For a contract to be valid, it must meet the following criteria:

* Mutual agreement - (see main article offer and acceptance): There must be an express or implied agreement. The essential requirement is that there be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, and a contract will be formed when the parties have met such a requirement. For a contract based on offer and acceptance to be enforced, the terms must be capable of determination in a way that it is clear that the parties assent was given to the same terms. The terms, like the manifestation of assent itself, are determined objectively.

* Consideration: There must be consideration (see also consideration under English law) given by all the parties, meaning that every party is conferring a benefit on the other party or himself sustaining a recognizable detriment, such as a reduction of the party's alternative courses of action where the party would otherwise be free to act with respect to the subject matter without any limitation.

* Competent, Adult (Sui Juris) Parties: Both parties must have the capacity to understand the terms of the contract they are entering into, and the consequences of the promises they make. For example, animals, minor children, and mentally disabled individuals do not have the capacity to form a contract, and any contracts with them will be considered void or voidable. Although corporations are technically legal fictions, they are considered persons under the law, and thus fit to engage in contracts.

For adults, most jurisdictions have statutes declaring that the capacity of parties to a contract is presumed, so that one resisting enforcement of a contract on grounds that a party lacked the capacity to be bound bears the burden of persuasion on the issue of capacity.

* Proper Subject Matter: The contract must have a lawful purpose. A contract to commit murder in exchange for money will not be enforced by the courts. It is void ab initio, meaning "from the beginning."

* Mutual Right to Remedy: Both parties must have an equal right to remedy upon breach of the terms by the other party

* Mutual Obligation to Perform: Both Parties must have some obligation to fulfill to the other. This can be distinct from consideration, which may be an initial inducement into the contract.

Written contracts

Contrary to common wisdom, an informal exchange of promises can still be binding and legally as valid as a written contract. A spoken contract is often called an "oral contract", not a "verbal contract." A verbal contract is simply a contract that uses words. All oral contracts and written contracts are verbal contracts. Contracts that are created without the use of words are called "non-verbal, non-oral contracts" or "a contract implied by the acts of the parties."

Courts in the United States have generally ruled that if the parties have a meeting of the minds, and act as though there was a formal, written and signed contract, then a contract exists. However, most jurisdictions require a signed writing for certain kinds of contracts (like real estate transactions).

In the United States, a law setting out such requirements is typically called the Statute of Frauds; the name originates from an English statute that was for "the prevention of frauds." The point of the Statute of Frauds is to prevent false allegations of the existence of contracts that were never made, by requiring formal (i.e. written) evidence of the contract. Contracts that do not meet the requirements of Statute of Frauds legislation are unenforceable, but not void. However, a party unjustly enriched by an unenforceable contract may be subject to restitution for unjust enrichment.