At what point does an informal contract become binding?

An informal contract becomes binding at the moment one party makes an offer and the other party accepts that offer. This is due to the principle of mutual assent, which is a core element of contract law. Mutual assent occurs when there is a clear offer from one party and an unequivocal acceptance by another party.

For a contract to be considered valid and enforceable, both parties must agree to the terms set forth, indicating their intention to enter into a legally binding agreement. The absence of formalities such as signatures or written documentation does not negate the enforceability of a contract as long as the essential elements are met.

The other choices do not fully capture the moment a contract becomes binding. While signing an agreement can demonstrate intent, it is not required for an informal contract to be valid. Payment, in the context of some contracts, might indicate acceptance, but it does not itself create a binding agreement in the absence of offer and acceptance. The idea of a cooling-off period typically applies to certain types of contracts, allowing parties time to reconsider their agreement, but does not pertain to the immediate binding nature of the contract. Thus, the correct answer reflects the foundational concept of contract formation through offer and acceptance.