AGREEMENT AND CONTRACT We often come across an agreement or contract in our daily life but we seldom notice the

importance of it. In fact, either an agreement or a contract is like somehow a promise made between two or more individuals when they have come to an understanding on a particular issue. What is an agreement and a contract? An agreement is a form of cross reference between different parties, which may in the form of written, oral and lies upon the honour of the parties for its fulfilment rather than being in any way enforceable. Whereas, a contract is an agreement between two or more parties to do or abstrain from doing an act and it is intended to create a legally binding relationship. To clarify the differences between an agreement and a contract, we may refer to the Contract Act 1950 s 2(b) which states that 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. It simply means that when the proposal (offer) made doesnt acquire an agreement or approval from the person, there will be no promise (contract) made as there is no acceptance on the offer. Besides that, based on Contract Act 1950 s 2(g), it states that An agreement not enforceable by law is said to be void. In other words, if two or more parties make an agreement without any intention of being legally bound by it, the agreement will not be regarded by the court as a contract, such as social agreement and domestic agreement. Under Contract Act 1950 s 2(h), it states that An agreement enforceable by law is a contract. This statement profoundly differentiates an agreement from a contract because an agreement has no legally binding relationship. Examples of an agreement A social agreement is basically an agreement among friends who might have made promises to each other but they do not intend that their promises to be legally bound. Whereas, a domestic agreement is made between members of the family such as husband and wife, parents and children, that might have made promises to each other but not intended to be legally bound. An example of this case would be Balfour v Balfour [1919], the court made judgement that Mr. Balfour (husband) was not bound by law because the time when agreement was made, there was no intention to create legal binding. Note that the agreement was made between spouses so it was a family matter that the court had no place to interfere. However, the presumption of this agreement is rebuttable. Another example would be the case of Merritt v Merritt [1970]. For this case, the Court of Appeal has pointed out that the parties were separated. Therefore, it is generally considered that they do intend to be legally bound by their agreements. The written agreement signed was evidence that they are intended to be bound legally.

Differences between an agreement and a contract Elements of contract What makes a contract different from agreement? Before a contract was drafted or an agreement was enforceable by law, we must be clear on the validity of a contract. A valid contract must be composed of the following essential elements, such as offer, acceptance, consideration, intention to create legal relation, capacity of persons, legality, certainty and consent. Any missing out of the elements mentioned, the contract will consequently become void, voidable or unenforceable. What constitute a contract? A contract normally composed of three components: offer, offeror and offeree. Under Contracts Act 1950 s 2(a), it states that, When one person signifies to another his willingness to do or to abstrain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal (offer). Under the same section of Contracts Act 1950, s 2(c), we are being told that, The person making the proposal is called the promisor (offeror) and the person accepting the proposal is called the promise (offeree). Absence of any these components will fail to construct a contract. Offer or proposal is a component which is capable to turn up to be an agreement by its acceptance. A proposal must be a definite promise to be bound provided that certain specified terms are accepted. For instance, the promisor (offeror) must have declared his readiness to undertake an obligation under certain terms, leaving the option of its acceptance or refusal to the offeree. Acceptance is derived from several conditions. First and foremost, the acceptance must be absolute and unqualified. Under Contracts Act 1950 s 7(a), it states that In order to convert a proposal into a promise the acceptance must be absolute and unqualified. In terms of definition, absolute means definite and without any confusion or doubts, whereas, unqualified means having the right knowledge. Next, we proceed with the communication of a proposal. An offer or proposal is only considered as effective only after it is communicated to the offeree by the offeror as what stated in Contracts Act 1950 s 4(1), The communication of proposals is complete when it comes to the knowledge of the person to whom it is made. In Contracts Act 1950 s 3, it states that, The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting, or revoking, by which he intends to communicate the proposal, acceptance, or revocation, or which has the effect of communicating it. Therefore, a proposal can be existed in any forms to communicate to the offeree by the offeror. Contracts Act 1950 s 9 state that, So far as the proposal or acceptance of any promise is made in words, the promise is said to be express. So far as the proposal or acceptance is made otherwise than in words, the promise is said to be implied. We should be able to

distinguish the offer either in the form of an option or an advertisement. An option is merely an undertaking to keep the offer open for a certain period of time where as an advertisement is an attempt to induce offers. An example for this case would be Coelho v. The Public Services Commission. An agreement to be made must also have a consideration as stated in Contracts Act 1950 s 25, Agreements void if considerations and objects unlawful in part. And a consideration is defined in Contracts Act 1950 s 2(d) which state that When, at the desire of the offeror, the offeree or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. Besides that, the parties must have legal capacity to enter into contract, as stated in What agreements are contract from Contracts Act 1950 s10. Some of the important criteria under this section are that contracts are made by free consent of parties, parties that are competent (Contracts Act 1950 s11), for a lawful consideration and with a lawful object and lastly the agreement not declared to be void. Last but not least, the terms of contract must be certain as it stated in Contracts Act 1950 s 30, Agreements void for uncertainty. ,for instance the case of Karuppan Chetty v Suah Thian [1916]. Communication of acceptance is the last part of the offer and acceptance. It either ends with the acceptance of the offer that (Contracts Act 1950 s 4(2)) or ends with the revocation of the offer (Contracts Act 1950 s 4(3)). For both offers, it is presume that the promisor proposer to accept it even before the promise has received by the promisor or come to know about it. Therefore, once the promisor has agreed on it, he will be not possible to reject the offer he made. Moreover, an offeror cannot treat that silence or no communication to be an acceptance. Examples of a contract Agreements that brought out a contract composed of business and commercial agreement. There is presumption that parties involved in these fields have the intention to create legal relation, though rebuttable. An example of it will be the case of Esso Petroleum Ltd v Commissioners of Customs and Excise [1976], the court held that the parties have the intention to create legal relations as the whole transaction of Esso took place in a setting of business relations. Conclusion In a nut shell, all contracts are agreement because a contract is formed based on the understanding between two or more parties. The only difference between them is that a contract is enforceable by law whereas an agreement is not. We should be aware on each of them as they will lead to different consequences.