Written by Deepansh bhargava
Student, IILM UNIVERSITY
August 2025
In ordinary usage, we use the expression “We had a deal” or “We made an agreement” without any reference to the legal connotations that go into the employment of such terms. Though they can be used interchangeably in everyday language, in legal terminology—particularly Indian law—a contract and an agreement are distinct concepts. Knowing the distinction is vitally important when your money, rights, or obligations are involved.
Regardless of whether you are leasing space, hiring a worker, or launching a new enterprise, knowing when a transaction constitutes a binding contract can protect your legal and financial rights. More importantly, having a good contract lawyer can ensure your contracts accurately express your intentions and can be enforced.
What is an Agreement?
As Section 2(e) of the Indian Contract Act, 1872[1] defines, an agreement is “every promise and every set of promises forming the consideration for each other.” That is, an agreement is a two-party or more agreement between two or more people to do or not to do something in the future. For example, if your friend promises that he will paint your house and you agree to take him out for a meal in return, that is an agreement.
But not all contracts are enforceable under the law. If your friend renege, you will certainly be disappointed, but you probably will not have a cause of action. That is because such informal contracts, although sincere, do not have the ingredients of enforceability under the law.
A landmark case that significantly shaped the understanding of agreements is Lalman Shukla v. Gauri Dutt[2]. This case established that for an agreement to be valid, the offeree must be aware of the offer before accepting it. the plaintiff, Lalman Shukla, was unaware of a reward offered by Gauri Dutt for finding his missing nephew. Therefore, his actions, although fulfilling the terms of the reward, were not considered a valid acceptance of the offer. The court emphasized that knowledge of the offer is crucial for a valid contract
What is a Contract?
Section 2(h)[3] of the said Act has defined the contract as “an agreement enforceable by law.” It merely means that a contract is nothing but an agreement that fulfils certain legal conditions, because of which the contract is enforceable in a court of law. These conditions are free consent, legal consideration, legal object, and capacity of contracting parties, which have been explained in Section 10 to 12 of the Act.
Assume that a contractor is willing to build your house for a stipulated amount of money, and both of you enter into a written agreement specifying the terms. In the event one party fails to meet their obligation, the other can sue the party. This is the reason that the agreement is legally enforceable and satisfies all the requirements of a contract.
A landmark case that helped define what constitutes a contract is Carlill v. Carbolic Smoke Ball Co.[4] This 1893 English Court of Appeal case established that a general offer, like the one made by the Carbolic Smoke Ball Company in their advertisement, could be accepted by anyone who performed the specified conditions, creating a legally binding contract. The case also highlighted the importance of offer, acceptance, and consideration in contract formation
The Main Differences between Agreements and Contracts
By definition, all agreements are contracts, but not necessarily vice versa. An agreement is a broad term which can or cannot fulfil the requirements of enforceability. It is a loose, even verbal, agreement which is not backed by law. A contract, on the other hand, is binding, formal, and enforceable by the courts.
For example, a promise made in a coffee shop to collaborate on a project is an agreement. In the absence of intent to be bound, terms, and documentation, it is no contract, though. Conversely, a tightly worded service contract between a business and a consultant with deliverables, timelines, and payment specified is a contract.
When Is an Agreement a Contract?
In Indian law, an agreement turns into a contract only when some requirements are fulfilled:
- There should be an offer and acceptance – There should be agreement and communication of the terms by the parties.
2.There must be consideration – Something of value must be exchanged (money, service, goods, etc.).
- The consent should be free – The agreement is to be entered into voluntarily without fraud, misrepresentation, coercion, or undue influence.
- The object has to be legal – Contracts made for illegal or immoral purposes are void.
- The parties must be able to contract – i.e., be of sound mind, not a minor, and not legally disqualified.
Failure to comply with any of these stipulations can render a contract void or unenforceable.
Void Agreements and Voidable Contracts
These two legal terms are frequently misunderstood, but they are different and have different meanings and consequences.
A void agreement is a contract that is not enforceable at law in the first place. It lacks the basic requirements of legality of object or capacity of parties. For example, a contract to bring in illicit drugs is void per se—it is illegal and therefore unenforceable.
A voidable contract, on the other hand, is valid and enforceable initially but can be voided by a party due to some defects in law. For example, if a party was forced to make a contract, the party can subsequently opt to void the contract. The contract is hence valid subject to the intention of the involved party to enforce or void the contract.
In the case of Balfour v. Balfour[5] it was established that agreements made within a domestic or social context are generally presumed not to create legal relations, unless there’s clear evidence to the contrary. The court found that a husband’s promise to pay his wife an allowance while he was working abroad was not legally binding.
Types of Contracts and Agreements Under Indian Law
Indian Contract Act identifies a vast array of contracts and agreements with specific results of their own.
Contracts can be express (written or verbal) or implied (formed by conduct or by situation). They can be executed (where the promises are already extant) or executory (where performance is to be given). Based on the number of parties to whom the promises are directed, contracts can be unilateral (one party is obligated) or bilateral (both parties are obligated to one another).
Examples of legally acceptable contracts and agreements are partnership deeds, employment contracts, rental agreements, service agreements, and collaborations contracts in business. The documents should be written with legal accuracy so that they are not open to ambiguity or future conflicts.
Why You Should Consider Hiring a Contract Attorney
Whereas templates and verbal understandings suffice for simple transactions, legal contracts require a lot more than form contracts. A quality contract lawyer does more than draft your agreements—they help you anticipate hazards and avoid costly legal mistakes.
- They ensure your contracts are Indian law compliant.
- They clearly outline your responsibilities, entitlements, and obligations.
- They help determine potentially void or hazardous clauses.
- They protect you in the event of a breach through proper legal remedies.
Whatever you are entering into, contractor-subcontractor contract, partnership, or contract for services, a competent lawyer can draft and vet contracts that will pass judicial muster.
Conclusion: The Power of Legal Clarity
The distinction between an agreement and a contract is not semantics—it’s enforceability in court. To confuse an informal agreement with a legally binding contract can make you vulnerable and in hot water.
No matter if you’re starting a new venture, contracting a service provider, or signing into a financial transaction, always ensure your transactions are enforceable agreements. And never assume a handshake or off-the-cuff promise will hold up in court.
Protect your interests. Clarify your commitments. And above all, consult with a seasoned contract lawyer to ensure that your commitments are not commitments, but enforceable agreements that are in your best interests.
[1] Section 2(e) of the Indian Contract Act, 1872
[2] Lalman Shukla v. Gauri Dutt (1913) 11 ALL LJ 489
[3] Section 2(h) of the Indian Contract Act, 1872
[4] Carlill v. Carbolic Smoke Ball Co (1893) 1 QB 256 (Court of Appeal)
[5] Balfour v. Balfour (1919) 2 KB 571 (Court of Appeal)
