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All Contracts are Agreement but all Agreements are not Contract

All Contracts are Agreement but all Agreements are not Contract

An agreement means a kind of understanding or arrangement made between two or more parties about the rights, responsibilities, duties with each other. At the same time, a Contract refers to a specific type of agreement which creates a legally binding obligation and arrangement between two or more parties which can be enforceable by law.

For creating an agreement a party needs to reach a point of “Meeting Of Minds”, i.e. they are required to come to a common understanding as to their relative rights and responsibilities.

But for the sake of a valid Contract, various essential conditions need to be followed. The necessary for valid contracts are as follows:

  • Offer and Acceptance: There must be the presence of crisp and clear specific offers to party/parties, and also there must be acceptance of that given offer.
  • Mutual Consent: The acceptance to offer must be of free consent by the parties with the use of any force or coercion; the parties involved must agree to the same terms and conditions mentioned herein.
  • Consideration: There must be the presence of some exchange between the parties. Consideration can take the form of money, goods, or services, but both parties must provide something of value for a contract to be formed. If only one side provides something, it is a gift, not a deal.
  • Competence: One of the critical factors for creating a contractual relationship is that the parties must be eligible for entering into a contract legally and mentally, i.e. none of the parties should be minor, nor should be intoxicated at the time or mentally sick. If an incompetent party agrees, it becomes Void.
  • Legal Purpose: For creating a valid contract, the clauses mentioned in terms of the agreements must fall within the scope of the law. A contract that contains any legal terms is said to be void and is not enforceable in court.

Examples

  • An agreement takes place just by MEETING OF MIND of parties. This whole process does not involve any consideration; thus, it is not a contract. Other common examples of agreements that are not contracts include gentlemen’s agreements and unlicensed betting pools. The non-contract contracts are not legally enforceable.
  • “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 legal consequences should attend them. Essential Elements of a Valid Contract A contract has been defined as “an agreement enforceable by law.” 1
  • Common examples of contracts are non-disclosure agreements, end-user license agreements (both despite being called “agreements”), employment contracts, and accepted purchase orders. Regardless of how it is named, as long as an agreement contains required elements of a contract enumerated, the court may enforce it as such.
  • “A 1000 liters of oil ” There is nothing clear from the statement that what kind of oil is involved in the contract. The agreement is void for uncertainty. “An agreement to do an act impossible in itself is void”.
  • For example, A invites B for lunch, but B later doesn’t go for lunch, resulting in wastage of food and time for A. Thus A cannot go to court for remedy, since it was just a domestic agreement and not a legally valid contract.
  • Rishu promises to pay his debt to Gunjan, and the whole agreement is in written form as well as registered. Thus Gunjan makes the agreement enforceable in court if Rishu creates a default.
All Contracts are Agreement but all Agreements are not Contract

Businessman Discussing Agreement & Contract

One of the significant points to focus on in the cases of agreement, they are informal and also don’t meet the conditions of a valid contract.  In a situation where there is a relation of long-lasting trust between parties, the non-contractual agreement can be used as it saves both time and money. Also, these agreements are more flexible and can be molded easily depending upon the requirements and needs. Drafting of a valid contract can be a bit burdensome at times for patties and can also be a considerable time taking process.

But if we look at the advantages of the contract it mentions every terms and duty and right of the parties involved, which they have agreed. If there arises any breach in terms of contracts by any party, the aggrieved party can furnish the agreement in the court to get appropriate remedies. Also, in a case where there are enormous trust and a long-lasting relationship between the parties, they tend to use the contract to create a layer of security to the deal. It is advisable to opt for a contract, instead of non-enforceable agreements in case of any official or business matters, because they create extra layers of protection and an obligation of performing the duty.

 

Pratik Harsh
[email protected]

Founder and Partner at Vidhinyas Solicitors & Associates He specializes mainly in matters related to Intellectual Property Law, Family Disputes & Commercial Contracts. He is skilled in IPR filings, Legal Documentation, and conducting corresponding legal formalities. He is experienced in conducting and preparing for seminars, client presentations, and negotiations.

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