4.

VALID AGREEMENTS:

Agreement 2(e) :- Every promise and set of promises forming the consideration for each other.
In short, Offer + Acceptance = Agreement.

Contract 2(h):- An agreement enforceable by Law is a contract and agreement which are registered.
In short, Agreement + Enforceable by Law = Contract.

DIFFERENCE:
Basis Contract Agreement
Section Sec. 2(h) Sec. 2(e)
Every promise or every set of
A contract is an agreement promises forming consideration
Definition enforceable by law. for each other is an agreements.
Every contract is
Enforceability enforceable Every promise is not enforceable.
Interrelationshi A contract includes an An agreement does not include a
p agreement. contract.
Its scope is relatively wider, as it
The scope of a contract is includes both social agreement
limited, as it includes only and
Scope commercial agreements. commercial agreements.
Only legal agreements are An agreement may be both legal
Validity called contracts. & illegal.
It is not necessary for every
Every contract contains a agreement to have legal
Legal Obligation legal obligation. obligation.

ALL CONTRACTS ARE AGREEMENTS BUT ALL AGREEMENTS ARE NOT CONTRACTS:
Agreement is a wider term than contract where as all contracts are agreements, All agreements are not
contracts.
The various agreements may be classified into two categories:

Agreement Contract
Agreement not enforceable by law Agreement enforceable by law
Any essential of a valid contract All essentials of a valid contract are available.
is not available.
Thus we see that an agreement may be or may not be enforceable by law, and so all agreement
are not contract. Only those agreements are contracts, which are enforceable by law, In short.
Contracts = Agreement + Enforceability by Law
Hence, we can conclude “All contracts are agreement, but all agreements are not contracts.”

ESSENTIALS OF A VALID AGREEMENT:

1. Proposal: [section 2(a)]:-
When one person signifies to another his willingness to do or to abstain from doing anything, with a view
to obtaining the assent of that other person either to such act or abstinence, he is said to make a proposal.

(i) The Proposal may be Express or Implied:

The Proposal which is expressed by words, written or spoken, is called an express Proposal.
The Proposal which is expressed by conduct, is called an implied Proposal .

(ii) The Proposal may be to do an act or to abstain from doing an act:

A the moneylender offers Rs.50000/- loan to B the borrower at the rate of 11% interest per annum. This
proposal to give the loan is the proposal to do an act. B fails to pay loan amount to A on due date. A
offers not to sue B if B will deliver some security for that amount to A. this proposal of not to sue B is the
proposal to abstain from doing an act.

(iii) Proposal must be made with a view of accepted:

The Proposal must be made by one person (Promisor) with an intention to obtain the assent of the other
person (Promisee). In other words Promisor must make an offer with a view of intention that it is to be
accepted by the Promisee.
2. ACCEPTANCE: [Section 2(b)]
When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be
accepted.

1. Acceptance of offer may be expressly (by words spoken or written); or impliedly (by acceptance
of consideration); or by performance of conditions (e.g.in case of a general offer).

2. Mode of Acceptance:
Where the proposal prescribes the manner of acceptance, the acceptance must be made in that manner
only. If there is no such manner or mode prescribed by the offeror, then the acceptance must be made in
the following manner:
(i) By express spoken words.
(ii) By express written words.
(iii) By conduct i.e by doing some act or
(iv) By post
(v) B telegram.
3. Acceptance must be communicated to the offeror:
In order to create a binding contract, it is necessary that, the acceptance must be communicated to the
offeror. The communication of acceptance of proposal must be made before the proposal (offer) is lapsed,
revoked or withdrawn.

3. ABILITY TO UNDERSTAND THE AGREEMENT:

The parties to the agreement must have the quality of brilliance in mental activity to understand the
agreement and to enter into valid agreement. If both parties are not mentally sound mind than they
cannot take any decision and both parties will not be able to make any agreement.

4. CAPACITY TO EXECUTE THE CONTRACT:

The performance must not be impossible. The contracts must be capable of being performed. Example-
'A' agrees with 'B' to discover treasure by magic and sharing of the treasure. This agreement cannot be
enforced.

5. LEGAL SUBJECT MATTER:

A contract may be oral or in writing. Where a particular type of contract is required by law to be in
writing and registered, it must comply with necessary formalities as to writing, registration and
attestation. If legal formalities are not carried out then the contract is not enforceable by law.

6. FREE CONSENT:
Consent of the parties must be genuine consent means agreed upon samething in the same sense. A
consent is said to be free when it is not caused by Coercion, Undue influence, Fraud, Misrepresentation
or Mistake.

7. CONSIDERATION:
Consideration means "something in-return". It is a benefit moving from one party to another.
Consideration need not always be in cash or in kind. It may be an act or promise to do or not to do
something. It may be past, present or future. Consideration must be real and lawful.

8. BETWEEN TWO DEFINITE PERSON:

The parties to an agreement must have the capacity at law to enter into a valid contract. Section 11 states
that every person is competent to contract if-
a) he is of the age of majority,
b) he is of sound mind and
c) he is not disqualified from entering into a contract by any law, to which he is subject.

9. WRITING AND REGISTRATION:

It is in the interest of the parties that the contract should be in writing. Sometimes it needs to be stamped
and registered.