When there is proposal from one side and the acceptance of that proposal by the other side, it results in a promise. This promise from the two parties to one another is known as an Agreement. There may be different kinds of Agreements, such as Memorandum of understanding, Gentleman's Agreement, Pact, Consensus and a legally enforceable Agreement, that is a Contract. Some Agreements may be enforceable by law and others not. Only an Agreement which is enforceable by law is a Contract. Thus all Agreements are not Contracts. Agreements which are not enforceable by law are void. For instance, Agreement by a minor, Agreement without consideration, Agreement in restraint of trade.
We often need to make a Contract for various reasons. For instance, for starting a partnership business, for buying a property etc. A Contract is a legally binding exchange of promises or Agreement between parties capable of being enforced by law. The law of Contract is based on the maxim, Pacta sunt servanda, which means, pacts must be respected. There are three essential elements in common law jurisdictions for the creation of a Contract – Offer and Acceptance, Consideration and an intention to create legal relations.
There must be a lawful Consideration and lawful object in respect of an Agreement to constitute a valid Contract. Under Common Law consideration is a contentious requirement while it is not necessary in civil law system.