Difference between Promise, Agreement and Contract

The article, written by Akshit Gupta, a second-year law student at Bharti Vidyapeeth, New Law College, Pune, explains the definitions, characteristics and differences between various components of a valid contract ie. Promise, agreement and contract.

INTRODUCTION

A promise to do something between two parties, or not, is said to form a sort of mutual understanding in pursuance of individual interests. Such an expression of the will of the person to another is called a proposal. This expression of interests with an intention to enter into a valid accord enforceable by law is termed is agreement. The entire transaction gives rise to the entity called a contract. One may look at these few lines as the entire process of contract formation summarized, however, in the actual picture, the process is quite complex and intricate. The isms and ologies of the legal jargons do make the process of forming a bilateral agreement quite ambiguous in a layman’s language, yet one cannot deny the fact that by virtue of proper laws and regulations pertaining to contracts and agreements is the very bedrock upon which the tallest of tallest accords and treaties are erected.

Proposal to contract

Proposal –

“When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;”

Section 2(a) of the Indian Contract Act,1872 defines a proposal or offer as a situation wherein a person expresses his intention to do, or refrain from doing something, to another person, keeping in mind that the person to such a proposal is made consent is sought. Further, s. 2(b) accords the status of “promisor” and “promisee” to the respective parties once the offer is accepted and ripens into a “promise”. Such acceptance of proposal shall be communicated by the promisee to the promisor, or likewise offeree to the offeror, for the agreement to become legally binding. Here the word “communication” has a sui generis character of definition by way of its completion. Whenever any such acceptance of an offer is made, it has to be communicated by the person to which such offer is made by the offeror, such communication must be made in a prescribed format aggregable to both parties. In the case of Felthouse vs. Bindley (1862). it was observed that communication of acceptance or revocation of an offer must be transmitted in clear terms. An agreement whose communication of acceptance is not in vague terms cannot be materialised on the pleasure of one party alone.

Consideration – A very essential element of proposal and subsequent agreement is the consideration for whose sake the acceptor promises to do, or abstain from doing something, on the persuasion of the offeror. Without consideration, the promisor does not have any teeth to enter into a valid agreement. Understanding it in plain terms through an illustration, If A promises to pay B a sum of Rs. 1000 to sell him 5 litres of oil and B accepts for the same, then Rs. 1000 is the consideration for a promise for B and vice-versa. This consideration, however, under section 2(d) is subject to lawfulness and should be moral and temporal in nature.

Invitation to offer – An offer and invitation to offer have slightly varying shades of meaning. The elucidation of Section 2(a) can be reversed to find out that an invitation to offer is merely an invitation made by an offeror to the offeree to make an offer in return of his consideration. Here the intention of the offeree is the key player while determining the terms of a contract. For instance, the tags we see attached to the products in a shop are not offered, instead, they are explicit invitations to offer. Since an invitation to offer is merely a proposal, it’s acceptance does not entail a binding obligation to make an agreement, since it lacks a common intention to do so, but only spawns another offer.

Case Law

Carlil vs. Carbolic Smoke Balls Company (1892) 2 QB 484 (QBD)

Landmark judgement of the English Law and a Contract Law staple, this case pivots on the principle of general offer and intention to create a legal obligation. In this case, a pharmaceutical firm advertises the claim of a medicine which could cure influenza , and if anyone’s symptoms persisted, he/she was entitled to a compensatory award of £100 . The complainant even after consumption of the medicine caught influenza and demanded the claim from Carbolic Smoke Ball Co. they refused and were sued by Carlil. The Jury took up the view that the grounds of denial of the respondent were unacceptable , since there existed a substantial unilateral agreement between the Co. and the general world with regard to the offer. Also, the conduct of the respondent, being such that the amount of £1000 was already deposited in the bank on behalf of the Co., clearly showed the intention of the offeror to enter into a binding contract with the claimant.Also, other ingredients of a valid agreement – lawful consideration and acceptance of the offer being present held the respondent liable to pay the plaintiff the promised sum.

