Agreement and contract: meaning, essentials and kinds

1. The definitions in section 2

• Proposal, s.2(a): one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other.
• Promise, s.2(b): when the person to whom the proposal is made signifies his assent, the proposal is accepted, and a proposal when accepted becomes a promise.
• Promisor and promisee, s.2(c): the person making the proposal and the person accepting it.
• Consideration, s.2(d): the act, abstinence or promise done at the desire of the promisor.
• Agreement, s.2(e): every promise and every set of promises forming the consideration for each other.
• Void agreement, s.2(g): an agreement not enforceable by law.
• Contract, s.2(h): an agreement enforceable by law.
• Voidable contract, s.2(i): enforceable at the option of one or more parties but not at the option of the others.
• Contract becoming void, s.2(j): a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Put shortly, agreement = offer + acceptance (with consideration), and contract = agreement + enforceability. Sir Frederick Pollock’s description of a contract as “every agreement and promise enforceable at law” says the same thing.

2. Agreement and contract distinguished

All contracts are agreements, but all agreements are not contracts. An agreement is the wider term; it covers social, moral and domestic promises as well as legal ones. It becomes a contract only when the law will enforce it. An agreement to dine with a friend, an agreement without consideration that falls outside section 25, and an agreement with a minor are all agreements, and none of them is a contract.

3. Essentials of a valid contract: section 10

Section 10 says that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. It saves any law requiring a contract to be in writing, attested or registered. From this and section 2 the essentials are:

• an offer and acceptance (ss.2(a), 2(b), 3–9);
• an intention to create legal relations (judge-made; see below);
• lawful consideration (ss.2(d), 23, 25);
• capacity: majority, sound mind, not disqualified by law (ss.11, 12);
• free consent: not caused by coercion, undue influence, fraud, misrepresentation or mistake (ss.13–22);
• lawful object (ss.23, 24);
• not one of the agreements expressly declared void (ss.24–30, 56): restraint of marriage, of trade, of legal proceedings, uncertain agreements, wagers, impossible acts;
• certainty of meaning (s.29) and possibility of performance (s.56);
• formalities where a statute requires them, for example registration of a gift deed, or writing and registration under s.25(1).

4. Intention to create legal relations

The Act does not mention this requirement, but courts read it into the word “enforceable” and into section 2(a)’s idea of seeking assent. In Balfour v. Balfour (1919, Court of Appeal), a husband working in Ceylon promised his wife, who stayed in England for her health, £30 a month. When the marriage broke down she sued. Atkin L.J. held there was no contract: arrangements between husband and wife in the ordinary course of married life are not intended to be legally binding, and the courts should not enter the home to enforce them. Contrast Merritt v. Merritt (1970), where a written promise made after the spouses had separated was enforced, because people who have parted do intend legal consequences.

The presumptions are two. In social and domestic agreements the presumption is against legal intention. In commercial agreements it is in favour of it, and can be rebutted only by clear words, such as the “honour clause” in Rose and Frank Co. v. J.R. Crompton & Bros. (1925).

5. Classification of contracts

By validity.

• Valid: satisfies all the essentials and is enforceable.
• Void agreement: void from the beginning, s.2(g). A minor’s agreement is void ab initio: Mohori Bibee v. Dharmodas Ghose (1903, Privy Council).
• Void contract: valid when made, becomes void later, s.2(j), for example by supervening impossibility under s.56.
• Voidable: valid until avoided by the party whose consent was not free, s.2(i) read with ss.19 and 19A.
• Illegal: forbidden by law or opposed to public policy, s.23. Every illegal agreement is void, but not every void agreement is illegal. A wager is void under s.30 but not illegal, so a collateral transaction survives (Gherulal Parakh, discussed in the note on unlawful consideration). Collateral transactions to an illegal agreement are tainted too.
• Unenforceable: valid in substance but cannot be sued on because of a technical defect, such as want of stamp or registration, or a bar of limitation.

By formation. Express (words spoken or written) and implied (inferred from conduct), as section 9 provides. Boarding a bus or using a weighing machine makes an implied contract. Quasi-contracts (ss.68–72) are not contracts at all but obligations the law imposes to prevent unjust enrichment.

By performance. Executed (one or both parties have performed) and executory (performance remains due on both sides).

By obligation. Bilateral (a promise for a promise, as in most sales) and unilateral (a promise for an act, where only one side is bound when the contract is made, as in a reward offer like Carlill).

6. Problem

A invites his friends B, C and D to a party at his house. They accept. A spends Rs 25,000 on food and arrangements. None of them turns up. Can A sue them for the money?

Issue. Whether the acceptance of a social invitation creates a contract enforceable under section 2(h).

Law. An agreement is a contract only if it is enforceable by law (s.2(h)) and the parties intended legal consequences. In social and domestic arrangements the presumption is that they did not: Balfour v. Balfour. There is also no consideration flowing from the guests at A’s desire in the sense of s.2(d); A asked for their company, not for a bargain.

Application. A dinner invitation between friends is a classic social engagement. Nothing suggests either side contemplated a lawsuit if a guest stayed away. The money was spent by A voluntarily, as a host, not on the strength of any binding promise. Nothing rebuts the presumption, such as a written undertaking or a commercial setting.

Conclusion. There is an agreement but no contract. A cannot recover the Rs 25,000. The answer would differ if, say, the “party” were a paid event and B had booked a caterer through A, or had promised in writing to share the cost.

How this is examined

As an essay: “All contracts are agreements but all agreements are not contracts. Discuss,” or “Explain the essentials of a valid contract.” Lead with the section 2 ladder, then section 10 point by point, each essential with one line and one case. As a short note: intention to create legal relations (Balfour), or void and voidable contracts. The party-invitation problem appeared in the January 2026 paper and is answered as above.