LAWS OF CONTRACT: THE ESSENTIAL ELEMENTS OF CONTRACT

Legal Environment of Business

Assignment No: 02
Course Code: ALD 1203
Submitted to:
Farzana Tazin
Lecturer
Department of Management Studies
Faculty of Business Studies
Bangladesh University of Professionals
Submitted by:
Sohag Raihan
2024161005, Section- A
Batch- 2020
Department of Management Studies
Faculty of Business Studies
Bangladesh University of Professionals
 Contract VS Agreement
Contract: An agreement comes into existence whenever one or more persons promise to one or
others, to do or not to do something.

Agreement: When a person (offeror) offers something to someone else (offeree), and the
concerned person accepts the proposal with equivalent consideration, this is known as the
agreement.

The points given below are substantial so far as the difference between agreement and contract is
concerned:

❖ Promises and commitments forming consideration for the parties to the same consent is
known as an agreement. The agreement, which is legally enforceable is known as a
contract.
❖ The agreement is defined in section 2 (e) while a Contract is defined in section 2 (h) of the
Indian Contract Act, 1872.
❖ The major elements of an agreement is the offer and its acceptance by the same person to
whom it is made, for adequate consideration. Conversely, the major elements of an
agreement are agreement and its enforceability by law.
❖ Every agreement is not a contract, but every contract is an agreement.
❖ An agreement needs not to be given in writing, but the contracts are normally written and
registered.
❖ The agreement does not legally bound any party for the performance. In the Contract, the
people are legally bound to perform their part.
❖ The scope of the agreement is wider than a contract because it covers all types of agreement
as well as contract. On the contrary, the scope of a contract is relatively narrower than an
agreement because it covers only that agreement which have legal enforceability.
 Void Agreement vs Illegal Agreement
Void Agreement: The term ‘void’ means no legal binding and ‘agreement’ means consensus
between parties regarding a course of action. To simply, put a void agreement is an agreement
which is not legally binding, i.e. an agreement which lacks enforceability by law is void.

Illegal Agreement: An agreement that violates any law or whose nature is criminal or is opposed
to any public policy or immoral is an illegal agreement. These agreements are void ab initio, and
so the agreements collateral to the original agreement are also void. Here collateral agreement
refers to the transaction associated or incidental to the main agreement.

The difference between void and illegal agreement can be drawn clearly on the following grounds:

❖ An agreement which loses its legal status is a void agreement. An illegal agreement is one
which is not permissible under law.
❖ Certain void agreements are void ab initio while some agreements become void when it
loses its legal binding. On the other hand, an Illegal agreement is void since the very
beginning.
❖ A void agreement is not prohibited by Indian Penal Code (IPC), but IPC strictly prohibits
an illegal agreement.
❖ The scope a void contract is comparatively wider than an illegal contract as all agreements
which are void may not necessarily be illegal, but all illegal agreements are void from its
inception.
❖ A void agreement is not punishable under law whereas an illegal agreement is considered
as an offence, hence the parties to it are punishable and penalised under Indian Penal Code
(IPC).
❖ Collateral agreements of a void agreement may or may not be void i.e. they may be valid
also. Conversely, collateral agreements of an illegal agreement cannot be enforceable by
law as they are voidabinition.
 Void vs Voidable Contracts
Void Contracts: A void contract is a contract which is not enforceable in the court of law. At the
time of formation of the contract, the contract is valid as it fulfills all the necessary conditions
required to constitute a valid contract.

Voidable Contracts: Voidable Contract is the contract which can be enforceable only at the option
of one of the two parties to the contract. In this type of contract, one party is legally authorized to
make a decision to perform or not to perform his part. The aggrieved party is independent to choose
the action.

