The Validity of a Contact

A valid contract is a legally binding agreement, between two parties, which agreement may be
evidenced by writing, words or action.

The essential elements of a contract:

1) Agreement-Offer and Acceptance

There must be a lawful offer by one party and a lawful acceptance of the offer by the
other party or parties. The adjective “lawful” implies that the offer and acceptance must
conform to the rules laid down in the Contract Act regarding offer and acceptance.

2) Intention to create legal relationship

There must be an intention (among the parties) that the agreement shall result in or create
legal relations. An agreement to dinner at a friend’s house is not an agreement intended to
create legal relations and is not a contract. But an agreement to buy and sell goods or an
agreement to marry, are agreements intended to create some legal relationship and are
therefore contracts, provided the other essential elements are present.

3) Lawful Consideration
Subject to certain exceptions, an agreement is legally enforceable only when each of the
parties to it gives something. An agreement to do something for nothing is usually not
enforceable by law. The something given or obtained is called consideration.

4) Capacity of parties
The parties to an agreement must be legally capable of entering into an agreement;
otherwise it cannot be enforced by a court of law. Want of capacity arises from minority,
lunacy, idiocy, drunkenness, and similar other factors. If any of the parties to the
agreement suffers from any such liability, the agreement is not enforceable by law,
except in some special cases.

5) Free consent
In order to be enforceable, an agreement must be based on the free consent of all the
parties. There is absence of genuine consent if the agreement is induced by coercion,
undue influence, mistake, misrepresentation and fraud. A person guilty of coercion,
undue influence etc., cannot enforce the agreement. The other party(the aggrieved party)
can enforce it subject to rules laid down in the Act.

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 6) Legality of the object
The object for which the agreement has been entered into, must not be illegal, or immoral
or opposed to public policy.
7) Certainty
The agreement must not be vague; it must be possible to ascertain the meaning of the
agreement, for otherwise it cannot be enforced.
8) Possibility of Performance
The agreement must be capable of being performed. A promise to do an impossible thing
cannot be enforced.
9) Void Agreement
The term ‘void’ means no legal binding and ‘agreement’ means consensus between
parties regarding a course of action. To simply, put a void agreement is an agreement
which is not legally binding, i.e. an agreement which lacks enforceability by law is void.

A void agreement loses its legal binding nature when declared void. Such agreement does
not creates any rights and obligation for the parties, as well as the parties do not get any
legal status. The transactions associated to the void transaction would be valid.

Certain agreements are void ab initio as per the Contract Act, which are – agreement in
restraint of marriage, agreement in restraint of trade, agreement in restraint of legal
proceeding, agreement with minor, agreement whose object or consideration is unlawful,
wagering agreement etc.

Enforceable by law:
i. Competency of parties
ii. Free consent
iii. Object must be lawful
iv. Consideration must be lawful
v. Not declared by law as void.

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But three essential elements must be present, namely

1) Agreement
2) An Intention to create legal relationship
3) Consideration

1) Agreement

The first essential element in the formation of a valid and binding contract is agreement. This is usually
analysed and understood in terms of “offer” and “acceptance”.
Agreement

Offer Acceptance

Definition of Offer

At the inception of every agreement, there must be a definite offer by one person to another and its
unqualified acceptance by the person to whom the offer is made. An offer is a proposal by one party to
another to enter into a legally binding agreement with him.
Section2(d) of the Contract Act,1872 defines, the person making the offer is known as the offeror,
proposor, or promisor and the person to whom it is made is called the offeree or propose. When the
offeree accepts the offer, he is called the acceptor or promise.

How an offer is made:

An offer may be made by express words, spoken or written. This is known as an express offer.
An offer may also be implied from the conduct of the parties or the circumstances of the case.
This is known as an implied offer.
When an offer is made to a definite person, it is called a specific order. It can be accepted only
by a person to whom it is made. When an offer is made to the world at large, it is called a general
offer.

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What constitutes an offer?

