We read in, Ephesians 2:5;
“But because of His great love for us, God, Who is rich in mercy, made us alive with Christ even when we were dead in transgressions -- it is by grace you have been saved.”
χάρις, xáris (another feminine noun from xar-, “favor, disposed to, inclined, favorable towards, leaning towards to share benefit”) –Grace(xáris) is preeminently used of the Lord’s favor – freely extended to give Himself away to people (because He is “always leaning toward them”).
Grace is unmerited favor.
The apostle Paul distinguishes, in Romans 4:4, between the “reward of grace” and the “reward of debt”. When good is conferred because it is due, it is not of grace. Whatever may be claimed on the score of justice, cannot be regarded as unmerited favor. Justice gives to every man according to his works; and if salvation were of works, it could not be of grace. Paul has made this matter very plain: “To him who works, is the reward not reckoned of grace, but of debt. If by grace, then it is no more of works; otherwise grace is no more grace. But if it be of works, then it is no more grace; otherwise work is no more work” (Romans 11:6).
For the same reason that salvation is not of works, it is not of the law. The law is the rule of justice, and takes cognizance of the men’s works. If it gave life to men, it could be only on the ground of their obedience to its requirements; for its language is, “the man who does these things shall live by them” (Romans 10:5). Salvation by the law is declared to be impossible: for if there had been a law given which could have given life, verily righteousness should have been by the law (Galatians 3:21).
The Scriptures represent grace and law as opposed to each other: “The law was given by Moses; but grace and truth came by Jesus Christ” (John 1:17). “Did you receive the Spirit by the works of the law, or by the hearing of faith?” (Galatians 3:2). “It is of faith, that it might be by grace” (Romans 4:16). Sometimes the term law is used in an extended sense; as when the law of faith is opposed to the law of works (Romans 3:27); and the law of the Spirit of life, to the law of sin and death (Romans 8:2).
Hence we read of “the perfect law of liberty” (James 1:25), which cannot be the rule of justice: that says, “Cursed is everyone who does not continue in all things which are written in the book of the law to do them” (Galatians 3:10). When the term law is used in this extended sense, it denotes the method of salvation by grace through faith, and is carefully distinguished from “the law of works.”
The teaching that salvation is of grace, is taught in the sacred Scriptures with great clearness. In the second chapter of the epistle to the Ephesians, the declaration is twice made, “By grace you are saved.” Paul ascribes his own salvation to grace: “By the grace of God, I am what I am” (1 Corinthians 15:10). He traces the blessing of salvation to “the grace given in Christ Jesus, before the world began” (2 Timothy 1:9): —to “the riches of His grace” (Ephesians 1:7): —to “the exceeding riches of his grace” (Ephesians 2:7).
Salvation is entirely of grace. The passages already quoted show that salvation is not partly of grace and partly of works. Grace and works are so opposed to each other, that, when it is affirmed to be of grace, it is denied to be of works: “Not of works; otherwise grace is no more grace.” “Not according to our works; but according to his own purpose and grace” (2 Timothy 1:9). The exclusion of all boasting (Romans 3:27), was, that the blessing bestowed is entirely of grace: “Not of works, lest any man should boast” (Ephesians 2:9). Our works are wholly excluded; because they are all sinful, and can deserve nothing but the wrath of God. Faith renounces all reliance on our own works, all expectation of favor on their account; and asks and receives every blessing as the gift of divine grace through Jesus Christ. When salvation is so received, all boasting is effectually excluded.
That salvation is entirely of Divine grace may be argued from the condition in which the Gospel finds mankind. We are justly condemned, totally depraved, and, in ourselves, perfectly helpless. All this has been fully proved in a former chapter; is verified in the experience of everyone who is awakened to a just view of his lost state; and precisely accords with the language of God to His people: “O Israel, you have destroyed yourself, but in Me is your help” (Hosea 13:9). The second chapter of the epistle to the Ephesians describes the condition of men by nature:
“Children of wrath,” “dead in trespasses and sins,” “without hope and without God”; and it attributes their deliverance from this wretched and hopeless condition, to the grace of God, who is rich in mercy:
“But because of His great love for us, God, Who is rich in mercy, made us alive with Christ even when we were dead in transgressions—it is by grace you have been saved. And God raised us up with Christ and seated us with Him in the heavenly realms in Christ Jesus” (Ephesians 2:4-6).
Read more: http://www.pbministries.org/Theology/J.%20L.%20Dagg/Manual%20of%20Theology/bookseventh/chapter3.htm#s2