 This is Wayland Chow and welcome to Contract Law Fundamentals, Module 3a, Part A. In this part, I'll show you some simple examples of typical contracts that you may have entered into in your day-to-day lives and then explain what is a contract, especially compared to other agreements that we might enter into and then point out that the law of contract arises from common law and then go over the five essential elements of a binding contract and go into detail about the first requirement, which is an agreement that is formed based on an offer that is accepted by another party. What contracts have you entered into? When most people think about contracts, they think about very formal written contracts that are signed involving large important transactions that many of us enter into in our lives. Things such as a home purchase or getting entering into a two-year, let's say, cell phone contract or any cell phone service contract, buying or selling a business or even registering for college. When you register for college, the college is agreeing to provide you with an education or a specific program of courses in exchange for the payment of tuition by you. What a lot of people don't realize is that many of the transactions that we enter into every day, the small and insignificant transactions also involve contracts. So it could be things as simple as buying a coffee at Tim Hortons, which involves an agreement by Tim Hortons to provide you with a certain type of coffee, certain size of coffee in exchange for the payment of the purchase price or any time you buy something at a store or online, that involves a contract or even just getting onto a bus when you pay a bus fare in exchange for being able to get transportation on the bus. That is a contract. What is a contract in law? A contract is defined as an agreement that is legally enforceable. So there are two components to that definition. The first component is an agreement and the second component is that the agreement is legally enforceable. What do we mean by legally enforceable? It means that if one party fails to live up to the agreement, in other words, they're in breach of the agreement or in breach of the contract, the other party can sue to have a court enforce the agreement. This module covers the common law of contract, which is a law of contract found in common law countries such as Canada, UK and the US. It does not cover civil law jurisdictions which may have different rules for contracts. Civil law jurisdictions may include the province of Quebec and various continental European countries such as France. The fundamental rules of contract law come from what we call the common law. What that refers to are the legal principles arising from decisions of courts in common law jurisdictions. It's based on the legal principle of stare decisis, or in other words, the doctrine of precedent, which means that a court in making a decision has to rely on legal principles that have been stated in previous decisions. The common law of contract, however, may be overridden by government legislation. For example, in the area of consumer protection, governments have passed legislation intended to protect consumers. In some situations, a contract between a business and a consumer, which may otherwise be valid under the common law rules of contract, could be ruled to be invalid as being an unfair contract or a contract that is abusive towards the consumer. To form a valid binding contract, we need five essential elements to be satisfied. We will examine each of these elements in further detail. The first element is an agreement that has been formed by the making of an offer with an unequivocal acceptance of the terms of that offer. The second element is an intention to create legal relations. The third is legal capacity. The fourth is legal purpose. And the fifth is the exchange of consideration between the parties involved in the contract. The first and most basic element of a binding contract is an agreement. An agreement involves an offeror making an offer to enter into a contract to another person, an offeree. And that offeree accepts that offer. An offer is considered to be an indication of the offeror's willingness to enter into a contract on certain terms. And an acceptance is the unequivocal acceptance by the offeree of all the terms of that offer. To help us understand the rules of offer and acceptance, we will be using a scenario called Daria and Jamal. In this scenario, Daria and Jamal are classmates and friends. Daria is thinking of upgrading to a new laptop computer. One day Daria says to Jamal, I need some money for a new laptop. Do you want to buy my Apple laptop for $500? Jamal says, I will buy your laptop for $500. So what has happened here? Daria has made an offer to Jamal. Jamal has accepted that offer and therefore there is an agreement between Daria and Jamal. Let's now change that scenario just a little bit. Daria still says to Jamal, I need some money for a new laptop. Do you want to buy my Apple laptop for $500? Jamal this time says, no thanks. And then a day later Jamal says to Daria, I've changed my mind. I do want to buy your computer for $500. So the question is, is there an agreement? Let's now look at the relevant law. Under the common law of contract, on the rejection of an offer, that causes the termination or the death of the offer. Once an offer is terminated, that