“All Contracts Are Agreements, but All Agreements Are Not Contracts” —

Introduction

The terms agreement and contract are closely related in business law, but they do not have the same meaning. An agreement becomes a contract only when it is enforceable by law. This principle is clearly expressed in the Indian Contract Act, 1872.

According to Section 2(h):

“An agreement enforceable by law is a contract.”

Therefore, the relationship between an agreement and a contract can be expressed as:

Contract = Agreement + Legal Enforceability

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1. Why All Contracts Are Agreements

A contract must first originate from an agreement between two or more parties.

According to Section 2(e) of the Indian Contract Act, 1872, an agreement is formed by promises that constitute consideration for each other.

For example, A offers to sell his laptop to B for ₹40,000, and B accepts the offer. There is an agreement between A and B. If this agreement satisfies all the legal requirements, it becomes a contract.

Therefore, every contract necessarily contains an agreement.

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2. Why All Agreements Are Not Contracts

Not every agreement is legally enforceable. Some agreements may lack one or more essential requirements of a valid contract.

For example, an agreement may fail because:

• The parties are not competent to contract.
• Consent was not free.
• The object or consideration is unlawful.
• The agreement is expressly declared void.
• The terms are uncertain.
• The required legal formalities have not been fulfilled, where applicable.

Therefore, an agreement becomes a contract only when it satisfies the requirements of law.

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3. Examples

Example 1: Social Agreement

A promises his friend B that he will take B to dinner next Sunday.

B agrees.

This may be an agreement in the ordinary sense, but it is generally not intended to create a legally enforceable obligation. Therefore, it is not ordinarily a contract.

Example 2: Business Agreement

A agrees to sell 100 units of a product to B for ₹50,000. B accepts the offer, and both parties are legally competent, give free consent, and agree to a lawful transaction.

Subject to the applicable legal requirements, this agreement can become a contract because it is legally enforceable.

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4. Difference Between Agreement and Contract

Basis Agreement Contract Meaning Promise or set of promises forming consideration for each other Agreement enforceable by law Legal enforceability May or may not be enforceable Enforceable by law Scope Wider Narrower Relationship May become a contract Always begins with an agreement Example Social or other non-enforceable arrangement Valid sale or service contract

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5. Relationship Between Agreement and Contract

The relationship can be represented as:

Agreement
↓
Meets legal requirements
↓
Legally enforceable
↓

Contract

Thus:

All contracts are agreements because a contract is based on an agreement. However, all agreements are not contracts because only agreements that are legally enforceable become contracts.

Conclusion

The statement “All contracts are agreements, but all agreements are not contracts” is a fundamental principle of contract law. An agreement is the starting point, while a contract is an agreement that has acquired legal enforceability. Therefore, for an agreement to become a valid contract, it must satisfy the essential requirements prescribed under the applicable law, including lawful consideration, competency of parties, free consent, lawful object and other relevant requirements.