An agreement is defined under Section 2(e) of the Indian Contract Act, 1872 as every promise and every set of promises forming the consideration for each other. In simple terms, when one person makes a proposal and the other accepts it, a promise arises, and such a promise becomes an agreement. Thus, an agreement is the result of an offer made by one party and the acceptance of that offer by another party. However, it is important to note that not every agreement is legally enforceable. Only those agreements which are enforceable by law become contracts as per Section 2(h) of the Act.
The first condition required to enter into a valid agreement is the existence of a lawful offer or proposal. According to Section 2(a) of the Act, a proposal is made when one person signifies to another his willingness to do or abstain from doing something with a view to obtaining the assent of that other person. The offer must be clear, definite, and communicated to the person to whom it is made. An offer that is vague or uncertain cannot result in a valid agreement.
The second essential condition is acceptance. Acceptance is defined under Section 2(b) as the assent given to a proposal. Acceptance must be absolute and unqualified, as provided under Section 7 of the Act. If the acceptance varies the terms of the offer, it amounts to a counter-offer and not a valid acceptance. Acceptance must also be communicated to the proposer. In Lalman Shukla v. Gauri Dutt, the Court held that acceptance without knowledge of the offer does not create a binding agreement.
The third requirement is lawful consideration. Consideration is defined under Section 2(d) as something done or abstained from doing at the desire of the promisor. Consideration may be past, present, or future, but it must be lawful. An agreement without consideration is generally void, except in certain circumstances mentioned in Section 25 of the Act. Lawful consideration is an essential element because it distinguishes enforceable agreements from mere social promises.
Another important condition is the competency of parties. Section 11 of the Act provides that every person is competent to contract who is of the age of majority, of sound mind, and not disqualified by law. The age of majority in India is governed by the Indian Majority Act, 1875. If a person is a minor or of unsound mind, the agreement entered into by such a person is not valid. In Mohori Bibee v. Dharmodas Ghose, it was held that an agreement with a minor is void ab initio.
Free consent of the parties is also an essential requirement. According to Sections 13 and 14 of the Act, consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake. If consent is obtained through any of these factors, the agreement becomes voidable at the option of the aggrieved party. Free consent ensures fairness and voluntariness in contractual relationships.
The object and consideration of the agreement must be lawful as per Section 23 of the Act. An agreement is void if its object is forbidden by law, fraudulent, immoral, or opposed to public policy. Agreements relating to illegal activities cannot be enforced by courts of law.
The terms of the agreement must also be certain. Section 29 of the Act provides that agreements with uncertain or vague terms are void. The parties must clearly define their rights and obligations. Certainty prevents disputes and ensures clarity in enforcement.
Further, the agreement must be capable of performance. Under Section 56 of the Act, an agreement to do an impossible act is void. The act promised must be physically and legally possible to perform. Agreements involving impossibility do not create legal obligations.
Certain agreements are expressly declared void under the Act. These include agreements in restraint of marriage (Section 26), restraint of trade (Section 27), restraint of legal proceedings (Section 28), and wagering agreements (Section 30). Such agreements, even if made with consent and consideration, are not enforceable by law.
Regarding the format of an agreement, it generally begins with the title “Agreement,” followed by the date and place of execution. It then contains the details of the parties, including their names and addresses. After this, recitals are mentioned, explaining the background and purpose of the agreement. The main body includes the terms and conditions, obligations of each party, consideration, duration, termination clause, dispute resolution clause, and other relevant provisions. Finally, the agreement ends with signatures of the parties and witnesses. Though oral agreements are valid in certain cases, written agreements are preferred for evidentiary purposes and legal certainty.
In conclusion, an agreement under the Indian Contract Act, 1872 is the foundation of a contract. For an agreement to be valid and enforceable, it must satisfy essential conditions such as offer, acceptance, lawful consideration, competent parties, free consent, lawful object, certainty, and possibility of performance. Proper drafting and adherence to statutory requirements ensure the enforceability and legal validity of an agreement.
. Meaning and Definition of Agreement
Under Section 2(e) of the Indian Contract Act, 1872:
“Every promise and every set of promises, forming the consideration for each other, is an agreement.”
