Differences Between Agreement and Contract
The terms "Agreement" and "Contract" are often used interchangeably in everyday language, but in legal terms, they have distinct meanings. Below is a detailed explanation of the differences between an agreement and a contract, including legal definitions, key distinctions, and relevant case law to illustrate the points.
🔍 1. Definition
✅ Agreement:
An agreement is any understanding or arrangement between two or more parties. It can be oral or written, and does not necessarily have to be enforceable by law.
Section 2(e) of the Indian Contract Act, 1872 defines an agreement as:
“Every promise and every set of promises, forming the consideration for each other, is an agreement.”
✅ Contract:
A contract is a legally enforceable agreement. It must meet certain legal criteria (offer, acceptance, consideration, etc.) and once formed, it creates legal obligations.
Section 2(h) of the Indian Contract Act, 1872 defines a contract as:
“An agreement enforceable by law is a contract.”
📊 2. Key Differences Between Agreement and Contract
| Aspect | Agreement | Contract |
|---|---|---|
| Legal Binding | Not necessarily legally binding | Legally binding and enforceable |
| Essentials | Mutual understanding only | Offer, acceptance, lawful consideration, intention to create legal relationship, legal capacity, etc. |
| Enforceability | Cannot be enforced in a court unless it qualifies as a contract | Can be enforced in a court of law |
| Scope | Broader; includes all kinds of arrangements (social, domestic, etc.) | Narrower; only those agreements enforceable by law |
| Example | A friend agrees to meet you for coffee | A contract for sale of goods between two businesses |
| Form | Can be oral or written, formal or informal | Can also be oral or written, but must meet legal requirements |
| Legal Consequence of Breach | Generally no legal remedy | Legal remedy is available (damages, injunction, etc.) |
⚖️ 3. Case Law Illustrations
📌 Balfour v. Balfour (1919) 2 KB 571
Facts:
A husband promised to pay his wife a monthly allowance while he was abroad. Later, the couple separated, and the wife sued to enforce the promise.
Held:
There was no intention to create legal relations, so it was a domestic agreement, not a contract.
Significance:
Illustrates that not all agreements are contracts — intention to be legally bound is essential for a contract.
📌 Carlill v. Carbolic Smoke Ball Co. (1893) 1 QB 256
Facts:
A company promised in an advertisement to pay £100 to anyone who used their product and still caught influenza. Mrs. Carlill did so and claimed the money.
Held:
The court held that the advertisement constituted a valid offer, Mrs. Carlill accepted it by performing the condition, and there was an intention to create legal obligations. Thus, it was a valid contract.
Significance:
An agreement with consideration and legal intent becomes a contract, enforceable by law.
📌 Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC)
Facts:
A minor entered into a mortgage agreement. Later, the minor sued to cancel it, saying he lacked capacity.
Held:
A contract with a minor is void ab initio as he has no legal capacity to contract.
Significance:
Even if there is an agreement, without legal capacity, it is not a contract.
🧠 4. Conclusion
Every contract is an agreement, but not every agreement is a contract.
An agreement becomes a contract only when it fulfills all legal requirements.
Key elements that convert an agreement into a contract include:
Intention to create legal relations
Consideration
Lawful object
Legal capacity
Free consent
Understanding this distinction is crucial in legal, business, and everyday contexts to determine whether a promise or arrangement has legal weight.
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