For a contract to be legally binding it must contain the following elements:

Intent

For a contract to be legally binding both parties must have the intention to enter into a legal relation. In most cases the presence of a consideration is evidence enough, but not in all. If it is proven that intent is not present in either of the parties, the contract becomes invalid and will not be valid in a court of law.

In the case of a social or domestic agreement the parties generally do not intend to enter into legal relations, which can make proving intent difficult in a court of law.

In the case of commercial agreements, both parts generally intend to enter into legal relations, which can make proving that a party did not intend to enter legal relations difficult. The same can be said for agreements with the Government.

Offer

An offer can be communicated in any form, generally an offer is a promise to do something, if the person the offer is directed towards does something in return. An offer can also be a proposal by one party to enter into a legally binding contract with another party. An offer must also be distinguished from an invitation to treat, which lacks the intent for a person to accept.

An offer can be made to:

• A particular person
• A group of persons
• The whole world

An offer must follow these basic rules or laws:

• An offer must be communicated to the person accepting the offer
• All terms of the offer must be communicated to the offeree and brought to his/her notice
• Offer may specify conditions to be followed
• An offer may be withdrawn/revoked at any time before acceptance
• Some contracts require people to be of a certain age
• The offer must be legal

Acceptance

An acceptance is a legally binding statement by the offeree, agreeing to the offer from the offerer.

An acceptance must follow these rules:

• An acceptance must be clearly communicated
• An offer must be wholly accepted. If an acceptance cannot be made a counter offer can occur
• Any condition stated in the offer must be followed before and acceptance can be said to have taken place

Consideration

Consideration refers to the price that the offeree asks for in exchange for their promise. Can also be seen as the price of the promise.

For it to be a contract to be valid consideration it must follow these rules:

• Consideration must exist in every simple contract
• Consideration must not be illegal or unlawful
• It must be definite
• It must be possible to carry out
• It must be provided by the person who wishes to enforce the contract
• Consideration offered now in return for past performance is not good consideration

Capacity

For a contract to be valid both parties must have the capacity to enter into a legally binding contract. As there are certain persons or classes of persons that lack the capacity to enter into a contract.

Some of the classes of persons who lack capacity are people:

• With mental disorders (may be unable to understand the nature of the contract
• Who are Intoxicated (are not in a sound state of mind)
• Who are bankrupt (cannot be expected to hold up their role in the contract)
• Who are minors (lack the capacity to understand the nature of the contract

Legality

For a contract to be legally binding the contract must first be legal. All parts of the contract must follow Australian Law for it to be a valid contract.

Illegal contracts may fall into the below categories:

• Contracts where the object is a commission to break the law (eg. rob a bank)
• Contracts depending on the performance of sexual immoral acts
• Contracts contrary to public Policy