Define agreement in business law

Agreement

Section 2(e) of the Contract Act defines agreement as every promise and every set of promises forming the consideration for each other. In this context a promise refers to a proposal (offer) which has been accepted. For example, Ramesh offers to sell his scooter for Rs. 20,000 to Shyam. Shyam accepts this offer. It becomes a promise and treated as an agreement between Ramesh and Shyam. In other words, an agreement consists of an offer by one party and its acceptance by the other. Thus,

Agreement = Offer + Acceptance

From the above analysis it is clear that there must be at least two parties to an agreement, one making an offer and the other accepting it. No person can enter into agreement with himself. There is another important aspect relating to an agreement i.e., the parties to an agreement must have an identity of minds.

in respect of the subject matter. They must agree on the same thing in the same sense. This is also called consensus-ad-idem. Suppose A has two houses, one situated in South Delhi and the other in North Delhi. He offers to sell his North Delhi house to B while B is under the impression that he is buying the South Delhi house. Here, there is no identity of minds. Both the parties are thinking about different houses. Hence there is no agreement.

Legal Obligation

In order that an agreement may be regarded as a contract, it must give rise to a legal obligation i.e., it must be enforceable by law. Any obligation (duty) which is not enforceable by law is not regarded as a contract. Social, moral or religious agreements do not create any legal obligation. For example, an agreement to take lunch together or to go to a picnic is not a contract because it does not create a duty enforceable by law.

Such agreements are purely of a social nature where there is no intention to create legal relationship. Hence, they do not result in contracts. In case of business agreements, however, the usual presumption is that the parties intend to create a legal relationship. For example, an agreement to sell a scooter for Rs. 20,000 is a contract because it gives rise to an obligation enforceable by law. In this agreement if there is default by either party, an action for breach of contract can be enforced through a court of law provided all the essentials of a valid contract are present in the agreement.

You must also note that every obligation which is enforceable by law is not automatically regarded as a contract. The obligations which do not arise out of agreements but from sources such as wrongful acts, judicial decisions or decree of a court, husband and wife relationship are not regarded as contracts. Thus, the law of contract is concerned with only those obligations which arise out of agreement. Salmond has rightly said about the law of contract that “………….. It is the law of those agreements which create obligations, and those obligations which have their source in agreements.”

Difference between an Agreement and a Contract

Agreement	Contract
Offer and its acceptance constitute an agreement.	Agreement and its enforceability constitute a contract.
An agreement may not create a legal obligation	A contract necessarily creates a legal obligation.
Every agreement may not be a contract.	All contracts are agreements.
Agreement is not a concluded or a binding contract.	Contract is concluded and binding on the concerned parties.

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Define agreement in business law