Agreement between two parties

Agreement s. [2(e)]–

“Every promise and every set of promises, forming the consideration for each other, is an agreement”

As defined earlier in s. 2(d), consideration is a value for which the promise acts or omits to do something, at the desire of the promisor. A collection of such considerations form a valid agreement. An agreement must be free from any coercion, influence or inducement caused to the party whose consent is sought by the counterpart is voidable at the option of the party coerced. As seen in the case of Chikkam Ammiraju vs. Chikkam Sheshaama (1917), coercion (s.15), or undue influence (s.16) amounts to the pressure exercised upon a party, by another to execute the agreement deed, with threat or fear being an instrumentality.

The particulars of the bodily state of parties entering into an agreement are given in s.11 of the Act, providing that no one of the parties shall be of unsound mind or minor. The term unsound mind or ‘lunacy’ applies to the point of time at which the person agreed to enter into a contract. Such a person is incompetent to partake in a valid agreement by virtue of his inability to comprehend to terms and conditions of the offer. Hence the validity of any such document of agreement bearing the signature of such a person is null ab-initio (Keolapati and Ors. Vs. Ram Krishna Narain Singh,1974). Likewise, any minor does not have the capacity to enter into a contract, and even so, such agreement made anyway would have no statutory force. The age of Majority has been defined as “Any person having attained the age of 18” as per s.3(a) of the Indian Majority Act (Mohoiri Bibi vs. Dharmodas Gosh,1903).

An agreement can be both oral or written. The virtue of either does not diminish or expand the effect of any agreement thus commissioned, yet it is always advisable to have a written draft of an agreement made at the disposal of both the parties. Oral agreements are subject to agreeability and amiability between the parties, lest they become conflicting in nature under s.13 of the Act. However, the legal system cannot condescend or deny an agreement manifested orally. In fact, all those agreements encompassing all necessary conditions of a valid contract-free consent of parties, majority etc. qualify to be declared ‘not void’. In the case of Alka Bose vs. Parmatma Devi & Ors (2000) The Supreme Court held that all those agreements that are in consonance with the provisions of s.10 of the Act shall be considered legal and enforceable.

Case Law

Brogden v Metropolitan Railway (1877) 2 App. Cas. 666

This case stressed the existence of implied consent and willingness to contract, albeit not expressly exhibited. The facts of the case are that the plaintiff had an agreement to supply coal to the defendant. For some time the two parties agreed to trade without any formal written agreement. After a while, the defendant decided to draw up a formal agreement and sent it to the plaintiff for review. The plaintiff made some changes in the contract and sent it back to the defendant for rectification. He filed the documents but failed to send it back to the plaintiff. After some time, some serious disagreements arose between the two and the partnership was called off. The Plaintiff sued the company for damages. The Company contended that there was no formal contract. In the judgement, it has held that since the defendant reflected its intention to make a contract, by way of its conduct, there subsisted a valid contract. Also, the communication of acceptance of the offer was made on part of the defendant, does not dismiss the actual contract, since the intention of the company was present to concede to the additions by the plaintiff, there existed an implied consent which, even when communication of acceptance wasn’t complete, sufficed in establishing a no-objection certificate issued by the defendant in the reflection of his conduct. Hence, the verdict remained that there existed an informal and legally enforceable contract between the two, as a result, The Metropolitan Railway was liable for damages to the plaintiff.

Contract, the upshot

Conclusively speaking, the contract can be seen as the climax of an agreement making, having an amalgamation of all necessary ingredients of a legally enforceable agreement. A contract essentially has all the merits of a valid agreement, however, the vice-versa is not always true i.e. all contracts quality to be agreements, but all agreements do not qualify to be a contract. The definition of contract, up till and including s.2(h), conclusively and crisply lays down how and what a valid contract is born. Besides, Contract entices an intention to enter into a legally binding pact, such intention is missing in case of an agreement as both parties are not legally obligated to provide or any specific performance. As cited in the Balfour vs. Balfour(1919) case, not every oral promise or pact amounts to a contract. At times, it is left to the discretion of the parties to form a mutual arrangement, but the enforceability of such agreement is nullified at times such a pact is sought to be taken to the court. Thus, it is safe to conclude that the ambit of the contract does not cover all vague agreements and promises to the extent that they have a legal personality of their own.

Bibliography

Indian Contract Act, 1872 (Act no. 9 of 1872)
The Indian Majority Act, 1875 (Act no. 9 of 1875) s.3(a)
The Indian Penal Code, 1862 (Act no. 45 of 1860) s.15

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