Know The Law

What is Contract?

Suppose we have to begin with a simple understanding. In that case, we will say that a contract is a promise between two parties that is enforceable by law. In India, the law that governs the terms and conditions of contracts, agreements, and bonds between entities is the Indian Contract Act, 1872. To frame any valid contract, one has to abide by the conditions put forward in the Contract Act. With the help of this Act, we will decipher what a contract means. 

What Is A Contract According To The Indian Contract Act?

Under Section 2(h) of the Contract Act, a contract is an agreement which is enforceable by law. So any deal which involves an agreement and which one carries out under a legal jurisdiction is a contract. This definition has two elements worth understanding, i.e., 'agreement' and 'enforceable by law'. To grasp the concept of a contract in its true essence, we need to decipher the meaning of these terms. 

Meaning Of Agreement 

Section 2(e) of the Indian Contract Act of 1872 defines an agreement as a promise or set of promises formed after taking into consideration the interest of both parties. 

So we have seen the definition of an agreement. Still, the description contains an element that can cause confusion or conflict. This term is 'promise'. Let us know the definition of a promise. 

Meaning Of Promise 

Section 2(b) of the Act states that when all the parties involved in a proposal give their consent, the request becomes an accepted one. An accepted bid is then known as a promise. 

Therefore, according to the law, to draft or frame any contract, the following is of paramount importance: 

  • An explicit declaration of the parties involved or affected 
  • The parties involved or affected must be fully capable of understanding the proposal. 
  • Declaration of acceptance of the proposal from all parties involved 
  • Once accepted, the proposal becomes an accepted proposal. 
  • The accepted proposal is now a promise. 

Therefore an agreement is an entirely accepted offer.

Meaning Of Enforceable By Law

By now we know the steps we must follow to have an accepted proposal, a promise, and after that an agreement between two parties. Suppose you follow all these steps and form a deal with a friend to give you a certain amount of money in exchange for a commodity. Does this become a contract? It doesn't. It sure is an agreement, but for it to become a contract, the agreement must have legal bindings. Any agreement which lies within the scope and supervision of the law becomes a contract. 


In the end, we can understand what a contract is and what it isn't. The two aspects of a contract being an agreement and also being legally binding are essential to note. While an agreement is socially acceptable and not necessarily legally binding, a contract must be such that it is understood and defined by the law. A contract has legal obligations. A contract is always an agreement but not the other way round.