Difference Between Agreement And Contract In India

Many of us frequently use the phrases “Agreement” and “Contract” interchangeably. However, there is a big difference between these two words. Do you understand the distinction between an agreement and a contract? If not, there is no need for concern. You are in the appropriate location. The distinction between an agreement and a contract will be covered in great length in this essay.

Definition with Examples

Definition of Agreement

A commitment is referred to as an agreement when a person (the promisor) makes a promise to another person (the promise) and the latter accepts the proposition with similar regard. Consensus ad idem or identity of minds occurs when two or more people concur on the same idea in the same way. The following types of agreement are mentioned below:

• Wagering Agreement
• Void Agreement
• Implied Agreement
• Express Agreement
• Conditional Agreement
• Voidable Agreement
• Illegal Agreement.

An agreement can also be defined as a contract that lacks enforceability by law


Definition of Contract

To be more specific, a contract is a legally binding arrangement for performing or refraining from performing an act. An agreement must have the following components in order to be valid: an offer and acceptance, adequate and unqualified consideration, free consent, capacity, a lawful object, certainly, and an intention to create legal responsibilities.

The contract may be oral or written. The major types of contracts are as under:

• Void Contract
• Valid Contract
• Voidable Contract
• Unilateral Contract
• Express Contract
• Bilateral Contract
• Contingent Contract
• Quasi Contract etc.
• Executory Contract
• Tacit Contract
• Implied Contract
• Executed Contract

Everything about a contract

As we all know, the Indian Contract Act of 1872 governs all contracts in India. It is crucial to comprehend the Act’s definition of a contract. An arrangement that is legally enforceable is referred to as a contract under Section 2(h) of the Act. As a result, a contract is a written agreement that is legally binding and signed by two parties. So, who can sign a contract? A person who is younger than 18 years old, mentally incompetent, and otherwise ineligible to enter into a contract is prohibited by section 11 of the Act. A contract with an illegal object and a prohibited consideration is prohibited by Section 23 and is regarded as illegal.

Hence a contract to kill someone would be null and void if it were given to someone. A 10-year-old signing a business agreement won’t be considered a contract either. Hence, a contract is a binding legal agreement that specifies a legal duty or obligation in exchange for payment from both parties.

Reasons one should opt for a contract

These days, contract management is a thing. The majority of businesses maintain this policy in place because their clientele and contracts are secure. Why is this significant?

Aids in secrecy maintenance.

Contracts are a good way to keep things confidential. Both parties are aware that they must uphold secrecy once the contract is signed. The contract may be broken if any information about it is revealed to a third party, which may also undermine the other party’s trust.

Offers evidence and security

Every provision of a contract is clear and readable. This avoids a great deal of doubt and perhaps even conflicts between the parties because there is sufficient evidence of it. Furthermore, both parties are conscious of the fact that the agreement they signed will be used as a benchmark in the future. So, as a result of this, they feel secure.

Drafting a contract

The process of drafting a contract is tedious and long. Thus the following procedures that should be followed during drafting are listed below.

Condition and factors

A contract between two parties must have conditions that are advantageous to both parties. The consideration must also be mutually agreed upon and advantageous to both parties. Whether a contract’s terms are expressed orally or in writing, keeping a documented record of them will help to prevent misunderstandings. Thus, a written agreement is preferred to an oral one.

Jurisdiction

The contract should be written with the applicable laws in mind. The parties may also agree in advance as to the court’s jurisdiction over the transaction. This indicates that the parties may mutually decide to submit any legal disputes arising from this agreement to a certain court. For instance, all courts in Bombay are subject to the authority of this contract.

Confidentiality and dispute resolution clause

A contract must contain both a confidentiality clause and a clause addressing dispute resolution. This will aid in preserving the party’s confidentiality and ensure that any contract violations are taken seriously.

Termination of the contract

The contract’s duration and end date should be clearly stated. It will be beneficial to give notice before the termination.

Negotiation

The original contract proposal is frequently contested by the other party. Hence, if a counteroffer or another offer is made, it should be appropriately negotiated.

Compensation

The contract should include a remedy/compensation clause to provide some level of protection in the event of a breach.

Signing the contract

Both parties must sign a contract after going over the terms. The final page of the contract should also include information like the signing dates, etc. the contract shall be binding upon the parties once executed by both parties.

Everything about an Agreement

According to Section 2€ of the Indian Contract Act of 1872, an agreement is defined as a series of commitments that serve as a consideration for both parties. An accepted proposition or offer turns into a promise, according to Section 2(b) which defines this term. Therefore a promise can be seen as an offer given by one person to another, and if that other person accepts the offer, it turns into an agreement.

An agreement that is not legally binding is void, just like a contract. In the Act’s Section 2(g), this is stated. The Indian Contract Act also lists a few situations in which contracts are expressly void as evidence for this claim. These situations are;

Agreement in restraint of marriage

A marriage restriction agreement is void, according to Section 26 of the act. This means that a contract prohibiting someone from getting married of their own free will or choice is invalid. A minor is an exclusion to this rule. in the year 1908, it was decided that in a situation where the father is giving consideration for marrying his daughter, such a marriage is void as it violates Section 23 of the Indian Contract Act.

