

Legal capacity occurs when, before signing, the parties show that they are aware of the responsibilities, conditions, and ramifications of the agreement.

  • Legality – All contracts are governed by the laws of the country in which they are executed, and they must follow these laws in order to be sufficiently lawful. An example of a kind of contract is an employment contract.

The Difference Between Agreement and Contract

Further to understand the difference between an agreement and a contract, we need to understand that the Indian Contract Act of 1872 governs contracts in India, it is critical to comprehend how the Act defines a contract. A contract is defined as an agreement that is recognized by the law under Section 2(h) of the Act. 

Therefore, a contract may be defined as a written agreement between two parties that is legally binding. So, is anyone able to sign a contract? According to Section 11 of the Act, a person who is under the age of 18, is ineligible by law, or both, cannot engage in a contract.

As was already indicated, Section 23 forbids and declares as unlawful any contract with an illegal purpose or payment. Therefore, a contract to murder someone would be null and invalid if it were given to someone. 

A 10-year-old signing a business agreement won’t be regarded as a contract either. Consequently, a contract is a binding legal agreement that specifies a legal duty or obligation in exchange for payment from both parties.

To enunciate the difference between an agreement and a contract, a contract is defined as a series of promises that serve as consideration for both parties under Section 2(e) of the Indian Contract Act of 1872. 

An accepted proposal or offer turns into a commitment, as stated in Section 2(b), which defines this word. In other words, a promise is essentially an offer given to another person, and if that person accepts the offer, it turns into an agreement.

An agreement that cannot be enforced by the law is void, just like a contract. This is stated in the Act’s Section 2(g); this is important to understand the difference between an agreement and a contract. To support this claim, the Indian Contract Act additionally lists a few situations in which contracts are expressly invalid, including the following:

  • Agreement in restraint of trade – An arrangement signed to prevent someone from engaging in their line of employment or profession in exchange for money is void, according to Section 27 of the Act. 

This means that any arrangement that benefits one party at the expense of another is unlawful and invalid since it restrains commerce. 

In Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd. (1967), the court decided that a person might be prevented from practicing his trade because of an agreement he had made. The phrase “freedom of trade” should be used in this situation.

  • Agreement in restraint of legal proceedings – According to Section 28 of the Act, any arrangement that prevents the opposing party from using their legal right to file a lawsuit for contract violation is deemed to constitute a limitation on legal action.
  • Wagering Agreements – Section 30 of the Indian Contract Act of 1872 declares wagering contracts unlawful when a lawsuit is brought forward to demand something that was the prize of a bet and cannot otherwise be enforced by the law.

Importance of Contract 

The importance of a contract is another aspect that needs to be understood when talking about the difference between an agreement and a contract. To know more about the difference between an agreement and contract, the following are the importance of a contract: – 

  1. Helps in maintaining confidentiality – Contracts aid in keeping confidentiality. Both parties are aware that they are required by law to maintain secrecy once the contract is signed. Any disclosure of the terms of the contract to a third party may undermine the other party’s trust, which may lead to a breach of the contract. 
  1. Provides Proof and Security – The contract’s stipulations are all explicit and readable. Because there is adequate evidence of it, this saves a lot of uncertainty and maybe even confrontations between the parties. 

Furthermore, both parties are aware that the contract they signed will serve as a reference point in the future. Thus, they feel secure as a result of this.

Key Difference Between Agreement and Contract

The key difference between an agreement and a contract is that when the deal turns into a contract when it can be enforced by the law. However, when an offer is accepted by a party, it turns into a binding contract. Consideration must be offered in a contract. Agreements can be made without being given any thought. 

A contract is discussed in Section 2(h) of the Indian Contract Act of 1872, while an agreement is discussed in Section 2(e) of the Indian Contract Act of 1972. Oral agreements are typically preferable to written ones. 

Agreements may be made orally or in writing. There is a legal obligation in every contract. Legal responsibility may or may not be included in agreements. This is the key difference between an agreement and a contract.

All Contracts are Agreements, but all Agreements are not Contracts

Another key point for the difference between an agreement and a contract is that all contracts are agreements, but all agreements are not contracts. To further enunciate the difference between agreement and contract, we are required to further understand the two concepts.

These two words have a striking resemblance and are nearly identical. In both of these papers, there must be two parties, as well as contemplation, an offer, and an acceptance. However, it has been established that both of these are marginally different.

In contrast to an agreement, which may or may not is official, a contract must be a formal agreement between two or more parties and must be enforceable by law. For a commercial agreement, accepting an offer alone won’t be sufficient. To make sure that all legal requirements are met and that all parties are given due consideration, it should be documented on paper. This is a contract, then. Another scenario has you accepting your friend’s request to borrow his laptop for a few days.

Consequently, there is no deliberation engaged in this informal agreement, which is what it is. However, it will constitute a contract if you demand that your buddy pay a set sum of money for each day that he borrows your laptop.

Therefore, a contract needs to be offered, accepted, and agreed upon by both parties. It also needs some form of consideration and is legally binding. However, even if any or all of these conditions are not met, the agreement will still be enforceable. 

Because some agreements might be informal, as in the case above, all agreements that are enforceable by law are contracts. However, not all contracts are agreements, and this is a major difference between an agreement and a contract.

Conclusion

Contracts and Agreements are frequently interchanged and considered of similar importance. The only thing needed to make sure is that the document can be enforced by law the next time you’re unsure whether to construct a contract or an agreement. 

Even if the other components of a legitimate contract are crucial, they are identical as long as they are lawful. All the factors above clarify the difference between an agreement and a contract. To know more about the difference between an agreement and a contract, get online legal advice

An agreement is a non-legally binding arrangement between two or more people. Whereas a Contract is a formal agreement between two or more parties that is legally enforceable according to its terms and constituent parts is called a contract. To know more about it, get online legal advice.

Nikky Jha

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Nikky Jha

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