Agreement vs Contract: Meaning, Differences and Examples (Indian Contract Act, 1872)
“Agreement” and “contract” are used almost interchangeably in daily life. In law they are not the same. Every contract begins as an agreement, but many agreements never become contracts. This page explains the statutory definitions, the difference between the two, and the cases that show where the line falls.
What is an agreement? (Section 2(e))
Section 2(e) defines an agreement as every promise, and every set of promises, forming the consideration for each other. It follows from the chain in Section 2:
- A proposal is made when one person signifies willingness to do or abstain from something in order to obtain another’s assent (Section 2(a)).
- When the other party signifies assent, the proposal is accepted and becomes a promise (Section 2(b)).
- Promises that are the consideration for each other form an agreement.
Section 2(h) states that an agreement enforceable by law is a contract, and an agreement not enforceable by law is void under Section 2(g).
What is a contract? (Section 2(h))
A contract is an agreement plus legal enforceability. The Act’s test for enforceability is in Section 10: an agreement is a contract if it is made with the free consent of competent parties, for a lawful consideration and with a lawful object, and is not expressly declared void. The essentials are covered in detail in our page on Section 2(h).
The core difference
Contract = Agreement + Enforceability. An agreement asks whether the parties have reached a consensus. A contract asks whether the law will back that consensus with a remedy. Every contract is an agreement, but not every agreement is a contract. Agreement is the wider category, and contract is the smaller set inside it that courts will enforce.
Comparison table
| Basis | Agreement | Contract |
|---|---|---|
| Statutory definition | Section 2(e) | Section 2(h) |
| Meaning | Promises that are consideration for each other | Agreement enforceable by law |
| Scope | Wider, includes social, moral and void arrangements | Narrower, only legally enforceable agreements |
| Legal obligation | May or may not create one | Always creates one |
| Remedy in court | Not guaranteed | Available (damages, specific performance, etc.) |
| Section 10 conditions | Need not be satisfied | Must be satisfied |
| Formula | Offer + Acceptance (as commonly taught) | Agreement + Enforceability |
| Example | Agreeing to attend a friend’s party | Agreeing to sell a car for ₹4 lakh |
Why some agreements are not contracts
1. No intention to create legal relations. In Balfour v. Balfour [1919] 2 KB 571, the Court of Appeal held there is a rebuttable presumption against legal intention in domestic agreements. A husband’s promise of monthly maintenance to his wife was therefore not enforceable. The parties can also exclude legal intention by express words. In Rose & Frank Co. v. Crompton & Bros [1925] AC 445, the House of Lords held that a memorandum with an “honourable pledge” clause was not a contract, but the individual orders placed under it were separate enforceable contracts. Both are English decisions, so in India they are persuasive rather than binding.
2. Incompetent parties. In Mohori Bibee v. Dharmodas Ghose (1903) 30 IA 114, the Privy Council held that a minor’s mortgage was absolutely void from the start. There was an agreement in fact but no contract in law.
3. Agreements the Act declares void. These include agreements with unlawful consideration or object (Section 23), agreements without consideration (Section 25, subject to exceptions), agreements in restraint of trade (Section 27), agreements void for uncertainty (Section 29) and wagers (Section 30). The Act’s own illustration for Section 29 is an agreement to sell “a hundred tons of oil” with nothing to show which oil.
Where void and voidable fit
The two definitions above leave two related terms:
- Void agreement (Section 2(g)): never enforceable. It is an agreement but never a contract.
- Voidable contract (Section 2(i)): enforceable at the option of one or more parties but not the other or others. It is a contract until the entitled party avoids it, for example for fraud under Section 19.
- Void contract (Section 2(j)): a valid contract that later becomes unenforceable, for example through supervening impossibility under Section 56.
Worked example
A tells B, “Let’s have dinner Sunday,” and B agrees. That is an agreement, but no one intended a legal consequence, so it is not a contract. Now A agrees to sell his laptop to B for ₹40,000, and B agrees to pay. Both are adults of sound mind, the consent is free, the price is lawful consideration and the object is lawful. This is an agreement enforceable by law, so it is a contract. If B were 16, the same laptop deal would be a void agreement.
Common exam mistakes
- Writing “agreement and contract are the same.” They are not. Enforceability separates them.
- Quoting only the formula. Cite Sections 2(e), 2(h) and 10 to earn full marks.
- Calling every void agreement a void contract. Section 2(g) covers void agreements. Section 2(j) covers contracts that later become void.
- Ignoring intention. Social and domestic arrangements are the classic examples of agreements that are not contracts.
FAQs
Is every contract an agreement? Yes. Section 2(h) defines a contract as a kind of agreement.
Can an agreement exist without being a contract? Yes, for instance a social promise, a minor’s agreement or an agreement for an unlawful object.
Is a voidable agreement a contract? Under Section 2(i) it is a voidable contract, valid until the entitled party avoids it.
References
- The Indian Contract Act, 1872 (Act 9 of 1872), ss. 2(a)–(j), 10, 19, 23, 25, 27, 29, 30, 56. Official text: India Code, indiacode.nic.in/handle/123456789/2187. Section text checked against Bare Acts Live, bareactslive.com/ACA/ACT022.HTM.
- Balfour v. Balfour [1919] 2 KB 571 (CA).
- Rose & Frank Co. v. J.R. Crompton & Bros Ltd [1925] AC 445 (HL); [1924] UKHL 2.
- Mohori Bibee v. Dharmodas Ghose (1903) LR 30 IA 114 (PC); [1903] UKPC 12.
