Meaning and Definition of Contract

Business runs on promises kept — a supplier promises to deliver goods, a customer promises to pay for them. The law that decides which of these promises the courts will actually enforce, and which they will not, is the Indian Contract Act, 1872, the foundation of all commercial law in India.

Section 2(h) of the Act defines a contract as "an agreement enforceable by law." This one short definition contains two ideas that must both be present:

Contract = Agreement + Enforceability at law

• An agreement [Section 2(e)] is "every promise and every set of promises forming the consideration for each other." A promise [Section 2(b)] is an accepted proposal.
• Not every agreement is a contract — a purely social invitation ("come to dinner on Sunday") is an agreement in the everyday sense, but the parties never intend it to be legally enforceable, so it is not a contract. Only an agreement that the law will enforce, if broken, becomes a contract.

So, all contracts are agreements, but all agreements are not contracts. This chapter's coverage of the Indian Contract Act, 1872 is identical central legislation that every Indian commerce student studies nationally, whichever board they sit under — Tamil Nadu's own Commerce syllabus teaches the same Act, sections and case principles as CBSE's Business Studies syllabus does when it covers contract law.