Joote De Do……Paise Le Lo……Remember this song from the famous Bollywood movie Hum Apke Hain kaun? While this was all about a wedding ritual, such exchanges are not something new in daily life. We all perform several transactions in a day. Now the question arises, which exchange becomes agreement? Which exchange can be enforced through Courts? Is it only property related matters where huge money is involved, or is it also applicable on a half litre milk pack of Rs 35? Coming straight to the point, what is agreement in Contract Law? Is it synonymous to contract? What is the difference between agreement and contract?
The blog here addresses these aspects of law and attempts at answering them from a legal point of view by giving some easy examples.
What is an Agreement in Law?
In order to understand what an agreement is in a legal sense, we first need to grasp two other aspects which constitute an agreement. Section 2(e) of the Indian Contract Act, 1872 states that “Every promise and every set of promises, forming the consideration for each other, is an Agreement”. Hence, what makes a promise is a prerequisite to understand what an agreement is.
Proposal + Acceptance = Promise
Proposal
When we hear the word ‘propose’, we often imagine a lover showing his willingness to start a romantic relationship with the person he is in love with. Usually, the purpose is to get a YES from the lover to start such a relationship. If the answer is a NO, the lover goes heartbroken and there is no scope for starting a relationship. In terms of Contract Law, the proposal is a bit similar. While the example here signifies romance, the one under Contract Law usually hints at some work.
Section 2(a) of Contract Act lays that “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”. In other words, if a person hints to the other to do something or to abstain from doing something, and asks for the other person’s consent, such a person is said to propose. It must be understood that a proposal has to be express, stated in words said orally, written or conveyed in gestures.
Acceptance
When we talk about a proposal, there is an expectation to seek assent to what is proposed. So, unless the proposal is accepted, there is no scope for proceeding further. Section 2(b) of Indian Contract Act, 1872 states that “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”. Hence, when a proposal is accepted, the same becomes a promise and both the parties are bound by the terms so proposed and accepted respectively.
Compared with the romantic proposal, if the same is accepted, it signifies a new beginning for the relationship. But if the same is rejected, it does not sprout anything, and things end then and there, unless started afresh. Similarly, if the proposal is accepted, the parties may proceed with the other terms and steps. If a proposal is not accepted or expressly rejected, the terms proposed have no effect. An acceptance may be express or implied as well.
Promise
As explained in the previous paragraph, a proposal once accepted makes a promise. It signifies that both the parties are supposed to be bound by the terms so promised by either of them, and proceed in furtherance of the same. It may be noted that the binding effect is not legal till now, unless there are other aspects involved, which are discussed hereunder. Going back to the romantic example, X proposes to Y and expresses his willingness to date Y, and Y in turn accepts the same. Now the two hang out with each other for a few days and then X refuses to take Y out for dinner. Here, Y cannot sue X under the Contract Act, saying that X broke the promise. That is because a promise merely in itself is not legally binding, unless additional legal aspects are there.
Agreement in Contract Law
While promise is a one way thing, agreement requires the other person to act in a certain way as well, making the two parties responsible for their specific tasks. Section 2(d) of Contract Act states that “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. Section 2(e) of the same states that “Every promise and every set of promises, forming the consideration for each other, is an agreement”.
Hence, if a person promises to give 10 packets to another, and the other person is required to pay Rs 100 for each packet, the promise involves consideration on part of the other, making up an agreement.
What is a Contract?
To convert an agreement into a contract, legal requirements come into picture. As per the Section 2(h) of the Indian Contract Act, 1872, “An agreement enforceable by law is a contract”. Let’s go back to the example of 10 packets. X promised to give 10 packets to Y in return of payment of Rs 100 for each packet. Now if those packets supposedly contain sugar or rice, the same is enforceable in law, and hence, the agreement becomes a contract. On the contrary, if the said packets contain cocaine or marijuana, whose sale is prohibited by law, the agreement cannot be enforced and thus, remains an agreement which is void as per Section 2(g). That’s why knowing the essentials of a valid contract becomes all the more important, since not all agreements make up a contract.
Agreement v. Contract
For science experts, an agreement can be called a genus, while a contract remains a species. For mathematicians, an agreement can be taken as a square, while a contract can be compared with a rectangle. The essence of these statements is that ‘agreement’ is a broader term, while ‘contract’ is a filtered aspect. While agreements can be made between two parties agreeing to do anything in exchange of another thing, but unless the same is enforceable by law, it does not become a contract.
An agreement if violated does not bring any legal consequences, but a contract does. Thus, a contract is legally enforceable, and parties have to take contracts seriously.
