Smart Contracts as Legal Agreements

Agreements are legally binding between parties if they fulfill the formation requirements of a valid contract (Swan, Adamski and Na 2018).13 Contract formation requirements can differ between common law and civil law jurisdictions. In common law jurisdictions such as Canada (excluding Quebec), a contract is formed when an offer is accepted, the intention to create a legal relationship exists between the parties and consideration is given (ibid., chapters 4 and 5).14 These elements are essential to developing contracts in common law jurisdictions. In making an offer, the offeror expresses and discloses to the other party the terms on which they are willing to engage in contractual relations with the other party. The acceptance of the offer by the other party conveys to the offeror that the party accepts the offer based on the terms expressed or reasonably understood by the party. This acceptance must be unequivocal and communicated to the offeror.15 It is also essential that the parties intend for legal obligations to be created by their agreement. This difference is critical as otherwise contractual obligations would be placed on parties who make agreements with each other but have no intention for legal obligations to apply.

Consideration is a fundamental principle in the formation of contracts (ibid., chapter 2, sections 2.21–2.24). This principle is focused on the bargain made between the parties of the agreement and requires that something be given by one party in exchange for the act that the other party will do as an obligation under the contract (Adamski and Swan 2021, chapter 2). Consideration is the benefit the promisor receives under the agreement and the detriment suffered by the other party in reliance on the promise. The benefit may relate to a right, interest or funds to be received and the detriment of a promise to act or forbear from acting. While consideration should be sufficient, it need not be adequate. Therefore, its value or quantity is irrelevant: “a peppercorn