An offer is a definite promise to be bound on specific terms. It is made by an offeror. Only an

offer in the proper sense may be accepted so as to form a binding contract.
Not every proposal made by an offeror is legally regarded as an offer.The test to determine
whether or not an offer has actually been made by as follows:
a) The offer must show an obvious intention on the part of the offeror to be bound by it i.e.,
the offeror signofy to the offeree his willingness to do or to abstain from doing
something.
b) The offeror must make the offer with a view to obtaining the assent of the offeree to such
act or abstinence.
c) The offer must be definite.
d) It must be communicated to the offeree.

Acceptance

Definition-When the person to whom the proposal made signifies his assent thereto the proposal
is said to be accepted.
Essentials-1) An offer can only be acceptable by the person to whom it is made (Sec.7).
2) It must be absolute and unqualified.
3) Where a form of acceptance is prescribed the acceptance must be expressed in the
prescribed form
4) Where no form is prescribed, the acceptance must be in some usual or reasonable
Manner
5) Where the acceptance of the offer is not in the form prescribed the proposer must
inform the acceptor, within reasonable time, of this default. If he does not do so, he
is presumed to have accepted the acceptance
Mode of Acceptance-
An acceptance can be made orally, in writing or by conduct according to rules specified in
(3),(4) & (5) above. Acceptance by conduct includes:
1) The performance of the conditions of a proposal;
2) The acceptance of consideration for a reciprocal promise.
Revocation of Acceptance-
An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.

There must be a lawful offer by one party and a lawful acceptance of the offer by the other party or
parties. The adjective “lawful” implies that the offer & acceptance must conform to the rules laid down in
the Contract Act regarding offer and acceptance.
An offer is a definite promise to be bound on specific terms. It is made by an offeror.

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Definition of Agreement

When a person (promisor) offers something to someone else (promisee), and the concerned
person accepts the proposal with equivalent consideration, this commitment is known as the
agreement. When two or more than two persons agree upon the same thing in the same sense (i.e.
Consensus ad idem), this identity of minds is agreement. The following are the types of
agreement are as under:

 Wagering Agreement
 Void Agreement
 Voidable Agreement
 Implied Agreement
 Express Agreement
 Conditional Agreement
 Illegal Agreement.

It can also be defined as the contract which lacks enforceability by law is known as the
agreement.

Wagering Agreement-

Agreements by way of wager are void. A wager is a “promise to give money or money’s worth
upon the determination or ascertaintment of an uncertain event”(Anson)

Void Agreement

The term ‘void’ means no legal binding and ‘agreement’ means consensus between parties
regarding a course of action. To simply, put a void agreement is an agreement which is not
legally binding, i.e. an agreement which lacks enforceability by law is void.

A void agreement loses its legal binding nature when declared void. Such agreement does not
creates any rights and obligation for the parties, as well as the parties do not get any legal status.
The transactions associated to the void transaction would be valid.

Certain agreements are void ab initio as per the Contract Act, which are – agreement in restraint
of marriage, agreement in restraint of trade, agreement in restraint of legal proceeding,
agreement with minor, agreement whose object or consideration is unlawful, wagering
agreement etc.

Voidable Agreement

A Voidable Agreement is one which can be avoided, i.e., set aside by some of the parties to it.
Until it is avoided, it is a good contract.

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Contracts brought about by coercion, undue influence, misrepresentation are example of
voidable contracts.

X coercion Y into entering into a contract for the sale of house to X. This contract can be
avoided by Y. X cannot enforce the contract. But Y if he so desires, can enforce it against X.

Promises, express and implied

In so far as the proposal or acceptance of any promise is made in words, the promise is said to be
express. In so far as such proposal or acceptance is made otherwise than in words, the promise is
said to be implied.

Illegal Agreement

An agreement that voilates any law or whose nature is criminal or is opposed to any public
policy or immoral, is an illegal agreement. These agreements are void ab initio and so the
agreements collateral to the original agreement are also void. Here collateral agreement refers to
the transaction associated or incidental to the main agreement.

The agreements are strictly prohibited by law, hence entering into an illegal agreement is called a
punishable offense in the eyes of law. Therefore, the parties are penalized for the same, under
Indian Penal Code. Some examples of an illegal agreement are like an agreement whose terms
are not certain, or a an agreement to kill someone etc

Definition of Contract

To be precise, a legally enforceable agreement for doing or not doing an act is known as a
contract. A contract must contain these elements: Offer and Acceptance, Adequate and
Unconditional Consideration, Free Consent, Capacity, Lawful object, Certainty, Intention of
creating legal obligations, and the Agreement should not be declared void.

