Universally Accepted Legal Maxim
This statement is a universally accepted legal maxim that defines the scope and prerequisites of a valid contract. To fully appreciate its meaning, it is essential to first understand the legal definition of both Agreement and Contract and the distinguishing elements between them.
The Broad Scope of an Agreement
An agreement is the foundational stage of a contract. It is a very broad term.
Definition
According to the Indian Contract Act, 1872 (which reflects common law principles):
“Every promise and every set of promises, forming the consideration for each other, is an Agreement.” (Section 2(e))
Furthermore, a “promise” is defined 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.” (Section 2(b))
Characteristics of an Agreement
An agreement essentially requires two elements:
- Offer/Proposal: One party expresses a willingness to do or abstain from doing something.
- Acceptance: The other party signifies their assent to the offer.
Conclusion: An agreement is merely a consensus of the minds (consensus ad idem) on the same subject matter. It creates only a moral or social obligation, not necessarily a legal one.
The Narrow Scope of a Contract
A contract is a specific type of agreement that has achieved the status of legal enforceability.
Definition
Again, referencing the Indian Contract Act, 1872:
“An Agreement enforceable by law is a Contract.” (Section 2(h))
This definition clearly states that a Contract is a subset of an Agreement.
Essential Elements of a Valid Contract (The ‘Efficacy Test’)
For an agreement to mature into a legally binding contract, it must satisfy a number of essential conditions, often derived from Section 10 of the Contract Act and common law. These elements are the “extra ingredients” that transform a social promise into a legally enforceable obligation.
| Essential Element | Description |
|---|---|
| 1. Intention to Create Legal Relations | The parties must intend that their agreement will have legal consequences and be enforceable in a court of law. This is the primary distinguishing factor. |
| 2. Lawful Consideration | Something of value (the “price” of the promise) must be exchanged between the parties. A bare promise (nudum pactum) is not a contract. |
| 3. Capacity of Parties | The parties must be legally competent to contract (e.g., must be of the age of majority, of sound mind, etc.). |
| 4. Free Consent | The agreement must be made out of the genuine consent of both parties, free from coercion, fraud, or mistake. |
| 5. Lawful Object | The purpose of the agreement must not be illegal, immoral, or opposed to public policy. |
| 6. Certainty and Possibility of Performance | The terms of the agreement must be certain and capable of being performed. |
The Distinction: When an Agreement Is Not a Contract
The crux of the statement lies in the agreements that fail the “Efficacy Test” by not possessing one or more of the essential elements of a contract.
Social/Domestic Agreements (Lack of Intention)
Example: A father promises his son Rs. 500 for scoring good marks.
Status: This is a valid Agreement (Offer + Acceptance).
Why It’s Not a Contract: It lacks the Intention to Create Legal Relations. The son cannot sue the father.
Case Reference (English Law): Balfour v. Balfour [1919] 2 KB 571 (UK Court of Appeal)
Principle: The court held that agreements between spouses, while living in amity, regarding domestic or personal matters are generally presumed not to be intended to be legally binding. Lord Atkin famously stated that the law does not regulate the form of agreements between spouses, whose promises are based on natural love and affection, not legal consequence.
Indian Context: Indian Courts generally follow the principle laid down in Balfour v. Balfour, holding that family/social matters do not carry the presumption of legal intent unless explicitly proven otherwise.
Agreements Lacking Lawful Consideration
Example: A promises to gift his entire library to B without B giving anything in return.
Status: This is an Agreement (Offer + Acceptance).
Why It’s Not a Contract: It lacks Lawful Consideration. It is a bare promise, and therefore unenforceable, unless it falls under one of the statutory exceptions.
Case Reference (Indian Law): Durga Prasad v. Baldeo (1880) 3 All 221
Principle: The court emphasized that the consideration must move from the promisee (or any other person, as per Indian law) to the promisor in return for the promise. A promise made for an act that was done at the request of a third party (or was merely a social duty) is not valid consideration to support a contract.
Agreements Against Public Policy
Example: A promises to pay B Rs. 10,000 if B refrains from marrying (Agreement in restraint of marriage).
Status: This is an Agreement.
Why It’s Not a Contract: It lacks a Lawful Object and is expressly declared void by law (e.g., Section 26 of the Indian Contract Act).
Case Reference (Indian Law): Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal. 539 (PC)
Principle: This landmark case established that an agreement with a person who is incompetent to contract, specifically a minor, is void ab initio (void from the very beginning). This demonstrates that agreements lacking the essential element of “Capacity” are not contracts at all.
The Contrasting Scenario (Rebuttal of Presumption)
The distinction is further clarified by cases where the domestic presumption is successfully rebutted:
Case Reference (English Law): Merritt v. Merritt [1970] 2 All ER 760 (UK Court of Appeal)
Principle: Where a husband and wife are separated (or about to separate), the presumption against the intention to create legal relations does not apply. The court reasoned that in such circumstances, the parties deal with each other at “arm’s length” and would naturally intend their agreements to be legally binding.
Conclusion and Synthesis
The statement can be summarized using simple logical deduction:
- All Contracts Are Agreements: This is true, because the term “Contract” is defined as an agreement that meets the criteria of legal enforceability (Section 2(h)).
- Not All Agreements Are Contracts: This is true, because many agreements—particularly social and domestic arrangements like those in Balfour v. Balfour or agreements lacking essential elements like those in Durga Prasad v. Baldeo or Mohori Bibee v. Dharmodas Ghose—fail to satisfy the legal requirements.
The enforceability by law, contingent upon the presence of all essential elements (Section 10), is the litmus test that elevates a mere agreement into a legally binding contract.
Written By: Judge Nazmul Hasan
Senior Judicial Magistrate | Prime Minister Gold Medalist
Nazmul Hasan is a highly accomplished judicial officer and legal scholar from Bangladesh, distinguished by a rare blend of judicial service excellence and unparalleled academic achievement.
Professional Expertise
| Title | Achievement / Service | Details |
|---|---|---|
| Senior Judicial Magistrate | Bangladesh Judicial Service (BJS) | Serving as a Senior Judicial Magistrate, demonstrating profound expertise in dispensing justice and administering court procedures. |
| Service Rank | 11th Bangladesh Judicial Service (BJS) | Secured the 7th Merit Position overall in the rigorous 11th BJS competitive examination, marking an exceptional start to a distinguished judicial career. |
Academic Distinction
| Qualification | Institution | Recognition |
|---|---|---|
| LL.B. (Hons.) | University of Rajshahi | First Class First (Top of the Cohort), signifying ultimate academic mastery in undergraduate legal studies. |
| LL.M. | University of Rajshahi | Achieved First Class standing, further solidifying expertise and specialized knowledge in advanced legal disciplines. |
Honors & Achievements (Awards of Excellence)
- Prime Minister Gold Medalist (2017): Awarded the nation’s most prestigious academic honor for outstanding performance across all disciplines at the university level.
- Agrani Bank Gold Medalist for Academic Excellence (2023): Recognized with this distinguished medal for sustained academic excellence and leadership in the field of law.
Nazmul Hasan’s profile reflects a deep commitment to judicial integrity and academic rigour, positioning him as a leading figure in the Bangladesh legal community.
