In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:—
(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
(b) 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;
(c) The person making the proposal is called the "promisor", and the person accepting the proposal is called the "promisee";
(d) When, at the desire of the promisor, the promisee 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;
(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;
(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;
(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
Legal Commentary & Landmark Judgments: Section 2
Section 2 of the Indian Contract Act, 1872 constitutes the fundamental statutory interpretation clause that defines the essential conceptual building blocks of contract law—from initial proposal to an enforceable agreement.
Clauses (e) through (j) distinguish between mutual promises ('agreement'), enforceable agreements ('contract'), void agreements (void ab initio), and voidable contracts (enforceable at the option of one party but not the other).
The statutory schema of Section 2 establishes that consideration in India is fundamentally wider than under traditional English common law. Because clause (d) explicitly validates acts performed 'at the desire of the promisor' by the promisee 'or any other person', the doctrine of privity of consideration does not apply in India, although privity of contract remains intact. In drafting commercial contracts, establishing clear reciprocal promises under Section 2(e) and identifying express consideration under Section 2(d) is vital to forestall defenses of illusory promise or absence of consideration.