Elements Of A Contract
Learn the four essential elements that make contracts legally enforceable under Australian law.
Written by: Mark Lazarus, Commercial Lawyer, Director of Lazarus Legal
Last updated: 18 December 2025
Legal Disclaimer: The information on this page is general in nature and is not intended to constitute legal advice. It does not take into account your personal circumstances. Laws and legal processes can change, and their application varies between cases. You should seek independent legal advice before acting on any information on this page.
What Are The Elements Of A Contract?
For a contract to be legally enforceable in Australia, certain legal elements must be present. Understanding these requirements helps you spot the difference between a casual agreement and a binding commitment that courts will uphold.
Under Australian contract law, a valid contract requires four essential elements working together. Each element serves a specific purpose in proving the parties genuinely intended to create legal obligations. Courts assess these elements objectively based on what was said and done, not what you privately thought or intended.
What Are The Four Elements Of A Contract?
Under Australian contract law, the four elements of a contract are offer and acceptance, consideration, intention to create legal relations, and certainty of terms. Every contract you sign, every supplier agreement you negotiate, and every verbal commitment that becomes legally binding contains these same four components. Here’s what each one means in practice.
Offer And Acceptance
An offer is a clear proposal from one party to another, indicating willingness to enter a contract on specific terms. The person making the offer (the offeror) must communicate definite terms that the other party can accept without further negotiation.
A valid offer differs from an invitation to treat. When a shop displays products with price tags, that’s an invitation for you to make an offer to buy. The shop hasn’t offered to sell yet. When you take the item to the counter, you’re making the offer. The shop accepts by processing your payment.
Acceptance must be clear, unconditional, and communicated to the person who made the offer. You can’t accept by staying silent unless the offer specifically allows it. Acceptance creates the contract at the moment it’s communicated in the manner required or reasonably expected.
The mirror image rule applies here. If you respond to an offer by changing terms, you haven’t accepted the original offer. You’ve made a counter-offer. The original offer disappears, and now the other party must decide whether to accept your new terms.
Example: You email a graphic designer stating you’ll pay $3,000 for a logo package delivered by March 15, with two revision rounds included. That’s a valid offer. The designer replies “Accepted. I’ll invoice you today and start work Monday.” That’s clear acceptance. If they reply “I can do it for $3,500 with three revisions,” that’s a counter-offer, not acceptance.
Consideration
Consideration is what each party gives up or promises to do in exchange for the other party’s promise. Australian law requires consideration for most contracts. It proves the agreement isn’t just a one-sided gift or promise.
Consideration doesn’t need to be money. It can be services, goods, rights, or even agreeing not to do something you’re legally entitled to do. What matters is that both parties contribute something of value. The consideration must be sufficient but doesn’t need to be adequate. Courts won’t assess whether you got a good deal.
Past consideration generally doesn’t count. If you’ve already performed a service before any contract discussions, you can’t use that past action as consideration for a new promise.
Example: You promise to pay $3,000 (your consideration). The designer promises to create the logo (their consideration). Both parties give something of value. The contract has valid consideration.
Intention To Create Legal Relations
Both parties must intend their agreement to be legally binding. This element separates casual social arrangements from enforceable contracts. Courts apply a presumption based on context.
In commercial settings, there’s a strong presumption that parties intend legal relations. If you’re negotiating with a supplier, investor, or contractor, courts assume you meant to create binding obligations unless you clearly stated otherwise (like marking documents “subject to contract” or “not binding”).
In domestic or social contexts, the opposite presumption applies. Family arrangements and agreements between friends are presumed not legally binding unless evidence proves otherwise.
Example: A tech startup founder and a developer negotiate equity for services. The commercial context creates a strong presumption they intended legal relations. Courts won’t accept “we were just discussing possibilities” as a defence if the agreement ticks all other boxes.
Certainty Of Terms
The agreement must contain sufficiently clear and complete terms for courts to determine what the parties agreed and whether obligations were met. Vague understandings that leave essential matters undefined won’t be enforced.
Essential terms vary depending on the contract type. For a sale of goods, you need to identify what’s being sold and the price. For a service agreement, you need to define the services and payment terms. Courts can fill in minor gaps using reasonable standards, but they won’t write a contract for parties who left fundamental terms uncertain.
According to the Commonwealth Courts Portal, Australian courts regularly refuse to enforce agreements that are too uncertain or incomplete to be workable. Phrases like “we’ll agree on price later” or “to be negotiated” for essential terms will likely fail the certainty test.
Example: You agree the designer will create “marketing materials” for “a fair price.” That’s too uncertain. What specific materials? Which deliverables? What amount constitutes fair? Courts can’t enforce this because the essential terms aren’t certain enough to determine whether either party has performed or breached.