Agreement in restraint of trade

According to Section 27 of the Act, any arrangements formed in exchange for money or other benefits and intended to prevent a person from engaging in their line of business are void. This means that a contract is void if it favors one party and disadvantages another party when someone stops working. It was decided by the court, that a person could be prevented from practicing his trade because of an agreement he entered into. The phrase “freedom of trade” is appropriate here.

Agreement in restraint of legal proceedings

According to Section 28 of the Act, any arrangement that prevents the opposing party from using their legal right to file a lawsuit for contract violation is deemed to constitute a limitation on legal action.

Wagering Agreements

Section 30 of the Indian Contract Act of 1872 says that wagering agreements are illegal. If there arises a scenario where a lawsuit is filed to claim something won in a wager, which cannot be enforced by the law.

How to make an agreement valid legally.

A memorandum of understanding, cooperation agreement, non-disclosure agreement, etc, are a few examples of the different types of agreements. They all appear distinct, don’t they? Indeed, they are used for many purposes, but in order for an agreement to be legally binding, it must also comply with specific legislative requirements. These provisions include some of the following;

Stamping

All agreements in India are required to be stamped under the Indian Stamp Act of 1899. As a result, the agreement is enforceable and valid in law.

Registration

Agreements and other documentation must be registered under the Indian Registration Act of 1908.

According to the Act, certain agreements are listed in Section 17 as required mandatory registration. They comprise lease deeds, sale deeds, purchase agreements, gift deeds, etc.

Licensing

Getting a license is not a need for an agreement to be legally binding; rather it is a sort of arrangement that allows one party to grant another party the right to use his or her intellectual property, trademarks, patents, or products that they utilize. In this case, the person granted the right to use property is referred to as the licensor, and the individual obtaining the right is known as the licensee.

Similarities between a Contract and an Agreement.

Contracts and agreements might be different in a lot of other ways, but they are similar in a lot of other ways as well. These similarities are mentioned below;

Proposal

In both an agreement and contract, one party must make an offer or a “proposal” in layman’s terms. The second party to whom the offer is made must accept it without condition.

Acceptance

The offer made by the first party must be accepted by the recipient. The offer must be accepted without conditions. Both the agreements and the contract require that the offer be accepted. If the acceptance is given with certain conditions, it is not acceptable and will be regarded as a cross-offer.

Consideration

The parties must exchange some form of value in exchange for their offers, and this exchange of consideration must be for a fair sum.

It should not be capricious or unjustified. Examples include cash, possessions, or a pledge to carry out or refrain from carrying out a particular action.

Section 2(d) of the Indian Contract Act of 1872 provides a definition of consideration.

Differences between a Contract and an Agreement.

Agreement

Contract

The agreement is defined under Section 2 (e) of the Indian Contract Act, of 1872.

A contract is defined under Section 2 (h) of the Indian Contract Act, of 1872.

It is a proposal made by one side and accepted by the other with agreement on the same thing in the same sense.

It is an agreement with specific terms and conditions made by two or more parties in exchange for something of value.

According to the Act, every pledge that serves as the basis for another’s consideration is an agreement.

As per the Act, an agreement enforceable by law is a contract.

An agreement is ultimately formed by an offer and its acceptance.

When an agreement is enforceable by law, it becomes a contract.

There are a lot of scopes of an agreement.

Since a contract has to comply with numerous conditions, hence its scope is limited.

Not all agreements do not bind the parties to any kind of legal responsibilities.

unless there arises some legal exception, all contracts lead to legally obliged parties.

An agreement can be legal as well as illegal.

In order to be effective, a contract has to be legal.

An agreement is preliminary to a contract.

Without the agreement of the parties, a contract cannot be entered into.

Agreements can be verbal or written.

Written contracts are generally preferred over oral contracts.

Reasons why all contracts are agreements but all agreements are not contracts.

Since now we know what each term means, we may have realized how similar and nearly identical these two terms are. Each of these documents requires two parties, and they both contain terms like consideration, offer, and acceptance. However, evidence suggests that each of these is just marginally different.

An agreement may or may not be in the form of a contract, but it must be between two or more parties and it must be enforceable by law. For example, for a business agreement, simply accepting an offer won’t be enough. It should be put in writing to make sure that all applicable laws are obeyed and that all the parties are given due regard. Hence this is a contract. Another example is when your friend asks if he can borrow your laptop for a few days, and you say yes. As a result, there is no consideration involved in this informal agreement. But it will become a contract if you demand that your friend pay a set sum of money for each day that he borrows your laptop.

A contract, which is binding by law, necessitates an offer, acceptance, and mutual consent between the parties. While an agreement will be enforceable even if none of these conditions are met. Therefore, all agreements that are legally binding are contracts. However, not all contracts are agreements because, as shown in the example above, some agreements may be informal.

What’s better; A Contract or an Agreement?

Both contracts and agreements are crucial in their own right. Analyze the above-mentioned business agreement example. A company agreement is a crucial document. Are the promises made in the agreement, which is what it is valid in this situation? Do you believe the other party will accept a commitment you make without providing any formal confirmation or delivering anything in return? No is the clear-cut response. A written contract is therefore required in this situation. Verbal agreements are also considered agreements, but they must contain the aforementioned components.

Yet, if there is no consideration involved, agreements may be preferred because creating a contract can be a tedious and time-consuming procedure.

If you want to be more secure and cautious with your deal, a contract is a preferable option. Hence, as I just said, both of these phrases are valuable and significant.