Agreement vs Contract: Understanding the Differences and Types of Contracts in Law

Theoretical overview

A contract is an agreement, enforceable by law, between two or more parties to do or not do something, in exchange of something. It is mentioned in (section 2(h)) of the Indian contract act 1872. Every contract starts with negotiation. The first necessity is intention. This is followed by a proposal which could be accepted or rejected. If accepted, it becomes a promise. If rejected, it is left.

The object of a contract is the creation of rights and obligations. Proposal when accepted is a promise. Promise plus consideration is an agreement. Agreement and enforceability is a contract.

The question arises that whether a agreement is a contract or not? The answer to it is a clear no. Contract is a private agreement which is enforceable by law. A contract is different from an agreement as the former is enforceable by law. A breached agreement would have no remedy for the aggrieved party. Due to the civil nature of a contract, the remedies are also civil.

Conditions for an Agreement to be a Contract

1. The agreement should be with the free consent of the parties.
2. The parties should be competent to enter such a contract.
3. Lawful consideration
4. It should be for a lawful object.
5. It should not be expressly declared void by the Indian Contract Act.

Types of Agreements (Void, Voidable and Valid)   

1. Valid agreement:  this term is synonymous to a contract. Implications of a Valid agreement is that –

• Both parties are bound by it.
• Both parties must enforce it.
• If not performed, it is actionable by the aggrieved party.
• The rights and duties are legal.
• Law provides remedy in case of a breach.

2. Void Agreements {section2(g)}- it is not enforceable by law. Agreement is void if expressly declared to be so by law. It could be void when there is an illegal consideration or is for an illegal object.

Implications of a void agreement:

• Parties are not bound to perform it 
• Cannot be enforced in the court of law 
• Not actionable by the aggrieved party
• No rights and duties arise
• No remedy provided by law

3. Voidable agreements( section 2(i)) – Voidable contracts are those which could be made void at the option of one of the parties. In case where there is no free consent, the contract is voidable at the option of the aggrieved party. In a voidable contract, there is a defaulter party and an aggrieved party.  A person is induced against his will in cases of:

• Coercion
• Undue influence
• Fraud
• Misrepresentation
• Mistake of Fact

Relevant sections

Section 2(h): A contract is an agreement, enforceable by law, between two or more parties to do or not do something, in exchange of something.

Section 2(g):Agreement is void if expressly declared to be so by law. It could be void when there is an illegal consideration or is for an illegal object.

Section 2(i): Voidable contracts are those which could be made void at the option of one of the parties. In case where there is no free consent, the contract is voidable at the option of the aggrieved party. 

Important case laws

B.P Refinery(water n port) pvt. Ltd. V. shire of hastings: in this case court laid down 5 conditions which are to be satisfied for an implied term of contract. These are: a) competency of the parties, b) consensus, c)lawful consideration, d) lawful object, e) certainty.

Points to remember

• A contract is an agreement, enforceable by law, between two or more parties to do or not do something, in exchange of something.
• Agreement is void if expressly declared to be so by law. It could be void when there is an illegal consideration or is for an illegal object.
• Voidable contracts are those which could be made void at the option of one of the parties. In case where there is no free consent, the contract is voidable at the option of the aggrieved party.