How is a contract defined?

A contract is defined as a legally binding agreement between parties that creates mutual obligations enforceable by law. This definition emphasizes the critical aspects of a contract, which include the intention to create legal relations, the agreement upon terms, and the consideration exchanged between the parties.

In the context of contract law, simply having a verbal agreement, a casual understanding, or a handshake transaction does not suffice to establish a contract unless the essential elements of contract formation are present. While verbal agreements can indeed lead to enforceable contracts, they must satisfy specific legal criteria, such as clarity of terms and intention. In contrast, informal or casual understandings and handshake transactions typically lack the formalities and intent necessary to be recognized as legally binding, making them insufficient to qualify as contracts in a legal sense.

Thus, the correct answer captures the essential characteristic of a contract, highlighting its enforceability and the obligation it creates, distinguishing it from other forms of agreements or understandings that may not hold up in a court of law.