The contract may be oral or written. The major types of contract are as under:

I) Void Contract-a contract which ceases to be enforceable by law becomes void, when it
ceases to be enforceable.
II) Voidable Contract-an agreement which is enforceable by law at the option of one or
more parties thereto, but not at the option of the other or others.
III) Valid Contract-an agreement enforceable by law is a contract and this is a valid
contract .
IV)Unilateral Contract-a contract in which only one party has yet to perform his/her
obligation.
V) Bilateral Contract- a contract in which both the parties have yet to perform their
obligations.
VI)Express Contract-in so far as the proposal or acceptance if any promise is made in
words, the promise is said to be express.

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 VII) Tacit Contract- Implied, inferred, understood without being expressly stated.
Tacit refers to something done or made in silence, as in a tacit agreement. A tacit
understanding is manifested by the fact that no contradiction or objection is made and is
thus inferred from the situation and the circumstances. If we really try to dig dipper then
'tacit' also could mean something which is not spoken but understood from non-verbal
communication. Non-verbal communication includes, winking, sighs, tone and pitch and
silence. 
Eg: She indicated her tacit approval by smiling and winking.
In this extended sense, some times an implied contract could involve express verbal
communication, however no such express communication is required in most cases of a
tacit contract. 
in the above, the verbal communication, which is refereed to, is not happening between
the offerer and offeree; but is happening between one of these and a third party:
For example: 
while The conductor of a bus is telling X- a general inquirer- that the fare is Rs 10 to
Railway station, Y- an intending passenger- hears this and  boards the bus to the same
destination. Here though there is no direct offer by the conductor to this particular
passenger yet from what he overheard he can take that as an implied offer and when he
boards the bus there is an implied acceptance from him. So this would be a case of an
implied contract.
As we do not see any subtlety in boarding a bus we may not classify this as a tacit
contract. 
VIII) Contingent Contract-a contract to do or not to do something if some event,
collateral to such contract does or does not happen. All contracts of insurance and
indemnity are contingent contract.
IX)Implied Contract-in so far as such proposal or acceptance is made otherwise in words,
the promise is said to be implied.
X) Executed Contract-a contract which is wholly performed by both the parties.
XI)Executory Contract-a contract in which the promises of both the parties have yet to be
performed.
XII) Quasi Contract etc. partly, partially, part-an obligation created by law,
regardless of agreement e.g., 1) necessaries supplied to ‘minor’ or ‘lunatic’ to contract are
void 2)the amount is recoverable only from the property, not personally, of the incapable
person.

Key Differences Between Agreement and Contract

The following are the major differences between agreement and contract:

1. Promises and commitments forming consideration for the parties to the same consent is known
as an agreement. The agreement, which is legally enforceable is known as a contract.
2. The agreement is defined in section 2 (e) while a Contract is defined in section 2 (h) of the Indian
Contract Act.
3. A Contract includes an agreement. Conversely, an agreement does not include a contract.
4. An agreement needs not to be given in writing, but the contracts are normally written and
registered.

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 5. The agreement does not legally bound any party for the performance. In the Contract, the
people are legally bound to perform their part.

Similarities

 Proposal, Acceptance, Consideration

Examples

1. Mohan and Rishabh decided to go for lunch on Sunday. Mohan did not come for lunch, and this
resulted in the waste of Rishabh’s time. Now Rishabh cannot compel Mohan for the damages as
the decision to go for the lunch is not a contract but a domestic agreement.
2. Varun promises his younger brother Anuj to pay his debts, and the agreement was in writing as
well as registered. This is a valid agreement and can be enforceable.

Conclusion
At the beginning of this article a question is asked whose answer is here, i.e. only the legally
enforceable agreements are contract means they must have a consideration, a lawful object, the
parties makes their consent freely, they are competent to contract, and the agreement is not
declared void. If any one of the above conditions does not satisfy, the agreement will cease to
become a contract. Therefore, it can be said that all agreements are not contracts.

