The issue of whether a valid contract has ben formed or not arises from time to time in estate litigation.
The area is very fact specific but there are certain guidelines the courts will exercise in their attempt to find a binding contract.
The law on the level of certainty required to establish the existence of a contract was recently summarized in Ai Kang Yi Yuan Enterprises Corp. v. 1098586 B.C. Ltd., 2022 BCSC 1416:
[205] The test that governs whether the parties have formed an enforceable contract essentially involves answering two questions: (1) whether the parties objectively intended to enter contractual relations; and (2) whether they had reached agreement on essential terms that are sufficiently certain to enforce…
[206] The court’s determination of contractual intention is rooted in the facts and requires it to consider whether a reasonable third-party observer would conclude from all the circumstances, including the document itself, the circumstances underlying execution, and the parties’ subsequent conduct, that the parties intended to enter into binding legal relations…
[207] The case law recognizes that the above determinations are fact-driven…
[208] Critical to a determination of the nature of the December 5 Document in this case is the distinction between non-binding preliminary agreements to agree, agreements to enter into further agreements without binding intent, and agreements with binding intent that anticipate further documentation. This continuum was described by the Ontario Court of Appeal in Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 79 D.L.R. (4th) 97 (O.N.C.A.) at 103–104:
As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement, necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of memorandum, by exchange of correspondence, or other informal writings.
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. . .
[260] Where there is an intention to contract, the court will make a significant effort to give meaning to that agreement. However, there are limits to how far a court can go; a court cannot create an agreement on essential terms where none exists…
[261] In Concord Pacific BCSC, Voith J. (as he then was), whose analysis was generally affirmed in Concord Pacific BCCA, helpfully summarized the principles that have developed in Canada, and BC more specifically:
[331] . . . The fact that parties may wish to contract, or that they believe they have entered into a binding contract, does not make it so. That belief or wish will engage other principles. It will likely cause the court to strive to assist the parties and to find meaning in the substance of their agreement: Hoban at para. 4. In Marquest Industries Ltd. v. Willows Poultry Farms Ltd. (1968), 1968 CanLII 581 (BC CA), 1 D.L.R. (3d) 513 (B.C. C.A.), the Court, at 517 — 518, said:
[E]very effort should be made by a Court to find a meaning, looking at substance and not mere form, and the difficulties in interpretation do not make a clause bad as not being capable of interpretation, so long as a definite meaning can properly be extracted . . . [I]f the real intentions of the parties can be collected from the language within the four corners of the instrument, the Court must give effect to such intentions by supplying anything necessarily to be inferred and rejecting what is repugnant to such real intentions so ascertained.
…
What constitutes an “essential” term in an agreement will depend on both the nature of the agreement and the circumstances of the case: Concord Pacific BCSC at para. 341; United Gulf Developments Ltd. v. Iskandar, 2008 NSCA 71 at para. 14. The key question to answer in analysing certainty of terms is whether the parties have agreed on all matters that are “vital or fundamental” to the arrangement, or whether they intended to defer legal obligations until a final agreement has been reached. What constitutes an essential term is fact specific. Different types of contracts may have different essential terms, though price is generally considered essential in most contractual contexts.