Are All Four Elements Always Required?
Yes. If even one element is missing, you generally don’t have an enforceable contract under Australian law.
The exception is a deed. Deeds don’t require consideration because they follow specific formal requirements including signatures and witnesses. Deeds are commonly used for property transfers, powers of attorney, and some commercial arrangements where one party makes a unilateral commitment.
For everyday business contracts, employment agreements, supplier arrangements, and service contracts, you need all four elements present.
What Makes A Contract Legally Binding In Australia?
Once the four elements of a contract are present, a legally binding agreement may exist across different types of contracts, depending on the context and purpose of the arrangement. However, while these elements form the foundation, binding enforceability may still require additional conditions beyond the core elements.
Capacity
Both parties must have legal capacity to contract. Minors, people with severe mental impairment, and intoxicated individuals may lack capacity. Companies must have proper authority through directors or authorised representatives.
Legality
You can't enforce a contract for illegal purposes. Contracts that breach competition law, involve illegal products, or require illegal conduct are void regardless of how perfectly they satisfy the four elements.
Compliance
The Australian Consumer Law requires certain consumer contracts to meet particular standards. Some contracts, like those involving land, must be in writing under the relevant state legislation.
Common Misunderstandings About Contract Elements
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"A written contract is always required."
Wrong. Verbal contracts are legally binding in Australia when all four elements are present. Writing just makes proving the terms easier. Some contracts must be written by law, but most don't require it. -
"Verbal agreements aren't enforceable."
Also wrong. Oral contracts are absolutely enforceable if you can prove the terms, all four elements existed, and the contract type doesn't require writing. The challenge is evidence, not legality. -
"Signing means it's automatically valid."
Not quite. Signing a document doesn't create a valid contract if elements are missing. If you lacked capacity when signing, if consideration was absent, or if the agreement is for an illegal purpose, your signature doesn't magically fix those problems. -
"Email agreements aren't real contracts."
Under the Electronic Transactions Act 1999, electronic communications have the same legal effect as paper documents for contract formation. An email exchange can absolutely create a binding contract if it contains offer and acceptance, consideration, intention, and certain terms. -
"Consideration must be equal value."
False. Courts don't assess fairness of consideration. If you sell your car for $1, that $1 is valid consideration even though it's obviously inadequate. What matters is that consideration exists and has some value, however small.
How Courts Assess The Elements Of A Contract
Australian courts apply an objective test when determining whether a contract exists. They ask what a reasonable person would understand from the parties’ words and conduct, not what the parties privately intended. If you send an email that a reasonable person would interpret as an offer, courts treat it as an offer regardless of your internal thoughts.
When disputes reach the Federal Court of Australia or state supreme courts, judges examine the evidence of communications, conduct, and context to determine whether each element was objectively present. They analyse precisely when offers were made, when acceptance occurred, whether consideration was exchanged, and whether terms were sufficiently certain.
When To Get Legal Advice About Contract Formation
Get legal advice before signing when contracts involve significant money, ongoing obligations, or complex terms you don’t fully understand. Seek guidance when you’re uncertain whether a verbal discussion has created binding obligations. Many businesses accidentally create contracts through casual conversations without realising commitments are now legally enforceable.
Legal advice becomes critical when the other party claims a contract exists but you disagree.
Summary
- The four elements of a contract under Australian law are offer and acceptance, consideration, intention to create legal relations, and certainty of terms.
- All four elements must be present for a contract to be legally enforceable. Missing even one means no binding contract exists.
- Courts apply an objective test based on what a reasonable person would understand from the parties’ words and conduct.
- Verbal agreements are legally binding when all four elements are present, though proving terms can be challenging.
- Consideration must exist but doesn’t need to be equal value. Courts won’t assess whether you got a fair deal.
- Commercial contexts presume intention to create legal relations, while social and domestic situations presume the opposite.
- Terms must be certain enough for courts to determine what was agreed and whether obligations were met.
- Beyond the four elements, contracts also require capacity, legality, and compliance with any formal requirements.
About Mark Lazarus – Director, Lazarus Legal
Admitted in both Australia and the UK, Mark brings more than two decades of global legal experience to Lazarus Legal. Having worked as a barrister, in private practice, and as in-house counsel for a major international consumer brand he combines courtroom-honed advocacy with commercial insight. Specialising in commercial law, intellectual property and dispute resolution, Mark advises startups, creative businesses, and established enterprises on transactions, trademarks, contract drafting, and litigation strategy. His cross-jurisdictional background and history as a former in-house legal director give clients confidence that their legal issues will be managed with both strategic foresight and commercial realism.