Further, Section 2(b) defines a promise as:
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.
Thus, in simple terms:
Agreement = Offer (Proposal) + Acceptance
However, every agreement is not enforceable by law.
Under Section 2(h) of the Indian Contract Act, 1872:
“An agreement enforceable by law is a contract.”
Therefore:
- All contracts are agreements.
- But all agreements are not contracts.
2. Conditions Required to Enter into a Valid Agreement
To enter into a legally valid agreement (which becomes a contract), the following conditions must be satisfied:
(1) Offer or Proposal (Section 2(a))
One party must make a lawful offer to another.
✔ The offer must be clear and definite.
✔ It must be communicated to the offeree.
✔ It must show intention to create legal relations.
(2) Acceptance (Section 2(b))
The other party must accept the offer.
✔ Acceptance must be absolute and unqualified (Section 7).
✔ It must be communicated.
✔ It must be given within reasonable time.
Case Law:
In Lalman Shukla v. Gauri Dutt, the Court held that acceptance without knowledge of the offer is not valid acceptance.
(3) Lawful Consideration (Section 2(d))
Consideration means something in return.
✔ It must be lawful.
✔ It may be past, present, or future.
Case Law:
Kedarnath Bhattacharji v. Gorie Mohammad – Subscription promise was enforceable due to reliance and consideration.
(4) Competency of Parties (Section 11)
Parties must be competent to contract.
A person is competent if he/she:
- Is major (18 years under the Indian Majority Act, 1875)
- Is of sound mind (Section 12 ICA)
- Is not disqualified by law
Case Law:
Mohori Bibee v. Dharmodas Ghose – Agreement with a minor is void ab initio.
(5) Free Consent (Section 13 & 14)
Consent must be free from:
- Coercion (Section 15)
- Undue Influence (Section 16)
- Fraud (Section 17)
- Misrepresentation (Section 18)
- Mistake (Section 20–22)
Case Law:
Ranganayakamma v. Alwar Setti – Consent obtained under coercion is not free consent.
(6) Lawful Object (Section 23)
The object of agreement must not be:
- Illegal
- Immoral
- Opposed to public policy
(7) Certainty (Section 29)
Terms must be certain and clear.
Agreements with vague terms are void.
(8) Possibility of Performance (Section 56)
Agreement must be capable of performance.
Impossible agreements are void.
(9) Not Expressly Declared Void
Certain agreements are void, such as:
- Agreement in restraint of marriage (Section 26)
- Agreement in restraint of trade (Section 27)
- Agreement in restraint of legal proceedings (Section 28)
- Wagering agreements (Section 30)
3. Essentials of a Valid Agreement (Summary)
The essential elements are:
- Offer
- Acceptance
- Lawful consideration
- Competent parties
- Free consent
- Lawful object
- Certainty
- Possibility of performance
- Not declared void
4. Format of an Agreement (General Format)
Below is a basic format used in drafting agreements:
AGREEMENT
This Agreement is made on this ___ day of ______ 20__ at _______.
BETWEEN:
Mr./Ms. ____________,
S/o or D/o ____________,
Residing at ____________,
(hereinafter referred to as the “First Party”)
AND
Mr./Ms. ____________,
S/o or D/o ____________,
Residing at ____________,
(hereinafter referred to as the “Second Party”).
1. Recitals
Whereas the First Party agrees to ____________.
Whereas the Second Party agrees to ____________.
2. Terms and Conditions
2.1 The First Party shall ____________.
2.2 The Second Party shall ____________.
3. Consideration
In consideration of Rs. ________, the First Party agrees to ____________.
4. Duration
This Agreement shall remain in force from ______ to ______.
5. Termination
Either party may terminate this Agreement by giving ____ days’ notice.
6. Dispute Resolution
Any dispute arising out of this Agreement shall be subject to the jurisdiction of courts at ________.
7. Signatures
IN WITNESS WHEREOF, the parties have signed this Agreement on the date mentioned above.
Signature of First Party
Signature of Second Party
Witness 1:
Witness 2: