A legally binding agreement between two parties to perform or refrain from performing specific actions is known as what?

A legally binding agreement between two parties is defined as a contract. Contracts establish the obligations of the parties involved, creating rights that are enforceable by law. To be considered a contract, the agreement must meet certain legal requirements, such as mutual assent (typically through offer and acceptance), consideration (something of value exchanged), and a lawful object (not against public policy).

While the terms "agreement," "understanding," and "arrangement" might suggest a mutual acceptance of terms, they do not necessarily imply the enforceability and specific legal obligations that characterize a contract. For example, an "agreement" can be informal and might not have the requisite elements to be legally binding. Similarly, an "understanding" may merely reflect a mutual acknowledgment without the intention to create legal obligations, and an "arrangement" often lacks the formality and structure of a contract. Thus, "contract" is the most appropriate designation for a legally binding agreement that mandates specific actions or inaction by the parties involved.