The major differences between void contract and voidable contract are as under:

❖ A contract which lacks enforceability is Void Contract. A contract which lacks the free will
of one of the parties to the contract is known as Voidable Contract.
❖ Void Contract is defined in section 2 (j) while Voidable Contract is defined in Section 2 (i)
of the Indian Contract Act, 1872.
❖ A void contract was valid at the time when it is created, but later on, it becomes invalid.
Conversely, the voidable contract is valid until the aggrieved party does not revoke it within
stipulated time.
❖ When it is impossible, for an act to be performed by the parties, it becomes void, as it
ceases its enforceability. When the consent of the parties to the contract is not free, the
contract becomes voidable at the option of the party whose consent is not free.
❖ In void contract, no party can claim any damages for the non-performance of the contract.
On the other hand, the aggrieved party can claim damages for any loss sustained.
 Express vs Implied
Express Contract: When the offer and acceptance of the agreement are communicated verbally,
then the contract is said to be express.

Implied Contract: Implied Contract means a contract which is inferred by the activities and
conduct of the parties concerned

The points given below are substantial so far as the difference between express and implied
contract is concerned:

❖ An express contract is a contract, in which the terms of the contract are verbally
communicated between the partied involved. On the contrary, an implied contract can be
understood as a contract, which is presumed or believed to be existed between the parties
or which is expressed by implication.
❖ In express contract, words are used to manifest contract, which can be oral or written.
Conversely, in an implied contract is formed out of the deeds or conduct of the parties
concerned.
❖ Trust agreement between the author and trustee is an example of an express contract. As
against, receiving cash from automated teller machine is a great example of implied
contract.
 Executed vs Executory Contract
Executed Contract: A contract in which both the parties performed their respective promises.
When a contract has been completely performed, it is termed as executed contract, i.e. it is a
contract where, under the terms of a contract, nothing remains to be done by either party.

Executory Contract: A contract in which the promises of both the parties have yet to be
performed. Thus, executory contract is that where under the terms of a contract something remains
to be done by the parties.

Executed Contract Executory Contract

❖ Promised act normally rolled into one ❖ Promised Act is to be done or executed
and done almost immediately e.g not wholly and not immediately.
purchase and goods over the counter
and one off services – house delivery of
fast food and cash payment on
delivery, lawn mowing services
❖ Immediate exchanges of consideration ❖ Promises may be done over a period
with staggered exchanges of
considerations e,g rental or leasing of
property or office equipment etc
❖ Performance of promised Act ❖ Promised Act and performance
invariably done prior to formal contract remains to be done or executed after
contract formalized
❖ Both parties fulfil their obligations ❖ One party remains left to fulfil its
while the contract is formed. obligatory.
“All agreements are not contract but all contracts are Agreement”.
Do you Agree? Justify your answer with appropriate example.
All agreements are not contracts but all contracts are agreement –

A contract is a legally binding agreement or relationship that exists between two or more parties
to do or abstain from, performing certain acts. A contract can also be defined as a legally binding
exchange of promises between two or more parties that the law will enforce. For a contract to be
formed offer made must back acceptance of which there must be a consideration. Both parties
involved must intend to create legal relation on a lawful matter which must be entered into freely
and should be possible to perform.

An agreement is a form of cross-reference between different parties, which may be written, oral
and lies upon the honor of the parties for its fulfillment rather than being in any way enforceable.
All contracts are an agreement because there must be a mutual understanding between two parties
for a contract to be formed. All parties should agree and adhere to the terms and conditions of an
offer. The following cases illustrate ways in which all contracts are agreements;

In the case of an invitation to treat; where an invitation to treat is merely an invitation to make an
offer. When a firm’s offer is accepted it results in a contract provided other elements of contracts
are accepted.

Considering person; A buying a radio on hire purchase from person B who deals with electronics
and its appliances. Both parties must come to an agreement on payment of monthly installment
within a specified period of time. Such an agreement result to specialty contract which a contract
under seal.

Agreement; Every promise and every set of promises, forming the consideration for each other, is
an agreement.” Thus it is clear from this definition that a ‘promise’ is an agreement. What is a
“promise”? The answer to this question is which defines the term. “When the person to whom the
proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal, when
accepted; becomes a promise.

So, All agreements are not contracts but all contracts are agreement