 This is Waylon Chow. Welcome to Contract Law Fundamentals, Module 3A, Part B. In this part, we will examine the remaining essential elements that are required for a binding contract, intention to form legal relations, legal capacity, legal purpose, and consideration. Back to our old friends Daria and Jamal. So now they're at a party, and Jamal says to Daria, you've got a sick laptop. I wish I had one just like that. Daria says, yeah, I love it. I would never sell it. Jamal then says, okay, how about if I give you $10,000 for it? Daria replies, I'll take that. The next day Daria asked Jamal to pay up, giving $10,000 for my laptop. Is Jamal obligated to buy Daria's laptop for $10,000? The relevant essential requirement for a binding contract in this scenario is the intention to form legal relations. Or in other words, did the parties intend to form a legally binding contract? To determine intention, there are two steps in that analysis. The first step is determining the presumption. Or what's our starting? What's our starting assumption? So that presumption depends upon the context in which the agreement was made. If the agreement was made in a domestic or social context, then our presumption is that there was no intent to form a legally binding contract. If the context was a business or commercial context, then the presumption is that there is an intent to form a legally binding contract. Once we've determined our relevant presumption, then the next step is to determine whether or not that presumption is either rebutted or confirmed by the facts or evidence of the case. In other words, what if anything, did the parties actually do that would either rebut or confirm the presumption of an intention or no intention? One of the key things and one of the usual things that we look at is seeing whether or not the parties put their agreement in writing and then signed it. When people do that, it usually means that they're pretty serious about forming a binding contract, and that's usually a very clear indication that there is an intention to create legal relations. So, is Jamal obligated to buy Daria's laptop for $10,000? The legal issue here is whether or not Jamal and Daria had an intention to create a legally binding contract, or in other words, an intention to form legal relations. Firstly, we can presume that there was no such intention since the agreement was made in a social context. That social context is supported by the fact that Daria and Jamal were socializing at a party at the time that they formed this agreement, and as well Daria and Jamal are friends. The second thing that we need to look at is whether or not that presumption is rebutted or confirmed by the facts of the case. That presumption here is that presumption of no intention is not rebutted by anything else that happened between Daria and Jamal. There's nothing in the facts to indicate that there was an intention to form a binding contract. In particular, the agreement for the sale of the laptop was never put into writing, which tends to confirm a lack of intention. Therefore, we can conclude that there was no intention to form legal relations, and Jamal is not obligated to buy the laptop. Let's change just a little bit what happened at that party that Daria and Jamal were at. After Jamal smokes a few joints at the party, Jamal says to Daria, you've got a sick laptop. I wish I had one just like that. Then Daria says, yeah, I love it. I would never sell it. Jamal says, okay, how about if I give you $10,000 for it? And Daria says, I'll take that. The next day Daria calls up Jamal and says, when can I drop off the laptop to you and get my $10,000? Jamal says, WTF are you talking about? I don't remember that. Is Jamal obligated to buy Daria's laptop for $10,000? To have a legally binding contract, both of the parties must have legal capacity to enter into that contract. Capacity refers to the legal ability to enter into a contract. An individual's capacity may be diminished by alcohol, drugs, or mental infirmity. The common law rule is that a contract is voidable if the person was so intoxicated, which could be by drugs, alcohol, or some other means, that they could not have known or appreciated what they were doing. And the other party was aware of that person's intoxication. So is Jamal obligated to buy Daria's laptop for $10,000? Due to smoking weed, Jamal was so intoxicated that the next day he could not remember that he had entered into an agreement with Daria. It seems clear that he did not know or appreciate what he was doing when he agreed to buy Daria's laptop for $10,000. As well, at the party Daria probably could tell that Jamal had smoked weed based on his behavior and also the smell of marijuana would have been apparent to her. Therefore, she probably knew that he was intoxicated at the time the agreement was made. Consequently, the conclusion is that the contract is voidable, which means that Jamal has the option to cancel the contract. At that same party, Jamal agrees to buy two joints from Daria for $100. Daria gives him the joints and Jamal says, I don't have any cash on me. I'll pay you tomorrow. The next day Daria asks for her money and Jamal says, what? I don't owe you a single thing. Is Jamal obligated to pay Daria the $100? Another requirement for a binding contract is a legal purpose. A contract is invalid if it is for an illegal purpose. So back to our question, is Jamal obligated to pay Daria the $100 for the joints? The contract for the sale of the joints is for an illegal purpose. Although the sale