Courts will apply an objective test to determine the factual circumstances of the agreement. This means the objective meaning of the words and actions of the parties will be decisive. Although the aim is to determine the actual intention of each party, courts do not search for their subjective states of mind. Rather, they look for the objective intention of each party as manifested by their words and conduct.

See Objectivity.

A contract must establish evidence of agreement, being an offer followed by an acceptance. This may be by way of an oral agreement, or it may be done by writing or a combination of writing and oral agreement. The offer and acceptance may occur in a bilateral way (effectively an exchange of mutual promises) or a unilateral way (a promise by one party followed by an act in response).

An offer is a clear statement by one party indicating that they are willing to be bound on certain terms if the person to whom the offer is made communicates their acceptance while the offer is on foot. Otherwise, the statement may be seen as an invitation to treat, namely a request for offers. Such invitations are a common feature of negotiations and carry no promissory force.

See Offers.

An offer must be accepted for an enforceable agreement to be possible. To be valid, an acceptance must comply with certain legal rules. It generally must be unconditional and unequivocal, or it may be construed as a counter-offer or rejection. It must also satisfy rules of communication to the offeror. The general rule is that acceptance occurs when and where it is received by the offeror; although a special postal acceptance rule, if it applies, deems that acceptance occurs at the time the acceptance is posted.

See Acceptance.

In many commercial settings, parties negotiate and conclude agreements by way of standard forms. Difficulties often arise because the forms inadvertently contain contradictory and/or conflicting terms. In such cases, courts may adopt a variety of methods, in addition to strict offer and acceptance analysis, to determine the existence of a contract and its terms.

See Battle of Forms.

Some contracts will need to be in writing to be enforceable because of statutory requirements. An example is a deed, which is a formal contract that overcomes the necessity to demonstrate consideration. Deeds have to satisfy strict statutory criteria of form, execution and delivery. Other types of contracts may need to be evidenced in writing to be enforceable.

The most important examples are transactions involving land and interests in land, which need to satisfy requirements based on the historic Statute of Frauds 1677 (UK). These must be evidenced at least by some memorandum or note that contains the signature of the party seeking enforcement. Courts have held the evidence must also clearly indicate the parties, subject matter and consideration.

Where these laws are not satisfied, aggrieved parties may provide evidence of acts done in part performance of the oral contract in order to seek an equitable remedy.

The Electronic Transaction Act 1999 (Cth) and the state and territory legislation outlines when and the types of contracts that are considered valid if entered into via electronic means.

See Requirement of Writing.

The requirement of consideration is fundamental to the creation of an enforceable contract. A price paid for a promise before the promise can be enforced. A bare or gratuitous promise cannot impose contractual liability on its maker, unless it is executed in the form of a deed. In a typical bilateral contract, consideration is provided by way of the offer and acceptance (because they amount to an exchange of promises). In a unilateral contract, consideration is evident in the act given in exchange for the offer.

However, consideration must satisfy certain rules to be valid. They include that consideration must be bargained for in the sense that it must be given in reliance on the promise. Consideration must move from the party to whom the promise is made and it cannot be in the past, in the sense that it precedes the promise, unless it falls into an exceptional category. Other rules of consideration should also be noted.

Importantly, consideration must have a legal value although its commercial value need not be equal or comparable to the value of the promise. Whereas consideration cannot in principle be something that the promisee is already contractually bound to give, this rule may be circumvented where a benefit over and above the contractual commitment is provided.

See Consideration.

A contract must exhibit an intention by the parties to be legally bound. This is decided objectively on the facts, with a court taking into account the nature of the transaction and the relationship between the parties in the particular factual context.

Two presumptions have traditionally been seen as operating in this area. The first is the absence of intention in contracts of a social and domestic nature. The second is the presence of intention in contracts of a business or commercial nature. Both presumptions are rebuttable on the facts. The future role of the presumptions may be in question, with greater emphasis being placed on an objective assessment of the facts and circumstances of each case, with the party asserting the contract bearing the onus of proof.

See Intention.

Courts will not enforce a contract if there are key aspects of the agreement that remain uncertain or incomplete. This will be mainly because of unclear language or indeterminate terms for which no means of determination have been envisaged. Mere ambiguity will not necessarily result in uncertainty.

Although agreements to agree are generally unenforceable, agreements to negotiate in good faith could be valid, if the parties have agreed on clear duties and limitations on the task of achieving agreement on specific matters that can be measured and assessed by way of clear and agreed standards.

Agreements that are expressed to be subject to contract are likely to be considered as unenforceable in the absence of a later document requiring execution. However, parties need to exercise caution with such arrangements and be aware that in some situations, courts may consider the preliminary agreement capable of enforcement even if the parties do not proceed to the later contract.

Heads of agreement are commonly used in commercial settings, although care must be taken in their drafting or they may be used by one party to argue that there is sufficient certainty to enforce what has been agreed upon. Heads of agreement are meant to outline, in principle, the structure of a future and proposed bargain between the parties. In other words, they set out the rules of engagement by which the parties intend to proceed towards a final and binding contract.

See Certainty.

Parties to an enforceable contract must have the capacity to be party to its creation. Problems arise with certain categories of persons, for example corporations and minors.

Under statute, a corporation will have the capacity to enter into binding contracts even though the natural persons acting on its behalf may have exceeded their powers under the company’s constitution. This will not apply if the other contracting party had notice of the irregularity. Parties dealing with corporations are entitled under statute to assume that those acting on behalf of the corporation have the requisite authority.

With minors, much will depend on the jurisdiction in question. Most Australian jurisdictions operate under the common law, with or without statutory modifications, which holds that contracts are generally voidable at the minor's option, unless they are contracts for necessaries or beneficial contracts of service. In NSW, statute has abrogated the common law position and made all minors bound to civil acts that are for their benefit, as long as the minor understood the nature of the transaction and the consideration was not manifestly excessive or inadequate.

See Capacity.