The Indian Contract Act defines an agreement as under:
Every promise and every set of promises forming the consideration pr each other is an agreement.
Promise is defined in section 2(b) of the Act. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. It should be noted that a mere promise by two parties would not constitute an agreement. Offer an acceptance together constitute an agreement. Agreement is a promise or a set of reciprocal promises.
Promises which form the consideration or part of the consideration for each other are called reciprocal promises. The promisor makes a proposal and a promisee accepts the proposal. Both pormisor and promisee promise to perform their part of reciprocal promises. This set of promises on the part of the promisor and promisee constitute an agreement.
Kinds of Agreements
1. Valid Agreements: A valid agreement is one which is enforceable by law.
2. Void Agreement: An agreement not enforceable by law is said to be void. It has no legal existence at all and is devoid of nay legal effect. It does to give to any rights and obligations. Unlawful agreements are examples of void agreements. A void agreement is not enforceable by law. Unlawful agreements are not enforceable on account of they being opposed to public policy like agreements in restraint of marriage or in restraint of legal proceedings.
3. Enforceable Agreements: An agreement enforceable by law is a contract.
4. Voidable Agreement: A voidable agreement is one which is enforceable by law at the option of one or more of the parties thereto but not at the option of the other or others. A voidable agreement is valid so long as it is not avoided by the party entitled to do so. It is for the party seeking to avoid it to set up the defense accordingly, in order to void he agreements and if he does not, the agreement would be a binding contact. For example, agreements induced by coercion, undue influence, fraud or mis-representation are voidable agreements. If not avoided by the party whose consent is so caused by undue influence, coercion, fraud or misrepresentation, it becomes a valid and binding contract.
5. Unenforceable Agreements: An unenforceable agreement is valid in law but is incapable of proof because of some technical defect. For example, promissory note which is not at all stamped or is insufficiently stamped. Law recognizes the validity of the promissory note cannot enforce the same due to it being not stamped or insufficiently stamped.
6. Illegal Agreement: An illegal agreement is something against the law itself. It is void-ab-initio. The collateral transaction between the parties is colored with illegality. Illegal agreement often involves a commission of crime. They are opposed to public morals and as such, parties to such agreements are punishable under Indian Penal Code. They are actually forbidden by law. On the other hands a void agreement may not be so forbidden. Thus every illegal agreement is void but every void agreement is not necessarily illegal. Nothing is recoverable under an illegal agreement.
Contract: An agreement enforceable by law is a contract. An agreement, the object of which is to create an obligation is a contract. When an agreement compels another to do something or not to do something, it is a contract.
It will be observed that an agreement is a wider concept than a contract. While only an agreement which is a enforceable by law is a contract, every promise and every set of promises, forming the consideration for each other, is an agreement. Agreements, therefore include a contract and is much wider term than the contract. An agreement in order to become a contract must give rise to a legal obligation. It is therefore, rightly said every contract is an agreement but every agreement is not a contract.