Legal agreement

A contract is a voluntary arrangement between two or more parties that is enforceable by law as a binding legal agreement. Contract law recognises and governs the rights and duties arising from agreements.

Within jurisdictions of the civil law tradition, contract law is a branch of the law of obligations.

At common law, formation of a contract generally requires an offer, acceptance, consideration, and a mutual intent to be bound. Each party must have capacity to enter the contract. Although most oral contracts are binding, some types of contracts may require formalities, such as being in writing or by deed.

At common law, the elements of a contract are offer, acceptance, intention to create legal relations, and consideration.

Not all agreements are necessarily contractual, as the parties generally must be deemed to have an intention to be legally bound. A so-called gentlemen's agreement is one which is not intended to be legally enforceable, and which is "binding in honour only".

In order for a contract to be formed, the parties must reach mutual assent (also called a meeting of the minds). This is typically reached through offer and an acceptance which does not vary the offer's terms, which is known as the "mirror image rule". An offer is a definite statement of the offeror's willingness to be bound should certain conditions be met. If a purported acceptance does vary the terms of an offer, it is not an acceptance but a counteroffer and, therefore, simultaneously a rejection of the original offer. The Uniform Commercial Code disposes of the mirror image rule in §2-207, although the UCC only governs transactions in goods in the USA. As a court cannot read minds, the intent of the parties is interpreted objectively from the perspective of a reasonable person, as determined in the early English case of Smith v Hughes [1871]. It is important to note that where an offer specifies a particular mode of acceptance, only an acceptance communicated via that method will be valid.

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