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Contract - Formation (2). Berkel v. Fleischmann
In Berkel v. Fleischmann (Div Ct, 2026) the Divisional Court dismissed a defendant's Small Claims Court appeal, here brought against an order for damages awarded for breach of contract.
The court applied the 'objective' interpretive principle of contract formation - here in a 'verbal contract' context, argued as an unenforceable 'agreement to agree':B. Finding the Existence of an Agreement
[23] The appellant’s central complaint is that the trial judge erred in finding that a contract existed between him and the respondent. He submits that the Document was no more than an “agreement to agree,” and as such unenforceable.
[24] The appellant is correct that courts will not enforce an “agreement to agree”: Gallant v. Johnson, 2024 ONSC 5777, at para. 15. The difficulty for the appellant is that the trial judge did not find that there had been merely an “agreement to agree.” He found that there had been an actual agreement. It was open to him to do so.
[25] The requirements for a finding that a contract existed between parties was explained in Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga, 2021 SCC 22, 459 D.L.R. (4th) 425, at paras. 35-38:A contract is formed where there is “an offer by one party accepted by the other with the intention of creating a legal relationship, and supported by consideration”: Scotsburn Co-operative Services Ltd. v. W. T. Goodwin Ltd., 1985 CanLII 57 (SCC), [1985] 1 S.C.R. 54, at p. 63. The common law holds to an objective theory of contract formation. This means that, in determining whether the parties' conduct met the conditions for contract formation, the court is to examine “how each party's conduct would appear to a reasonable person in the position of the other party”: Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, at para. 33.
For present purposes, it will suffice to focus on the requirement of intention to create legal relations. As G.H.L. Fridman explains, “the test of agreement for legal purposes is whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract”: The Law of Contract in Canada (6th ed. 2011), at p. 15; see also S. M. Waddams, The Law of Contracts (7th ed. 2017), at p. 105. This requirement can be understood as an aspect of valid offer and acceptance, in the sense that a valid offer and acceptance must objectively manifest an intention to be legally bound: Crystal Square, at paras. 49-50.
The test for an intention to create legal relations is objective. The question is not what the parties subjectively had in mind but whether their conduct was such that a reasonable person would conclude that they intended to be bound: Kernwood Ltd. v. Renegade Capital Corp. (1997), 1997 CanLII 846 (ON CA), 97 O.A.C. 3; Smith v. Hughes (1871), L.R. 6 Q.B. 597, at p. 607. In answering this question, courts are not limited to the four corners of the purported agreement, but may consider the surrounding circumstances: Leemhuis v. Kardash Plumbing Ltd., 2020 BCCA 99, 34 B.C.L.R. (6th) 248, at para. 17; Crystal Square, at para. 37.
Under the objective test, the nature of the relationship among the parties and the interests at stake may be relevant to the existence of an intention to create legal relations. For example, courts will often assume that such an intention is absent from an informal agreement among spouses or friends: Balfour v. Balfour, [1919] 2 K.B. 571 (C.A.); Eng v. Evans (1991), 1991 CanLII 5926 (AB QB), 83 Alta. L.R. (2d) 107 (Q.B.). The question in every case is what intention is objectively manifest in the parties’ conduct.
Significantly, a contract need not be reduced to writing: Mountain v. Mountain Estate, 2012 ONCA 806, 112 O.R. (3d) 721, at para. 66. ....
D. Consideration of Subjective Intention
[31] The appellant also submits that the trial judge erred by considering the subjective intentions of the parties and relies on Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 49-51 and Eli-Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at paras. 52-56. Both cases deal with the interpretation of written contracts and hold that it is the objective meaning of the written contract rather than the subjective intentions of the parties that determines the terms of the agreement.
[32] As noted earlier, there was no written contract in this case. That said, the test for the formation of a binding agreement is objective regardless of whether the agreement is written: Ethiopian Orthodox Tewahedo Church, at para. 37. Thus, the issue is not what the parties subjectively intended, but what a reasonable person would conclude based on the conduct of the parties. In considering this, a trier of fact is entitled to consider all of the surrounding circumstances, including what the parties said and did: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 59-60.
[33] The trial judge considered all of the surrounding circumstances, including the relationship between the parties, the Document, communications between them, and their conduct and concluded that a contract existed. There is nothing in his reasons to suggest that he based his conclusion on the subjective intentions of the parties or otherwise erred in his analysis. . Clark v. Walker
In Clark v. Walker (Ont CA, 2026) the Ontario Court of Appeal considered the law of 'joint venture', contract formation and 'agreements to agree':[29] To begin, whether a joint venture exists is a question of mixed fact and law and is therefore reviewable on a deferential standard; it will not be overturned absent palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 36.
[30] Because a joint venture is contractual in nature, its existence requires proof that the parties intended to create legally binding obligations and agreed on all essential terms: Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 79 D.L.R. (4th) 97 (Ont. C.A.), at p. 104; UBS Securities Canada, Inc. v. Sands Brothers Canada, Ltd., 2009 ONCA 328, 95 O.R. (3d) 93, at para. 47. Where essential terms are absent, unsettled, or yet to be decided, there is no enforceable agreement to pursue a joint venture: Bawitko, at p. 104. When determining whether the parties entered into a joint venture, courts consider indicia such as joint ownership, mutual control, and the sharing of profits and losses.
