Agreement vs Contract under the Indian Contract Act, 1872: Section 2(e) and Section 2(h), Enforceability and Why Every Agreement Is Not a Contract

The proposition that all contracts are agreements but all agreements are not contracts is the shortest accurate summary of Sections 2(e), 2(h) and 10 read together. An agreement is the raw material; enforceability is what the law adds to it. The distinction is not merely terminological. It determines whether a party can bring an action at all, and it explains why the Act devotes far more space to the conditions of enforceability than to the mechanics of agreement. This topic states the two definitions, identifies the precise point at which an agreement crosses into contract, and works through the situations in which an agreement stops short.

1. The Two Definitions

The structure is deliberate. Section 2(e) defines an agreement without any reference to legal effect, so that the term covers every exchange of promises whether the law will act on it or not. Section 2(h) then adds one word, enforceable, and that single addition is the whole of the distinction. Section 10 supplies the content of enforceability, and Section 2(g) names the residue: an agreement that fails the test is void.

1.1 The formula

The relationship is captured by two propositions which must both be held in mind. First, agreement equals promise plus consideration, since Section 2(e) requires a promise or set of promises forming the consideration for each other, and Section 2(b) tells us that a promise is an accepted proposal. Second, contract equals agreement plus enforceability. It follows that every contract necessarily contains an agreement within it, while an agreement may exist in perfectly good standing as a social or moral fact without ever becoming a contract.

2. The Points at Which an Agreement Fails

An agreement falls short of contract in six identifiable ways, each corresponding to a limb of Section 10 or to a class the Act expressly excludes.

1. No intention to create legal relations. Domestic, social and family arrangements are presumed not to be intended to attract legal consequences. The Act does not say so in terms, but the presumption operates through the question whether there was a promise at all.
2. Absence of capacity. Sections 11 and 12. An agreement by a minor is void from the beginning, so nothing that follows can convert it into a contract.
3. Consent not free. Sections 13 to 22. Where consent is caused by coercion, undue influence, fraud or misrepresentation the agreement does become a contract, but a voidable one. Where there is bilateral mistake as to a matter of fact essential to the agreement, Section 20 makes it void outright.
4. Unlawful consideration or object. Section 23. The agreement is void, and if the object is illegal the taint extends to collateral transactions.
5. Expressly declared void. Sections 24 to 30 and 56 exclude agreements in restraint of marriage, of trade and of legal proceedings, uncertain agreements, wagering agreements, and agreements to do an impossible act, however freely they were made.
6. Absence of a required formality. The second paragraph of Section 10 preserves every law requiring writing, attestation or registration. An agreement failing such a requirement is commonly unenforceable rather than void, which is a distinct category considered below.

2.1 Social and domestic agreements

The presumption against legal intention in family arrangements is illustrated by Jones v. Padavatton, [1969] 1 WLR 328, where a mother's promise to maintain her daughter while the daughter read for the Bar in England, and a later arrangement about a house, were held to be family arrangements rather than contracts. The presumption is rebuttable. Where spouses are separating, or where a family arrangement is reduced to a formal document defining property rights, courts have readily found the necessary intention.

2.2 When an agreement does become a contract

3. The Distinction Set Out

4. A Complication: The Unenforceable Agreement

The simple binary of agreement and contract is complicated by a third category the Act does not name. An unenforceable agreement satisfies every requirement of Section 10 and is valid in substance, but cannot be sued upon because of a procedural or technical defect. The commonest instances are a claim barred by limitation, a document that required registration under the Registration Act, 1908 and was not registered, an instrument that was insufficiently stamped, and an agreement required by some other statute to be in a prescribed form.

The category behaves differently from voidness in two respects. First, the defect is often curable: an insufficiently stamped instrument may be received in evidence on payment of duty and penalty, and a time-barred debt may be revived by a fresh promise in writing under Section 25(3). Second, the underlying obligation may still have legal consequences: money paid voluntarily in satisfaction of a time-barred debt cannot be recovered back, because the debt was due even though no action lay to recover it.

5. Why the Distinction Matters in Practice

• Maintainability. A suit lies only on a contract. If what is pleaded is an agreement that never became a contract, the plaint discloses no cause of action and is liable to be rejected.
• Restitution. Section 65 requires restoration of any advantage received under an agreement discovered to be void or a contract that becomes void. The provision therefore attaches consequences to the very finding that an arrangement was not an enforceable contract.
• Collateral transactions. Whether a related transaction survives depends on whether the principal arrangement was merely void or was illegal, a question that arises only once the arrangement has been classified.
• Third-party rights. Rights acquired in good faith and for value before a voidable contract is avoided are protected. No equivalent protection arises from a void agreement, because nothing passed under it in the first place.

6. The Position Stated Shortly

1. Section 2(e) defines an agreement; Section 2(h) adds enforceability and produces a contract; Section 10 states what enforceability requires.
2. Agreement equals promise plus consideration. Contract equals agreement plus enforceability.
3. Every contract contains an agreement; not every agreement becomes a contract.
4. An agreement fails to become a contract through absence of legal intention, incapacity, absence of free consent, unlawful object or consideration, express statutory exclusion, or want of a required formality.
5. An express disclaimer of legal intention is effective, per Rose & Frank Co. v. J. R. Crompton.
6. A gratuitous-looking promise becomes a contract where the promisee incurs a liability on the faith of it, per Kedar Nath Bhattacharji v. Gorie Mahomed.
7. An unenforceable agreement is a third category: valid in substance, defective in procedure, and often curable.
8. The classification decides maintainability of the suit, restitution under Section 65, the fate of collateral transactions, and the position of third parties.

7. Related Topics and Provisions