offer can no longer be accepted after that rejection. So is there an agreement between Daria and Jamal? Jamal's rejection of Daria's offer causes the termination of that offer. There is no offer for Jamal to accept after that time. Therefore there is no agreement. Let's change our scenario a little bit once again. So Daria asks, do you want to buy my Apple laptop for $500? Jamal this time says yes but only if it includes your iPad. Daria says no way. And Jamal replies, okay I'll take just the laptop for $500. The question again is, is there an agreement? Let's now look at the relevant law from the common law of contract. Specifically the rules regarding a counter offer. A counter offer is considered to be where an offer responds to an offer by indicating a willingness to enter into a contract, but on terms that are different from the terms of the offer. Keep in mind to have an acceptance, the offer must be entirely accepted, which means that a counter offer is not an acceptance. Therefore we do not have an agreement when the counter offer is made. A counter offer has the effects of number one, rejecting the offer, and the second effect is that it creates a brand new offer. Sometimes a reply may not be considered to be a counter offer, but instead is considered to be an inquiry. For example, if Jamal had said would you consider throwing in your iPad with the laptop? That's not a counter offer. It's just an inquiry back to Daria to see whether or not she would consider also adding the iPad into the deal. An inquiry or an inquiry does not terminate the original offer unlike a counter offer. Let's now examine the legal effect of each of the statements made by Daria and Jamal in this scenario. The first statement by Daria was do you want to buy my Apple laptop for $500? That is considered an offer to be made by Daria to Jamal. Then Jamal says yes, but only if it includes your iPad. The legal effect of that is that Jamal is making a counter offer to Daria. It's not an acceptance since it is not a full non-conditional acceptance of the offer made by Daria. Jamal is not saying I'll buy the laptop for $500. He's saying I'll buy it for $500, but only if it includes something else, the iPad. So it's a different proposition. So the effect of the counter offer is that it causes Daria's original offer to be terminated. The next statement is when Daria says no way in response to Jamal. That's considered to be a rejection of Jamal's counter offer. It has the legal effect of terminating the counter offer. And the last statement when Jamal says okay, I'll take just the laptop for $500. That's considered to be a brand new offer made by Jamal. Now that statement, you could mistakenly think that that statement is an acceptance by Jamal of Daria's original offer when she said do you want to buy my Apple laptop for $500. But remember, a counter offer terminates an offer. So since Daria's original offer was terminated by Jamal's counter offer, that original offer by Daria can no longer be accepted by Jamal. So therefore no agreement has been formed. No agreement yet because a brand new offer has now been made by Jamal. And now it's up to Daria to decide whether or not she wants to accept that offer. Let's change our scenario once again. Instead of speaking to Jamal, what if Daria had placed an ad on Craigslist stating used Apple laptop for sale $500. And Jamal saw the ad and responded by emailing Daria saying I agree to pay the $500 you are asking for the laptop. Is there an agreement between Daria and Jamal? What an item or a service is put up for sale. If it's in a retail store, you'll usually see the price indicated on the shelf where the item is displayed or the price could be on a price tag that's affixed to the item itself. Or another way that you find out that something is for sale is you see an ad and the ad could be online which is probably the most common place you'll see ads these days but in the pre-online world you would see ads in newspapers and magazines. And another place you'll see items or services for sale are on companies' websites, e-commerce websites that are designed to show people what's for sale and what the prices are and allow you to order online. The old-fashioned version of an e-commerce website would be a physical catalog like the old Sears catalog. Now all of these things, they're not considered to be offers but they are considered to be something called an invitation to treat or specifically they are presumed to be invitations to treat. Now an invitation to treat legally is not an offer. So the seller or the person who put up the ad or put up the display or the website is not making an offer. They're only making an invitation. They are specifically inviting people who whoever sees the ad or the price tag or the website, they're inviting the people who see it to make an offer for the item that's for sale. So the invitation to treat is only an indication of a willingness to receive offers. So was there an agreement formed when Jamal responded to Daria's Craigslist ad? The answer is no. The ad is considered to be only an invitation to treat, not an offer. Jamal responded to that invitation which was the ad by making an offer to Daria saying that he's willing to pay 500 dollars for the laptop. So that's considered to be the offer. The offer is made by Jamal, not Daria. It is now up to Daria to decide whether or not to accept Jamal's offer.