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Asha Pole (Legal)     04 December 2009

Contract and agreement

This may be a silly question, but I just want to air off my confusion, Firstly I know the difference between a contract and an agreement. But then why is that in a legal document ,always an agreement is the heading and not the contract.And can anyone tel me which term is the most appropriate with reference to legal binding.


 6 Replies

Raj Kumar Makkad (Adv P & H High Court Chandigarh)     04 December 2009

There is practically no difference between these two words and either of them can be used in legal documents.

N RAMESH. (Advocate Chennai. Formerly Civil Judge. Mobile.09444261613)     04 December 2009

Section 2(h) of Indian Contract Act say, "An agreement enfoceable by law is Contract."

Agreement is wider sense. There may be illegal and unenforceable agreements. It is contract only if it is enforceable.

Vigneswaran (Lawyer)     05 December 2009

and an agreement may be an oral or in a documentation but contract usually is written down

N RAMESH. (Advocate Chennai. Formerly Civil Judge. Mobile.09444261613)     05 December 2009

That is not the difference. There may be oral contract.

Joy Dey (Advocate)     05 December 2009


A contract is an agreement between parties that is legally enforceable. A simple "agreement" is an arrangement between the parties which may or may not contain the necessary elements to be enforceable before a court of law.




What is the difference between Agreement, Contract and MOU. Whether all are enforceable by law?

The legal definition of a contract is: An agreement between two or more persons that creates an obligation to or not to do a particular thing.


A contract is an agreement, enforceable by law, and this is the real test. As long as an agreement does not involve the law, it would fall outside the purview of a contract. However, once the law can be called upon to play a role in some capacity, the agreement, immediately, becomes a contract.  All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Every promise and every set of promises forming the consideration for each other is an agreement. An agreement enforceable by law is a contract.


Consideration forms an essential part of an agreement without which the agreement is void. This is because, in the absence of consideration, there is no legal obligation formed between the parties and, therefore, in such a scenario, they are not bound by the terms of the agreement.

Consideration is nothing but the price paid by one party for the promise of the other. It can be in the nature of a positive act or the forbearance of a certain act. It can be past, present or future.

Most people use the two terms synonymously but, from a legal standpoint, there is an important difference. All contracts are agreements but all agreements are not contracts. Analytically put, this would mean that agreements are the genus of which contracts are the specie.

An agreement needs the following essentials:

  1. A proposal/offer
  2. An acceptance
  3. A promise
  4. A consideration for the promise


MOA stands for Memorandum of Agreement and MOU stands for Memorandum of Understanding. They are both used as written agreements between two parties. There is no established legal difference. The two terms are interchangeable. Because it contains the word agreement, and a contract is an agreement, some people believe that an MOA signifies a more significant commitment than an MOU. So if you are having difficulty with entering a partnership using an MOA, then see whether your potential partner wants to sign an MOU.


An MOU/MOA is like a contract, but it doesnt have to carry the same legal weight. That is because an agreement doesnt need to be intended as a legally enforceable arrangement, but a Contract always is intended that way.

However, an MOA can include any or all of a contracts terms and conditions. If it includes all of them, but is just titled an MOA, it can carry as much legal weight as a contract.

Valid contracts: There are five essential prerequisites for a valid contract:

  • There should be a proposal and an acceptance.
  • The consideration must be lawful. For example, one cannot enter into a valid contract for smuggling or for black marketing or selling goods above a government-controlled price.
  • Both the parties must be competent to enter into the agreement. In other words, there should be no legal barrier like age or one of the parties being a non-authorized person, or of unsound mind.
  • There must be a free consent of both parties. In other words, the consent shall not be by coercion or fraud or misrepresentation.
  • The agreement should not expressly be declared to be void.

( )






Discussion about agreements and contracts can sometimes read like the "chicken and the egg" question. It is true that you cannot have a contract without an agreement. But it does not necessarily follow that an agreement will necessarily be the same as a contract. Why is that?

A contract requires agreement on the terms, consideration (usually but not always money) and an intention by both parties to be legally bound to each perform their respective promises. But an agreement may not be intended to be legally binding on the parties. This is often the case when parties want to formally record their 'agreement' even though they may not have concluded all the details of the entire transaction. Commonly such agreements may be called "Heads of Agreement" or "Memorandum of Understanding" or "letter of intent". These latter forms are often put together to indicate good faith and ongoing commitment to each other to pursue the negotiations with a view to entering into an enforceable contract at some later stage. But an agreement 'to agree' (at some future point) is not enforceable and the courts have always been reluctant to step into parties' shoes to try and work out what should have been included, but for some reason, was not.

Next usual question is whether or not an MOU is binding. It is usually the case that it is not and indeed in many cases parties enter an MOU or a Heads of Agreement because they have not concluded all the matters to be agreed that would enable them to be considered to be bound. But of course the legal system it is not a science and it is often the case that a lawyer, when faced with such questions, will answer "well that depends." On what does it depend?

Some of the critical issues include:

  • By applying an objective test, does it appear that the parties intended to be bound? How did they act? What did they say? Of what they said, how much of it (and what) was recorded formally?
  • What were the commercial circumstances at the time – of the parties, the subject matter of the contract, (what was being contracted for)?
  • What were the dynamics of the negotiation process? If a term is later asserted by one party to be essential to the contract but it is not in the document, what does that indicate about what is said that they appear to have agreed as important?



1 Like

Anish goyal (Advocate)     06 December 2009

I think sufficient has been said to explain the difference between agreement a contract. For a person in law field they both means the different things. See indian contract act. The maker of the act was very careful while using the both words and there by clearing the difference between the two. Joy sir you have explained very well. But i would like to differentiate you on the point of ingredients of a an agreement. It need not to have consideration.

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