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Agreements to Agree

. Nordlund Family Retreat Inc. v. Plominski

In Nordlund Family Retreat Inc. v. Plominski (Ont CA, 2014) the Court of Appeal comments on basic principles of contract formation, in particular when an 'agreement to agree' or a full contract exists:
[52] In Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 53 O.A.C. 314, Robins J.A. described the issue that confronts a court when deciding whether there is a binding agreement or simply an agreement to agree that lacks essential terms. He stated at paras. 20 and 21:
The parties may “contract to make a contract”, that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.

However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract…The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself…
[53] The motion judge stated at paras. 60 to 64 of his reasons:
In interpreting a document, it must be assumed that the words in the document are intended by the parties to have a meaning. In determining whether the parties intended to enter into a binding agreement it is necessary to determine what the parties meant by the term “legal agreement”.

The term must be interpreted contextually, by looking at the context in which the word has been placed in the document and the context and the circumstances in which the document was drafted.

In this case, the parties had not yet obtained a survey which could be registered against the subject lands; neither had they obtained formal approval from the Ministry for an easement. Without a survey, and without formal approval, the parties were unable to enter into a final agreement which could be registered against the property.

The final paragraph of the Summary states that Mr. Nordlund was not obligated to pay for the easement until a “valid” easement agreement had been signed and delivered from Ben Plominski. The Summary therefore contemplates that a more formal agreement would be entered into after certain steps were taken and completed. Presumably, this agreement would be an agreement which could be registered and which would provide the parties with the security to move forward with the clearing of the land and construction of the roadway.

In my view, the Easement Summary was intended to be a preliminary agreement between the parties wherein they agreed that they would undertake certain steps, and assuming these steps were successfully completed they would then draft a final agreement which was capable of being registered against the property. Notwithstanding the fact that the Easement Summary was intended to be a preliminary agreement, there is no reason to believe that it was not intended to be a binding and enforceable agreement.
[54] I see no error in this reasoning. The conclusion that the parties had entered into a binding “preliminary” agreement that enabled them to take the necessary steps that they in fact undertook in the following months, was consistent with other aspects of the evidence, including the 2004 Agreement, which Mr. Plominski acknowledged was binding notwithstanding its reference to the need for an “official agreement”.

[55] I would also reject the appellant’s argument that the Easement Summary is not a binding agreement because it does not include the essential terms of a contract for an easement. The appellant relies on cases where a binding agreement for an easement was not recognized because some essential term was missing. In Pickering v. Harper Ranch Ltd., [1997] B.C.J. No. 1038 (S.C.), a document signed by the appellant purporting to give his neighbour “permission and easement” to locate a septic field on his property was not an enforceable agreement because the dimensions and location of the easement had not been sufficiently identified. In that case, the easement the respondents sought to enforce differed from the document the parties had signed with respect to the anticipated size, location and conditions attaching to the easement. Given the evidence in that case, the court concluded that no agreement had been reached.

[56] In Georgian Windpower Corporation v. Stelco Inc., 2012 ONSC 3759, [2012] O.J. No. 6037, the court considered, among other things, whether a document referred to as a “land lease/easement agreement” constituted a binding easement agreement. Patillo J. concluded that the document lacked the essential terms necessary to constitute either an enforceable lease or easement. It failed to provide a description of the demised premises to be leased or the land over which the easement was to run, when the term of either was to commence and certain other material terms. It was also unclear whether the parties would be entering into a lease, an easement or both.

[57] Patillo J. noted at para. 124 that in order for there to be a binding contract, the parties must agree on all of the essential terms of the agreement, and that “what constitutes ‘essential terms’ depends on the subject matter of the contract and what transpired at the time of the alleged agreement.”

[58] In United Gulf Developments Ltd. v. Iskandar, 2008 NSCA 71, [2008] N.S.J. No. 317, at para. 14, Cromwell J.A. (as he then was) noted: “Determining what terms are ‘essential’ in a particular case is…more difficult than stating the principle. The sort of terms that are considered essential varies with the nature of the transaction and the context in which the agreement is made.”


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