Difference Between Contract And Agreement

Table of Contents

Introduction

Since agreement and contract are used as formal statements, that’s the reason why both terms are used interchangeably. But, there is a difference between a contract and an agreement. In general, an Agreement is a legal promise between two parties. A contract is legally binding and enforceable by law.

An agreement does not need written proof, as while; contracts are written and registered. Despite that, contracts are void and legal. Yet, mutual acceptance is needed, but contracts must be signed by everyone involved. And, if you want to change or add to the contract, then important to the surety of everyone agreeing.

Elements of contract:

Offer and Acceptance
Mutual Consent
Consideration
Competence
Legal purpose

Elements of Agreement:

Offer and Acceptance
Consideration

An agreement is unlawful when the following considerations or objects are present:

Forbidden by Law
Defeat the provision of any law or fraudulent
Involves or implies the injury to the person or property of another
The court regards immoral or opposed public policy.

The main benefit of an agreement that doesn’t meet the criteria of a contract, it is informal. It is a non-contract agreement and saves time for the parties. It allows more flexibility to fulfill the obligations. It lacks all the required elements of a contract except offer acceptance and consideration.

Contracts spell out the specific terms that the contracting parties have agreed upon. If parties already have a good relationship and trust each other, then the use of the contract provides security and assurance that the obligations entered into under the contract.

Contracts are advisable over the agreement in any official business or commerce matter. The most common example is “NDA (Non-Disclosure Agreement),” employment contracts, etc. At the same time, Gentlemen’s agreements and unlicensed betting pools are examples of an agreement, which is not a contract.

The agreement is a broad concept that relies upon the honor of the parties involved rather than the enforcement. Section 2(b) of the Indian Contract Act, 1872 states that an accepted proposal or offer becomes a promise. And, if an offer is proposed by one party or individual to another, then it becomes an agreement.

Types of Agreement:

Wagering Agreement
Void Agreement
Voidable Agreement
Implied Agreement
Express Agreement
Conditional Agreement
Illegal Agreement

Types of Contract:

Voidable Contract
Valid Contract
Unilateral Contract
Bilateral Contract
Express Contract
Tacit Contract
Contingent Contract
Implied Contract
Executed Contract
Executor Contract
Quasi Contract

Is Agreement a Contract?

Generally, all agreements are contracts. But, all contracts are not agreements. The reason is very clear; contracts are enforced by law.

Section 10 of The Indian Contract Act, of 1872, states that all agreements are contracts if they are made with the free consent of parties for lawful consideration. An agreement needs only offer and acceptance with consideration.

, for making a contract from the agreement, despite the above two elements, additionally others are also essential, that is, the agreement has mutual competence, which is legally binding.

Legal Provisions that Make Agreement Valid

The non-disclosure agreement, memorandum of understanding, etc., have different rights for different purposes. Every agreement has certain statutory provisions which make them valid, these are:

Stamping: It makes the agreement legally valid and enforceable. Under the Indian Stamp Act 1899, all Indian agreements must be stamped.

Registration: The lease deed, sale deed, agreement to sell, gift deed, etc., must be compulsorily registered. The Indian Registration Act of 1908 states agreements and other documents must be registered.

Licensing: Yet, it is not a legal provision to make a valid agreement. But, it is a form of an agreement by which an individual grants the right on his intellectual property, trademark, patent, or goods that are used by him, to another person. The individual who is granted the right to use property is the “LICENSOR.” The “LICENSEE” acquires the right of property.

Section 2(e) of the Indian Contract Act 1872 states, “An agreement is set of a promise that forms considerations of both parties. On the other hand, section 2(b) of the Act states that a promise is accepted as a proposal.

Simply, we can say that a promise is an offer made by one party to another, and when it accepts, it becomes an agreement.

Just like a contract, an agreement that is not enforced by law is void, as mentioned in Section 2(g) of the Indian Contract 1872 Act. To prove this there are certain cases are mentioned:

Agreement in restrained of marriage

According to Section 26 of the Indian Contract Act 1872, an agreement restraining someone’s marriage shall be void. The exception to this provision is a minor.

In the case of Venkatakrishnaiah vs. Lakshminarayana (1908), the father is considering marrying his daughter; such marriage is void and violates Section 23 of the Indian Contract Act.

Agreement in Restraint of Trade

According to Section 27 of the Act, an agreement is made to stop a person from doing his work or profession in return for some void considerations.

Niranjan Shankar vs. Century Spg. And Mfg. Co. Ltd. (1967) uses the term “freedom of trade.” The courts state that a person might be restrained from following his Trade due to an agreement entered into by him.

Agreement in restraint of legal proceedings

Section 28 of the Act states, ”Any agreement that stops the other party from enforcing his rights of going to for breach of contract.”

Wagering Agreements

These agreements are declared void under Section 30 if a suit is filed to claim something won in a wager, which cannot be enforced by the law.

Importance of contract over agreement:

Confidentiality: Contracts help to maintain confidentiality. When the contract has been signed, signed parties know that they are legally bound. If one has split or wants to change the document, they might also break the contract.

Proof and security: Since the contract is enforced by law. So, it provides proof and security to the parties over agreements.

All the clauses of the contracts are clear and precise. That’s why; it avoids confusion and conflicts among the parties. It provides better proof of the parties as compared to an agreement.

How to draft a contract?

There are basic steps involved in drafting the contract, which are as follows:

Terms and Considerations: The contract terms can be oral or written, but it will be helpful to avoid confusion. The mutual decision considerations have benefitted both parties. So, an expressed contract is preferred to an oral contract.

Jurisdiction: The contract should be drafted according to relevant laws. The parties can also decide it. It means that the parties mutually agreed to refer to the disputes mentioned in the contract.

Example: The jurisdiction of the contract extends to all courts in Mumbai.

Confidentiality: The confidentiality clause and a dispute resolution clause are involved in the contract. It helps in maintaining secrecy in the contract.

Termination: It should be precisely mentioned in the contract.

Negotiation: Sometimes, the original contract offered is countered by another party. So, if a counteroffer is made, it must be negotiated properly.

Compensation: This clause is added as a remedy by offering some protection.

Signing the contract: After passing through all the above, a contract must be signed by both parties. The signing date and time should be mentioned on the contract’s last page. Then, the involved parties will sign the contract and shall be bound legally.

Negotiating a Contract

Before making a contract, the parties do not accept all terms and considerations. In this condition, the contract should be negotiated. Here, some steps are given to negotiate a contract:

To avoid self –Interests
To convey a clear message
Revenue and risk
Proper and deep research
Mutual solution

Conclusion

The above discussion concludes that agreement and contract are equally important. Sometimes, these are used interchangeably. However, it is clear that contracts are legally enforced but not in agreement. Both are better according to their place as such.