The following four points are keys to differentiate agreements from contracts.
Essence- Agreement is a promise or set of promises while a contract is essentially an agreement i.e. a promise or set of promises.
Enforceability – An agreement may or may not be enforceable at law. For example, social agreements are generally not enforceable while business agreements are enforceable at law. A contract is an agreement which is enforceable at law.
Effect – An agreement is not always a binding on the concerned parties. A contract is always concluded and binding on the concerned parties,
Scope – All agreements are not contracts while all contracts are agreements.
Essence- Agreement is a promise or set of promises while a contract is essentially an agreement i.e. a promise or set of promises.
Enforceability – An agreement may or may not be enforceable at law. For example, social agreements are generally not enforceable while business agreements are enforceable at law. A contract is an agreement which is enforceable at law.
Effect – An agreement is not always a binding on the concerned parties. A contract is always concluded and binding on the concerned parties,
Scope – All agreements are not contracts while all contracts are agreements.
Despite the similarity between an illegal and a void agreement that in either case the agreement is void ab- initio and cannot be enforced by law, I will explain the above points in detail now.
(i) An illegal agreement is narrower in scope than a void agreement. ‘all illegal agreements are void but all void agreements are not necessarily illegal.’ The object or consideration of an agreement way not be contrary to law but may still be void. For example, an agreement may not be contrary to law but may still be void. For example, an agreement with a minor is void as against him but not illegal. Again, an agreement the terms of which are uncertain is void but such an agreement the terms of which are uncertain is void an agreement is not illegal.
(ii) An illegal agreement is wider in effect in relation to collateral transactions than a void agreement. When an agreement is illegal, other agreement which are incidental or collateral to it are also tainted with illegality, hence void, provided the third parties have the knowledge of the illegal or immoral design of the main transaction. The reason underlying this rule is that no person shall be allowed to invoke the aid of the court if he is himself implicated in the illegality. On the other hand, when an agreement is void (but not illegal), agreements which are collateral to it are not invalidated and remain valid.
Illustrations. (a) A engages B to Murder C and borrows Rs. 5,000 from D to pay B. D is aware of the purpose of the loan. Here the agreement between A and B. D is aware of the purpose of the loan. Here the agreement between A and B is illegal and the agreement between A and D is collateral to an illegal agreement. As such the loan transaction is illegal and void and D cannot recover the money. But the position will change if D is not aware of the purpose of the loan. In that case the loan transaction is not collateral to the illegal agreement and is a valid contract.
What is Quasi Contract? What are the different types of Quasi Contracts.
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Difference between Agreements and Contracts
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