Contract & Agreement: Definitions, Types & Classification
1. Statutory Definitions: Agreement vs. Contract
The legal framework of commercial exchange rests upon two foundational pillars defined under the Indian Contract Act 1872:
A. Proposal / Offer — 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 to such act or abstinence, he is said to make a proposal.”
B. Promise — Section 2(b)
“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.”
C. Agreement — Section 2(e)
“Every promise and every set of promises, forming the consideration for each other, is an agreement.”
D. Contract — Section 2(h)
“An agreement enforceable by law is a contract.”
2. “All Contracts are Agreements, but All Agreements are Not Contracts”
This celebrated legal maxim explains the exact hierarchical relationship between agreement and contract:
- Agreement is the Genus, Contract is the Species: Every contract necessarily originates as an agreement. Without mutual consensus and promise, a contract cannot exist.
- Not all Agreements create Legal Obligations:
- Social / Domestic Agreements: An invitation to dinner, or a promise by a father to give pocket money to his son. These agreements lack an intention to create legal relations (Balfour v. Balfour [1919]).
- Void Agreements: Agreements entered into by minors (Mohori Bibee v. Dharmodas Ghose), or agreements without consideration (Sec 25), or in restraint of trade (Sec 27). These are agreements, but the law refuses to enforce them.
- The Enforceability Filter: Only agreements that satisfy the strict conditions of Section 10 graduate into contracts.
3. Systematic Classification of Contracts
Contracts can be classified into distinct categories based on Validity/Enforceability, Mode of Formation, and Extent of Performance.
- Valid Contract: Enforceable at law, satisfies all Sec 10 conditions.
- Void Agreement [Sec 2(g)]: Void ab initio; confers no legal rights.
- Void Contract [Sec 2(j)]: Ceases to be enforceable due to supervening events.
- Voidable Contract [Sec 2(i)]: Enforceable at option of aggrieved party.
- Illegal Agreement: Forbidden by law; collateral agreements are also void.
- Unenforceable Contract: Good in substance but lacks technical proof.
- Express Contract: Formed by words spoken or written [Sec 9].
- Implied Contract: Inferred from conduct of parties or trade circumstances.
- Quasi-Contract: Created by operation of law based on unjust enrichment [Sec 68-72].
- E-Contract: Formed via electronic means (EDI, click-wrap, browse-wrap).
- Executed Contract: Both parties have fully discharged their obligations.
- Executory Contract: One or both parties have yet to perform in future.
- Unilateral Contract: One party has performed; only one party owes an obligation.
- Bilateral Contract: Outstanding reciprocal promises on both sides.
4. Key Legal Differences: Void Agreement vs. Voidable Contract
| Basis | Void Agreement — Sec 2(g) | Voidable Contract — Sec 2(i) |
|---|---|---|
| Meaning | An agreement not enforceable by law at all. | An agreement enforceable at the option of one party, but not at the option of the other. |
| Status ab initio | Void from the very beginning (ab initio); nullity. | Valid and binding when made; becomes void only when rescinded by the aggrieved party. |
| Cause | Absence of essential elements (e.g., minor party, unlawful object). | Consent caused by coercion, undue influence, fraud, or misrepresentation. |
| Third-Party Rights | Third party cannot acquire any valid title from it. | Third party acquiring goods in good faith before rescission gets valid title. |
| Damages | No question of damages arises. | Aggrieved party can claim damages in cases of fraud or misrepresentation. |