CA (Chartered Accountant) Foundation Business Laws: Questions 1 of 2

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What is a ‘Contract’ under Indian Contract Act, 1872?



  • The term Contract is defined under section 2 (h) of the Indian Contract Act, 1872 which states, ‘Contract is an agreement enforceable by law’ . The contract has two essential elements:
    • Agreement
    • Enforceability by law


  • When one party gives a proposal or offer to another party and the other part gives its acceptance than it becomes an agreement.
  • Hence,
  • Agreement

Enforceability by law

  • For an agreement to become contract there must be a legal obligation which means duly enforceable by law.
  • Thus, a contract is valid when all the agreements are made by the free consent of the competent parties and there is a lawful consideration with a legal object and are not expressly declared to be void.
  • A valid contract thus includes the following steps:
    • Proposal/offer
    • Acceptance
    • Agreement
    • Legally Enforceability
    • Contract

Example – A agrees to sell his house to B for 20lac. B accepted the offer. Now A is under obligation to give the house to B and B has the right to receive house on payment of 20lac. Also, B is under obligation to pay 20lac and A has the right to receive 20lacs.