CONTENTS

1. Definition of Contract
2. Definition of Agreement
3. Definition of Promise
4. Every contract is an agreement but every agreement is not a contract
5. Conclusion

Definition of contract :

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An
agreement enforceable by law”.

In other words, we can say that a contract is anything that is an agreement and enforceable by
the law of the land.

This definition has two major elements in it:

0. agreement

0. enforceable by law

Illustration-

A offers to sell his house for Rs. 100,000 and B accepts the offer and agrees to buy the house
at that price.

Definition of agreement:

Section 2(e) of Indian Contract Act, 1872 defines the term agreement as “every promise and
every set of promises, forming the consideration for each other”.

Illustration-

A promises to sell his car to B for 50,000. It is a legal agreement because it creates legal
obligation between the parties.

Thus, an agreement becomes a contract when following conditions are satisfied:

1. Free consent

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 2. Competency of the parties
3. Lawful consideration
4. Lawful object

Definition of Promise:

Indian contract act, in its section 2(b) defines the term “promise” as: “when the person to
whom the proposal is made signifies his assent thereto, the proposal becomes an accepted
proposal. A proposal when accepted, becomes a promise”.

Illustration-

A offers to sell his watch for Rs 10 thousand to B and B gives his acceptance to buy watch at
the same price. This becomes a promise.

Enforceable by law :

For an agreement to change into a Contract as per the Act, it must give rise to or lead to legal
obligations. In other words, must be within the scope of the law.

Thus we can summarize it as Contract = Accepted Proposal (Agreement) + Enforceable by

law (defined within the law)

Every contract is an agreement but every agreement is not a contract.

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

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terms and conditions of an offer. The following case illustrate ways in which all contracts are
agreements;

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.

Legal obligation: As stated above, an agreement to become a contract must give rise to a
legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty
enforceable by law. It is not a contract. Thus, an agreement is a wider term than a contract.

“All contracts are agreements but all agreements are not Contracts, “Agreements of moral,
religious or social nature e.g., a promise to lunch together at a friend’s house or to take a walk
together are not contracts because they are not likely to create a duty enforceable by law for
the simple reason that the parties never intended that they should be attended by legal
consequences.

In a leading case, Balfour v. Balfour, it was held that If anyone creates an agreement with an
intention to not have any legal consequences during the performance of the said agreement,
then that agreement cannot be called a contract. An agreement having consideration but not
legally binding can also not be called a contract. An objective test can be applied to the same,
where the facts of the case are looked at from the perspective of a reasonable person and then
decided if such a reasonable person intended that the afore-mentioned agreement ought to
have been legally binding or not.

CONCLUSION

A contract is an accepted proposal (agreement) that is fully understood by the law and is
legally defined or enforceable by the law.

So a contract is a legal document that bestows upon the party’s special rights (defined by the
contract itself) and also obligations that are introduced, defined, and agreed upon by all the
parties of the contract.

In the case at hand, Mr. A invited Mr. B for his sisters marriage. B accepted the invitation but
due to some reason B could not attend the function.

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Essential elements of a valid contract are not fulfilled, i.e.,

0. Consideration

0. Intention to create legal obligation

Therefore, we can say that this is not a valid contract but a social agreement as there was
neither consideration nor intention to create legal obligation.