of marijuana in Canada is now legal, it must be a sale by a legally authorized seller. The sale between Daria and Jamal is an illegal transaction. Therefore, there was no contract between Daria and Jamal and Jamal is not obligated to pay Daria. Let's go back to our old friends Daria and Jamal. Out of the goodness of her heart, Daria offers to give up her laptop to Jamal for free at the end of the semester. Jamal gratefully agrees. At the end of the semester, Daria changes her mind and does not give her laptop to Jamal. I will tell you upfront that Daria did not have a legal obligation to give the laptop to Jamal. But I'd like you to think about explaining why there is no contract between Daria and Jamal and also suggest how the deal between Daria and Jamal may have been changed so that there is a binding contract. So we have two parties. One person makes an offer to the other and that second person accepts the offer, provides an acceptance. So what that results in is an agreement or a meeting of minds. So we talked about that in module 3A, the previous module. Now what we also need to have a legally binding contract is an exchange or mutuality of consideration. So consideration has to flow from one party to the other and vice versa in order to have the valid contract. So in other words, if we have just a one-sided promise or a gratuitous promise where one party is making a promise to the other and the other party is not providing anything in exchange, that promise is void for lack of consideration. In other words, it's not a valid contract. However, there is one exception where if that gratuitous promise is made under seal, it is a valid contract. We'll talk further about what is a seal later on in this module. What exactly is consideration from a legal standpoint? Forget about whatever normal meaning of that word that you know about. It has nothing to do with being thoughtful or nice or considerate. There is a specific legal meaning. Consideration is said to exist when one party gives or promises to give a benefit to someone else. Another way consideration exists is instead of giving or promising a benefit, it could also happen where someone suffers or promises to suffer a detriment to themselves. For example, if someone promises to give a smoking in exchange for a promise from someone else to pay them a certain amount of money to give up smoking. So giving up the smoking is not giving someone a benefit but is that person giving or suffering a detriment to themselves. Consideration has to be what's called sufficient. Now what that means is that the consideration has to be of some value. So that obviously includes things like money, goods, land or services. But it specifically does not include what's considered to be love and affection or gratitude or good feeling. So if you give a gift to someone and they are very thankful and they express their gratitude and good feelings, that gratitude and good feelings is not legally considered to be consideration. Consideration does not need to be adequate. Then you can pay whatever amount that you want or agree to pay whatever amount that you want regardless of the value of the item that you are getting. So if something is worth a million dollars but someone agrees to pay one dollar for it, does not seem to be a fair deal but the requirement of consideration is considered to be satisfied. There is something in the cases that's called the peppercorn theory where someone agrees to sell this valuable horse in exchange for like a tiny peppercorn which is practically almost worthless but does have some minute value. So in that situation where a horse is agreed to be exchanged for a peppercorn, the requirement of consideration is said to be satisfied. So we know that a one-sided promise where one party is making a promise to the other and the other party is not giving anything in exchange, a one-sided promise lacks an exchange of consideration and therefore is not an enforceable contract. Those one-sided promises can be made into enforceable contracts by one of two ways even though there is no exchange of consideration. The first way is by using a seal and the second way is under the legal doctrine of promissory estoppel which by the way is not covered in this course so you're not responsible for that so we won't talk about that any further. Now what is this seal? A seal is a special mark on a written contract to indicate a party's intention to be bound by the terms of the contract. So what it would involve is simply the person who's making that one-sided promise put that in writing and sign it and put a special red sticker on it so I call it a magic sticker. So the effect of that magic sticker is to make that one-sided promise into a legally binding contract. In our scenario, the first question, explain why there is no contract between Daria and Jamal. Although Jamal did accept Daria's offer of the computer so there was offer and acceptance and therefore an agreement. There was no exchange of consideration. Jamal did not provide anything in exchange for Daria's promise of the laptop. Therefore a contract was not formed between Daria and Jamal. The second question suggests how the deal between Daria and Jamal may have been changed so that there was a binding contract. If Jamal had provided any kind of consideration of any value, even something as small as a promise to pay $1 to Daria, there would have been a binding contract. Or alternatively, if Daria had put her promise in writing and signed it under seal, there would have been a binding contract.