Agreement and Contract are often used together most of the time; however, in legality, they are two different things. A legal agreement can be formal, which means nothing needs to be witnessed or written down. On the other hand, a Contract is more formal and legally binding. Hence, both an Agreement and Contract represent specific arrangements between two or more parties. The main distinction lies in their flexibility and enforceability.
What is an Agreement?
An Agreement can be defined as an acceptance of an offer given by one party to another. Every promise and set of promises that form any type of consideration for all the parties involved is called an agreement. Here, promise refers to the acceptance of an offer or proposal. The agreement comes into existence when an individual or an entity makes an offer or proposal to a second individual or entity, and the latter accepts that offer with all the required conditions.
Agreement = Offer + Acceptance
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.”
The two main features of an agreement are:
- Two or more parties: A minimum of two persons or entities should be there to get into an agreement. A single person or entity cannot get into an agreement.
- Consensus ad-idem: It is a Latin word that means ‘Meeting of Minds’. It further implies that all the parties involved in an agreement should agree upon the same thing in the same way as it meant.
For example, Bijay offers to sell his car to Kashish for ₹2,00,000. So, when Kashish accepts the offer, it becomes an agreement.
What is a Contract?
A Contract can be defined as an agreement that is enforced by law involving at least two parties, as such one party is entitled to some right and the other with some obligation. An agreement is said to be a contract when it is abided by the law. It means that legal obligations must be led by a contract.
Contract = Agreement (Offer + Acceptance) + Enforceable by Law
Section 2(h) of the Indian Contract Act, 1872 defines a Contract as, “an agreement enforceable through the law.”
The two main features of a contract are:
- An agreement: An acceptance of an offer given by one party to another is called an Agreement.
- Abided by law: A contract should create some legal obligation or duty.
For example, A multiplex sells a ticket on 1st January 2022 to Gaurav for a movie show. The Multiplex is under an obligation to organize a movie show on the given date. In case, the Multiplex fails to fulfill its promise, Gaurav can take legal action against the multiplex owners. Thus, Gaurav has a right against the Multiplex, and a corresponding duty is imposed on the Multiplex.
Difference between Agreement and Contract
|The meaning of agreement can be understood as an acceptance of an offer given by one party to another.
|A contract can be defined as an agreement that is enforced 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.”
|Section 2(h) of the Indian Contract Act, 1872 defines a contract as, “an agreement enforceable through the law.”
|Agreement = Offer + Acceptance
|Contract = Agreement + Enforceable by Law
|The agreement can not necessarily be in written form.
|A contract is normally written and registered.
|An agreement has a wider scope than a contract.
|A contract has a narrower scope as compared to an agreement.
|It involves a higher risk factor because it is not enforceable by law.
|A contract is abided by the law, so it ensures a low-risk factor.
|One in Another
|All agreements cannot be considered a contract.
|All contracts can be considered an agreement.
|An agreement does not create a legal obligation.
|Contracts are meant to create a legal obligation.
|Agreements can be formed without consideration.
|There should be some consideration to form a contract.
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