All Contracts are Agreements but All Agreements are not Contracts

Specific Relief Act

Once I was travelling by an Uber, on reaching my destination the driver, Ramesh said , “ Sir, Please give me a 5-star rating.” I said , ”Definitely, I promise.” But I did not give him a 5-star rating. I had made a promise to him and yet I did not fulfil it. Do you think Ramesh can sue me for not fulfilling the promise?

The answer to this lies in the distinction between agreements and contracts. So, what is an agreement? Firstly, a promise is an offer made by one party which has been accepted by another party (as per Section 2(b) of the Indian Contracts Act, 1872 or ICA).

An agreement is a Promise which is accompanied by a consideration (Section 2(e) of the ICA). Such consideration can be in money or money’s worth. An agreement can be for doing or refraining from doing (forbearance) anything. The above example where Ramesh asked me to give him a 5-star rating, he made an offer. When I agreed, my acceptance created a promise. Another example would be; if Dolly promises to pay Jolly Rs. 1000/- to not build a wall next to her house and Jolly agrees, they have made an agreement.

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So Mathematically, Offer + Acceptance = Promise

And, Promise and set of promises + Consideration = Agreement

It must be noted that Section 25 of the ICA states that an agreement without consideration is void, but the section simultaneously lays down exceptions to the same.

In other words, let’s say you are planning a trip to Bangkok with your friends. You seek permission from your parents and you offer that you will work harder to score good marks in the upcoming exam in return of them allowing you to go. Here, the trip is the subject matter of the agreement, the consideration for your parents is your good marks and them granting the permission is the acceptance.

This means any offer followed by acceptance is an agreement. Agreements can be of several kinds such as moral, religious, legal or social agreements. When you invite a friend for dinner or lend your Louis Vuitton handbag to someone or make a business decision, you are making some sort of an agreement.

A type of agreement which is enforceable by law is a contract (Section 2(h) of the ICA). Enforceable by law means that, if somebody is aggrieved then he may approach the court for remedies. For example: In case of a Fire Insurance Contract where Titu wants to insure his goods in the warehouse, he pays the insurance premium and promises to avoid insurance fraud whereas the insurance company agrees to compensate losses in case of a fire.

Agreement + Enforceable by Law = Contract

When an offer is made with the intention to create a legal obligation it becomes an offer for entering into a contract. Thus an agreement becomes a contract when there is free consent of the parties, capacity of the parties to contract, lawful consideration and lawful object or subject matter (Section 10 of the ICA).

For an agreement to become a contract it must give rise to a legal obligation and if it is incapable of doing so, it is not a contract. In the case of Balfour v Balfour [1919] 2 KB 571, Mr. Balfour promised to pay his wife £30/month as she stayed in England for medical reasons. When he failed to pay, Mrs. Balfour sued him. Her action failed because there was no intention to create legally binding agreement between Mr. and Mrs. Balfour. A contract cannot be made without proper indication about the legal rights and obligations of the parties to the contract. So, if this were to be a contract then wife would have had a right to receive payment and the husband would have had the obligation to pay his wife.

This makes an agreement a wider term than a contract. In a Venn diagram, agreements are a bigger circle than contracts which is a smaller circle and a part of it.

So, an agreement is a contract when:

Free consent of the parties: When there is absence of Coercion (Section 15), Undue Influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18) and Mistake (Section 20, 21, 22), the consent is said to be free.
Capacity of the parties to contract: Section 11 and 12 lay down that the competent parties are persons who have attained majority Mohri Bibi v. Dharmodas Ghose ILR (1903) 30 Cal 539 (Pc)>, persons who are of sound mind and persons who are not disqualified by law.
Lawful consideration and Lawful object: Section 23 lay down that the consideration and object is lawful unless it is forbidden by law or it defeats provisions of any law or is fraudulent or involves injury to person or property or is violative of public health, morality, peace and order.

Let us look at some examples where agreements are not contracts:

Gabbar asked Samba to kill Jay and Veeru and Samba agreed. This is an agreement but the object of the agreement makes it an illegal one. Therefore, it cannot be enforced and so it is not a contract.
Rajesh promises his wife Chitra that he will bring for her the stars and the moon and Sonam agrees. Here, the object of the agreement is impossible to perform and so it is not enforceable and cannot be termed as a contract.
A mother promises her crying child that she will buy a Barbie doll for her but she does not buy it. Here, the promise was not made with the intention to fulfil it and so it is not enforceable and cannot be termed as a contract.
I offer my pen to Neelam and she accepts it, here an agreement is made but such agreement is made out of friendship and has no consideration. An agreement without consideration is not a contract (an exception to this is Section 25 of the ICA which states that near relation and natural love and affection can be said to be consideration).

For a contract to be valid, all elements of a valid offer, valid acceptance, valid agreement and valid consideration should be met with. So, for example, Raja goes to the house of Rani to ask for her hand in arranged marriage. Her parents approve but she remains quiet. Assuming her silence as a sign of shyness, they call it acceptance because often in Indian society, girls are oppressed and are not asked for their consent in marriage. Socially and culturally, this has become the norm but this is not allowed in law because law requires freely consenting parties to consent expressly or impliedly. And silence is neither express nor implied consent. Here, the acceptance was not valid as silence does not amount to acceptance (As in the case of McGlone v. Lacey , 288 F.Supp 662 (D.S.D. 1968) and Felthouse v. Bindley (1863) 7 L T 835) and so essentials of an agreement were not fulfilled, therefore so it is not a contract.

There are certain agreements under the ICA which have been expressly declared as void such as an agreement without consideration (Section 25), an agreement made under a bilateral mistake (Section 20), agreements in restraint of trade or the marriage of any person other than the minor or judicial proceeding (Section 26, Section 27 and Section 28). Further, the object of the contract cannot be impossible (Section 36) and it cannot be a wager (Section 30).

For example: Tapsee agrees to sell her donkey to Amitabh for Rs. 51,000/-. Amitabh agrees. But at the time of contracting they were both unaware that the donkey has died. So, contract was void due to bilateral mistake. Further, an example for contracts imposing Restrictions on trade would be, Tom offers to pay Jerry Rs. 2,50,000/- if Jerry does not do business with Spike. This agreement is invalid as it restricts trade between Jerry and Spike.

To conclude, for a contract to be made, the essentials that must be fulfilled are- offer, acceptance, lawful consideration, mutuality of obligation, competency, free consent and lawful object. An agreement has a much wider scope than a contract. Agreement merely requires fulfilling some agreed condition and does not question the legality behind it and its enforcement. So, an agreement is the genus of which a contract is the species.

Therefore, just as

All girls are humans but all humans are not girls,

All contracts are agreements but all agreements are not contracts .

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