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Meaning of a Contract under The Indian Contract Act 1872

CA Foundation Paper-II Business Law

Here you will understand the basic meaning of a ‘Contract’ under The Indian Contract Act, 1872. How an agreement is essential for contract and some other concepts related to a contract with the help of examples. This will help you to enhance your understanding related to the topic.

What is a contract?

When we ask this question from any layman, they generally answer, “contract means agreement. In general terms, we use both agreements and contracts words in the same sense. Do really contract means agreement. If yes then what is an agreement and if not then what is the meaning of a contract.

Let’s understand the meaning of a contract under The Indian Contract Act 1872.

As per section 2 (h) of The Indian Contract Act 1872, a contract means “An agreement enforceable by law”.

According to this definition, a contract has two main parts-

  1. Agreement
  2. Enforceability

So let’s understand both concepts one by one.

1.Agreement:

In simple words, Agreement means every promise and every set of promises, forming the consideration for each other.

This Definition focus on a word i.e. Promise. So what is a promise?

Section 2 (b) defines a promise 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”.

For example, Ram gives an offer to Shyam to sell his bike to him for 50000. Shyam agreed for the offer and given his acceptance.

Here we can see clearly Ram is the offeror i.e. the person who gives the offer. Shyam is the person to whom the offer was given hence he will be called the offeree. In this example, Shyam accepted the offer made by Ram. This will be known as a promise. So in simple words, we can say a promise is an accepted offer.

When parties of contract want to proceed further and this event is just not limited to mere acceptance of offer and parties want to decide some other things like terms, rules, etc., then we will say that they are interested in creating an agreement.

So in the shortest way

Agreement/Promise = Offer + Acceptance

2.Enforceability:

In simplest terms, Enforceability means recognized by law. In the context of a contract, enforceability means when any contract is recognized by the court of law. Enforceability enables any contract to enjoy rights and also obligations provided by The Indian Contract Act 1872.

 For example, A makes a contract with B. If it is a valid contract, A and B can bound each for the performance of the contract with the help of the law.

Conclusion

So now we can say both the terms contract and agreement has a different meaning. Though the agreement has a wider scope than the contract, the contract provides legal identity to any agreement.

Free MCQ for Business Law-CA Foundation November, 2020 Exams

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