Question 2: All contracts are agreements, but not all agreements are contracts.

Introduction
There is no doubt that it is a valid and true statement that all contracts are agreements, but not all
agreements are contracts. Before critically discussing the statement, we must know the exact and
basic meanings of the two terms contract and agreement in the context of business law. A
contract is a legally binding agreement or relationship that exists between two or more parties to
do or abstain from performing certain acts. There must be offer and acceptance for a contract to
be formed. An offer must be backed by acceptance of which there must be consideration. Both
parties involved must intend to create legal relation on a lawful matter which must be entered
into freely and should be possible to perform.
All contracts are agreements
For a Contract to exist an agreement is necessary; without an agreement, there can be no
contract. As the saying goes, where there is smoke, there is fire; for without fire, there can be no
smoke. It could be said, Where there is contract, there is agreement without an agreement there
can be no contract. Just as a fire gives birth to smoke, in the same way, an agreement gives birth
to a contract. Another essential element of a contract is the legal obligation for the parties to the
contract; there are many agreements that do not entail any legal obligations. As such, these
agreements cannot be called contracts.
All Agreements are not contracts
As stated above, an agreement to become a contract must give rise to a legal obligation. If an
agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus, an
agreement is a wider term than a contract. Agreements of moral, religious or social nature e.g., a
promise to lunch together at a friends house or to take a walk together are not contracts because
they are not likely to create a duty enforceable by law for the simple reason that the parties never
intended that they should be attended by legal consequences. On the other hand, legal
agreements are contracts because they create legal relations between the parties.

EXAMPLE: A invites B to dinner. B accepts this invitation but does not attend the dinner. A
cannot sue B for damages. It is social agreement because it does not create legal obligation. So it
is not a contract.
Any agreement of which the consideration is illegal is void and cannot be called a contract. An
agreement implies fulfilling some agreed condition. It does not essentially imply that the
predetermined conditions conform to the law and are enforceable by it. It may be said that an
agreement is the genus of which contract is the species. It also makes it clear that all agreements
are not contracts but all contracts are agreements.
Conclusion
To conclude, an agreement is the beginning of a contract and contract is the formation
constructed on this basis. An agreement starts from an offer and ends on consideration while a
contract has to attain another milestone that is enforceability. Due to this, breach of an agreement
does not give rise to any legal remedy to the distressed party while breach of contract provides
legal remedy to the distressed party against the guilty party. Thus, we can say that all contracts
are agreements but all agreements are not contracts.

The requirement of contractual intention in the formation of contact

The main components in the formation of a contract are offer, acceptance, intention to create
legal relations and consideration
Offer
An offer, by law it is generally presumed that in a commercial transaction, the contracting parties
must have the intention to create a legally binding contract. This means that if they have signed a
contract for business-related activities, then they will be able to sue the other party if that party
does not fulfill the contractual provisions. An offer is a proposal in specific terms made by a
person or an organization, this person is called the offeror and the person who the offer is
intended is called the offeree. If any of these elements are missing, there is no offer to form the
basis of a contract.

Acceptance
An acceptance is the offerees clear and unconditional agreement to the offerors terms. Should
the offeree try to change any of the terms put by the offeror there is no contract as they have tried
to change some of the terms of the offer. This presumption can only be rejected if the parties
expressly state that they do not intend to make a legally binding contract. An acceptance is valid
only if the offeree knows of the offer; the offeree manifests an intention to accept; the acceptance
is unequivocal and unconditional; and the acceptance is manifested according to the terms of the
offer.
Consideration
Consideration is a promise, an act, or a promise not to act and represents the value in the
contract. For example, in a services contract for services, one person will promise to perform
services (the consideration of one party), and the other will promise to pay money in exchange
for the service (the other party's consideration). Consideration in a contract may be executory,
executed or past. Executory consideration is a promise that will be performed in the future,
executed consideration is a promise that has been performed thus giving rise to the obligation on
the offeror to perform their promise, and past consideration is where a promise is performed
before the formation of the contract and as such cannot be used to bind the other party to the
contract: importantly, past consideration is not sufficient to form a binding contract.
Consideration must move from the promisee, as the English common law system does not
enforce gratuities as the civil law system does. Also, consideration need not be adequate, but
must be sufficient. That is to say that there is no requirement in law that the value of the
consideration between the parties must be equal or near equal provided there has been no
vitiating factors.
In order to create right, duties or obligation the following extra elements are needed:
(i)

Capacity of the parties: Every person is competent to contract who is of the age of
majority according to the law to which he is subject and who is of sound mind, and is

(ii)

not disqualified from contracting by any law to which he is subject.

Free consent of the parties: Consent is said to be free when it is not caused by
undue influence, fraud, misrepresentation and mistake.
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(iii)

Lawful object: The object of the contract must be lawful. Object must not be illegal,

(iv)

immoral or opposed to public policy. Contract is not valid if it is illegal.

Contract is not prohibited by law: Contract will not be prohibited by the existing
law as such kind of contract has no legal effect.

From the above debate, it can be found that the first and the main conditions of valid contract
is lawful agreement. If the above mentioned elements exist in a lawful agreement, then that
agreement is turned into a contract. In the absence of above elements or in the presence of
defective elements (unlawful consideration) illegal or void contract can be formed. But
illegal or void contract has no legal status, they are proper to say illegal or void agreements.