Definition & Types of Contract & Agreement

1. Agreement and contract
Contracts have always been an indispensable part of our lives. Knowingly or
unknowingly, we enter into a contract hundreds of times in a year. Even when
we buy candy, we are entering into an agreement with the shopkeeper. Every
time we visit a restaurant or book a cab, we are entering into a contract.
Although the law of contract is developing with time, the jurisprudence of
contract remains the same. We know what a contract is all about but new
situations arise every day and a new question appears in the mind of whether
this particular agreement should be regarded as a contract or not!
One of the common perplexities among people is recognizing the difference
between a contract and an agreement. They are frequently used
interchangeably. For example, when the owner of a house hands over the rent
agreement and says, “Please sign the contract”, this creates uncertainty whether
the document is an agreement or a contract.
We come across ‘contract killers’ in movies who charge money to kill people.
Have you ever thought, ‘Is a contract of killing someone for money, a valid
contract?’ or ‘Can the man giving the contract sue the contract killer in the court
of law saying that the other party has committed a breach of contract by not
doing the job even after the payment of money?’.

2. An agreement (Section 2(e))
An Agreement is a promise between two entities creating mutual obligations by
law. Section 2(e) of the Indian Contract Act, 1872 defines an agreement as
‘Every promise and every set of promises, forming the consideration for each
other, is an agreement’.
To form an agreement, the following ingredients are required:
•Parties: There need to be two or more parties to form an agreement.
•Offer/ Proposal: When a person signifies to another his willingness of doing or
omitting to do something with a view to obtain other’s assent. [Section 2(a)]
•Acceptance: When the person to whom the proposal is made signifies his
assent for the same thing in the same sense as proposed by the
offeror. [Section 2(b)]
•Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]
•Consideration: It is the price for the promise. It is the return one gets for his
act or omission. [Section 2(d)]

3. The agreement should not expressly be declared to be void
There are certain kinds of contracts which are expressly declared by The Indian Contract
Act, 1872 to be null and void. The following are some of the agreements which are not
enforceable in the eyes of law:
•Agreements without consideration except it is written and registered or is a promise to
compensate for something done or is a promise to pay a debt barred by limitation law.
•Agreements in restraint of marriage
•Agreements in restraint of trade
•Agreements in restraint of legal proceedings
•Agreements void for uncertainty
•Agreements by way of wager
•Agreements contingent on an impossible event
•Agreements to do impossible act

4. Contract (Section 2(h))
A contract is a lawful agreement. In other words, an agreement enforceable by law is a
contract.
Contract = Agreement + Legal enforceability
Or
Contract = Legally enforceable Agreement
A type of agreement which is enforceable by law is a contract (Section 2(h) of the ICA).
Enforceable by law means that, if somebody is aggrieved then he may approach the court
for remedies. For example: In case of a Fire Insurance Contract where Titu wants to insure
his goods in the warehouse, he pays the insurance premium and promises to avoid
insurance fraud whereas the insurance company agrees to compensate losses in case of a
fire.

5. So Mathematically,
Agreement + Enforceable by Law = Contract
When an offer is made with the intention to create a legal obligation it becomes an offer
for entering into a contract. Thus an agreement becomes a contract when there is free
consent of the parties, capacity of the parties to contract, lawful consideration and lawful
object or subject matter (Section 10 of the ICA).
For an agreement to become a contract it must give rise to a legal obligation and if it is
incapable of doing so, it is not a contract. In the case of Balfour v Balfour [1919] 2 KB 571,
Mr. Balfour promised to pay his wife £30/month as she stayed in England for medical
reasons. When he failed to pay, Mrs. Balfour sued him. Her action failed because there was
no intention to create a legally binding agreement between Mr. and Mrs. Balfour. A contract
cannot be made without proper indication about the legal rights and obligations of the
parties to the contract. So, if this were to be a contract then the wife would have had a
right to receive payment and the husband would have had the obligation to pay his wife.
This makes an agreement a wider term than a contract. In a Venn diagram, agreements
are a bigger circle than contracts which is a smaller circle and a part of it.

6. So, an agreement is a contract when:
1.Free consent of the parties: When there is absence of Coercion (Section 15),
Undue Influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18)
and Mistake (Section 20, 21, 22), the consent is said to be free.
2.Capacity of the parties to contract: Section 11 and 12 lay down that the
competent parties are persons who have attained majority {Exception for this was
laid down in Mohori Bibee v. Dharmodas Ghose ILR (1903) 30 Cal 539 (Pc)},
persons who are of sound mind and persons who are not disqualified by law.
3.Lawful consideration and Lawful object: Section 23 lays down that the
consideration and object is lawful unless it is forbidden by law or it defeats
provisions of any law or is fraudulent or involves injury to person or property or is
violative of public health, morality, peace and order.

7. Let us look at some examples where agreements are not contracts:
1.Gabbar asked Samba to kill Jay and Veeru and Samba agreed. This is an agreement
but the object of the agreement makes it an illegal one. Therefore, it cannot be
enforced and so it is not a contract.
2.Rajesh promises his wife Chitra that he will bring for her the stars and the moon and
Sonam agrees. Here, the object of the agreement is impossible to perform and so it is
not enforceable and cannot be termed as a contract.
3.A mother promises her crying child that she will buy a Barbie doll for her but she
does not buy it. Here, the promise was not made with the intention to fulfil it and so it
is not enforceable and cannot be termed as a contract.
4.I offer my pen to Neelam and she accepts it, here an agreement is made but such
agreement is made out of friendship and has no consideration. An agreement without
consideration is not a contract (an exception to this is Section 25 of the ICA which
states that near relation and natural love and affection can be said to be
consideration).

8. Types of contract
There are various types of contracts that are formed voluntarily via civil obligations. They are
as follows:
(I) Adhesion Contracts – These types of contracts are those which are formed by the
stronger party. It is a sort of, “Opt for it or do not” contract. The stronger party or the one
that has the bargaining power leaves the other party with a choice whether to accept or
reject the contract.
(II) Aleatory Contracts – This type of contract involves a mutual agreement that comes
into being after an unexpected occurrence, accident, or a natural calamity. In this type of
contract both the parties have an element of risk. Fire or Car insurances are this type of
contract.
(III) Bilateral and Unilateral Contracts – Bilateral contracts involve two parties. Both
parties are obliged to one another for performing or abstaining to perform any act. It is also
called a two-sided contract as it involves two-way promises. Meanwhile, unilateral contracts
are those in which the promise is made by only one party. They consist of an offeror and
offeree. The offeror makes a promise to perform an action and is bound by the law to do so.
The offeree is not bound to the court even if he fails to execute the requested action because
he does not promise anything at all.

9. (IV) Express Contracts – These contracts are those wherein the terms of the
contracts are expressed clearly whether in written documents or orally.
(V) Implied Contracts – There are no oral or written terms in this type of contract.
The contracts are assumed owing to the facts of the parties. If an individual visits a
medical professional, he expects to be diagnosed for a disease or illness and be
advised a cure. This is an implied contract, and a patient is capable of suing a medical
practitioner for malpractice.
(VI) Void and Voidable Contracts – Void contracts are illegal from the very
beginning and hold no validity under law. They are thereby un-enforceable. Voidable
contracts are unlike void contracts in the sense that one party is bound by the contract
and the unbound party is capable of terminating the contract as they are unbound to it.
A quasi-contract is unlike a real contract. Salmond defines quasi contracts as “there are
certain obligations which are not in truth contractual in the sense of resting on
agreement, but which the law treats as if they were”. It is important to remember that
even though it is imposed by law, it is not created by the operation of the contract.