U1.05 — Key Elements of a Contract
Overview
Dotpoint 5: Key Elements of a Contract
A contract is a legally enforceable agreement between two or more parties.
In business, contracts are everywhere — employment agreements, supplier contracts, leases, franchise agreements and sales transactions.
For a contract to be legally binding in Australia, three key elements must exist:
- Intention
- Agreement (offer and acceptance)
- Consideration
If one of these elements is missing, the contract may not be legally enforceable.
Intention
What it means
Both parties must intend for the agreement to be legally binding.
In business and commercial situations, intention is usually assumed.
In social or domestic situations, intention is usually not assumed.
WA Examples
✔ A West Perth accounting firm signs a contract to provide tax services to a mining company.
This is a commercial agreement — intention is clearly present.
✔ A Joondalup café signs a 3-year lease for shop space in Lakeside Shopping Centre.
This is legally binding because both parties intend legal consequences.
✘ Two friends agree to “pay each other back for dinner sometime.”
This is social — no legal intention.
Why this matters in business
Businesses rely on intention to:
- enforce payment
- recover losses
- protect investments
- hold employees or suppliers accountable
Without intention, contracts cannot be enforced in court.
2) Agreement – Offer and Acceptance
What it means
A contract requires:
- A clear offer
- A clear acceptance of that exact offer
Acceptance must match the offer exactly.
If terms are changed, this becomes a counter-offer, not acceptance.
Offer
An offer is a definite promise to be bound on specific terms.
Example (WA context):
A landscaping business in Midland provides a written quote:
“Supply and install fencing for $8,500.”
This is an offer.
Acceptance
Acceptance occurs when the other party agrees to the exact terms.
If the client replies:
“Yes, we accept the $8,500 quote.”
→ A contract is formed.
If the client replies:
“Will you do it for $7,500?”
→ This is a counter-offer, not acceptance.
3) Consideration
What it means
Consideration is something of value exchanged between the parties.
Both sides must give something.
Usually:
- Money
- Goods
- Services
- Labour
WA examples
✔ A Subiaco retail store hires a Year 12 student.
The employee provides labour.
The employer provides wages.
This is consideration.
✔ A Perth web designer builds a website for a Fremantle café for $3,000.
The designer gives services.
The café gives payment.
✔ A mining services contractor provides equipment hire in exchange for payment from a WA resources company.
If one party gives nothing, there is no valid contract.
Real WA Business Scenarios
Employment contract
A Scarborough hospitality venue hires a barista.
Intention → both intend legal employment
Agreement → job offer accepted
Consideration → wages exchanged for labour
Valid contract formed.
Supplier agreement
A Bunbury café agrees to buy coffee beans monthly from a Perth supplier.
Written offer
Acceptance by email
Payment in exchange for goods
Contract exists.
Construction example
A Perth homeowner signs a building contract with a registered WA builder.
If the builder fails to complete work, the homeowner can rely on the contract to seek remedies.
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Biz Fact: A tradie quote becomes binding when it’s accepted (even by text) — that “Yep, go ahead” can lock in a deal if price/scope are clear.