[31] The record supports the trial judge’s observation that the appellants appeared to have abandoned their joint venture argument at trial. In their closing submissions, the appellants framed their claim in equitable terms. Although they reference an oral contract, their submissions described the alleged joint venture as something the parties were “pursuing”, “plan[ning]”, “discussing”, “working towards” and “contemplat[ing]”. This language indeed suggests that the joint venture argument had been abandoned.
[32] In any event, even if the joint venture argument remained live, it could not succeed. The record did not contain evidence from which the trial judge could have concluded that the parties had agreed on the essential terms required to create an enforceable joint venture. As the trial judge found, the parties’ discussions never advanced beyond a broad proposal to divide profits equally. They did not agree on the essential terms necessary to create a joint venture. At most, they had an “agreement to agree”, which, without more, is not an enforceable contract: Bawitko, at p. 104.
[33] I would also reject the appellants’ submission that, despite the absence of a formal agreement, the alleged joint venture was “operationalized”. In substance, that submission would dispense with the need for agreement on essential terms whenever parties act as though an arrangement was reached. This position finds no support in the jurisprudence.
[34] The appellants rely on Oak Tree Auto Centre Inc. v. UAP Inc. (1997), 1997 CanLII 4557 (PE SCAD), 149 Nfld. & P.E.I.R. 313 (P.E.I. C.A.) to support their “operationalization” argument. Apart from not being binding on this court, that decision does not assist them. In Oak Tree, the parties had exchanged a detailed written proposal and acceptance addressing capital contributions, profit and loss sharing, control, and duration. On that basis, the court found that they had agreed on the essential terms of their joint venture: Oak Tree, at paras. 38, 49. Although some formal steps remained, including execution of a shareholders’ agreement and incorporation, those steps were not essential to the bargain already made. Oak Tree therefore does not support the proposition that a joint venture may exist without agreement on essential terms. . De Bartolo v. Initiatives Canada Corporation
In De Bartolo v. Initiatives Canada Corporation (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal of a contract formation issue, here where the plaintiff lawyer was retained by corporations but not by the sole director:[4] The trial judge concluded that there was no contract between Antonio and Roberto.
[5] He found that there was no offer because there was no “complete statement of the terms on which the offeror is prepared to deal, made with the intention that it be open for acceptance by the offeree”, citing Richter v McKeachie, 2009 BCSC 288, at para 30. From the beginning of the retainer, Alberto knew that the monies were coming from the legal defence fund managed by Kepes. In the trial judge’s view, a reasonable person, hearing Roberto’s words or reading his emails would understand that, “at most”, Roberto was offering to top up Antonio’s retainer until Kepes transferred monies from the legal defence fund.
[6] The trial judge also found there to have been no unequivocal acceptance by Antonio. He noted that Antonio had merely referred to Roberto’s offer as a “great suggestion” in his February 12, 2014 email. In the trial judge’s view, a reasonable person would not conclude that Antonio now saw himself in a contractual relationship with Roberto.
[7] The trial judge also held that Roberto’s promise could not be a guarantee of ICC’s debt. For the same reasons there was no contract, there could be no guarantee. Additionally, any guarantee had to be in writing in order to be enforceable: Statute of Frauds, R.S.O. 1990, c. S.19, s. 4.
[8] In our view, the appellant’s arguments on appeal are largely the same arguments made at trial. The appellant asks this Court to replace the findings of fact, and mixed fact and law, of the lower Court, which is not our role.
[9] The trial judge correctly instructed himself on the test as to whether a contract had been made, and concluded, based on the evidence, that the essential elements of offer and acceptance had not been met. We see no palpable or overriding errors in the trial judge’s factual findings, which were open to him on the record, or any error in his legal conclusions. . Bridging Finance Inc. v. Sharpe [geographical formation]
In Bridging Finance Inc. v. Sharpe (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, here where "the motion judge found that jurisdiction simpliciter was established over the dispute. The motion judge also determined, on a forum non conveniens analysis, that Ontario is the most appropriate and convenient jurisdiction for the actions."
Here the court considers where - geographically - a contract is formed:[32] When contracting parties are in different jurisdictions, the contract will be formed in the jurisdiction where the last essential act of contract formation, such as acceptance, took place: Cassels Brock, at para. 40. The evidence on the motion establishes that the last act in the settlement of the Trust was the signature of the Sharpes, placed on the document in Ontario. . Bridging Finance Inc. v. Sharpe [appellate SOR]
In Bridging Finance Inc. v. Sharpe (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, here where "the motion judge found that jurisdiction simpliciter was established over the dispute. The motion judge also determined, on a forum non conveniens analysis, that Ontario is the most appropriate and convenient jurisdiction for the actions."
Here the court states the appellate SOR for issues of contract formation:[17] .... The question of whether a contract is formed is a question of law reviewable on a correctness standard: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 53; Sinclair, at para. 41.
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