Difference Between Agreement and Contract

“All contracts are an agreement, but all agreements are not contracts” this is an old statement but
why it is so? Why is an agreement not equal to a contract?

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Definition of Void Agreement

The term ‘void’ means no legal binding and ‘agreement’ means consensus between parties
regarding a course of action. To simply, put a void agreement is an agreement which is not
legally binding, i.e. an agreement which lacks enforceability by law is void.

A void agreement loses its legal binding nature when declared void. Such agreement does not
creates any rights and obligation for the parties, as well as the parties do not get any legal status.
The transactions associated to the void transaction would be valid.

Certain agreements are void ab initio as per Indian Contract Act, which are – agreement in
restraint of marriage, agreement in restraint of trade, agreement in restraint of legal proceeding,
agreement with minor, agreement whose object or consideration is unlawful, wagering
agreement etc.

Definition of Illegal Agreement

An agreement that voilates any law or whose nature is criminal or is opposed to any public
policy or immoral, is an illegal agreement. These agreements are void ab initio and so the
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agreements collateral to the original agreement are also void. Here collateral agreement refers to
the transaction associated or incidental to the main agreement.

The agreements are strictly prohibited by law, hence entering into an illegal agreement is called a
punishable offense in the eyes of law. Therefore, the parties are penalized for the same, under
Indian Penal Code. Some examples of an illegal agreement are like an agreement whose terms
are not certain, or a an agreement to kill someone etc.

Key Differences Between Void and Illegal Agreement

The difference between void and illegal agreement can be drawn clearly on the following
grounds:

1. An agreement which loses is legal status is a void agreement. An illegal agreement is one which
is not permissible under law.
2. Certain void agreements are void ab initio while some agreements becomes void when it loses
its legal binding. On the other hand, Illegal agreement are voice since the very beginning.
A void agreement is not prohibited by Indian Penal Code (IPC) but an illegal agreement is strictly
prohibited by IPC.
3. The scope a void contract is comparatively wider than an illegal contract as all agreements which
are void may not necessarily be illegal but all illegal agreements are void from its inception.
4. A void agreement is not punishable under law whereas an illegal agreement is considered as an
offense, hence the parties to it are punishable and penalized under Indian Penal Code (IPC).
5. Collateral agreements of a void agreement may or may not be void i.e. they may be valid also.
Conversely, collateral agreements of an illegal agreement cannot be enforceable by law as they
are void ab initio.

Conclusion

After reviewing the above points, it is quite clear that the void and illegal agreement are very
different. One of the factors that makes an agreement void, is the illegality of the contract, such
as contract whose object or consideration is unlawful. Moreover, in both the two agreements
loses its enforceability by law.

Difference Between Void and Illegal Agreement

The Indian Contract Act, 1872 has made it clear that, there is a thin line of difference between void and
illegal agreement. A void agreement is one which may not be prohibited under law, while an illegal
agreement is strictly prohibited by law and the parties to the agreement can be penalized for entering
into such an agreement. By learning the distinction between the two types of agreement, you will be
able to understand that which one is void and which is unlawful i.e. illegal. So, take a read of the given
article carefully.

Comparison Chart

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 Void Agreement Illegal Agreement
Basis for Comparison
An agreement whose creation is
An agreement, which lacks legal
Meaning forbidden by the court of law is an
enforceability is void agreement.
illegal agreement.
An agreement becomes void when it An illegal agreement is void ab initio
Consequence
loses its enforceability by law. i.e. void from the very beginning.
Prohibition by IPC No Yes
Scope Wide Narrow
Parties to void agreement are not liable Parties to illegal agreement are
Penalty
for any penalty under law. penalized.
May not necessarily be void, they may be
Connected agreements All connected agreements are void.
valid also.

2)An Intention to create legal relationship

The second essential element in the formation of a valid and binding contract is an
Intention to create legal relationship. There must be an intention (among the parties) that the
agreement shall result in or create legal relations. An agreement to dinner at a friend’s house is
not an agreement intended to create legal relations and is not a contract. But an agreement to buy
and sell goods or an agreement to marry, are agreements intended to create some legal
relationship and are therefore contracts, provided the other essential elements are present.

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