Enforcing Oral Contracts

Stojka v Stojka 2023 BCCA 446 held that a binding  oral contract existed between two brothers with respect to a beneficial interest in a property.

The court reviewed the law re oral contracts and in particular amongst family members where the communications in the family context are often no more than statements of intent or wishes.

The question of whether a given requirement for the formation of a contract has been met “involves applying a legal standard to a set of facts and is therefore a question of mixed fact and law”: Housen v. Nikolaisen, 2002 SCC 33 at para. 26.

If a party to an oral agreement acts as though there were a binding contract or the other party relies on the agreement to their detriment the party is unable to rely of the lack of a written agreement as a defence: Le Soleil Hotel & Suites Ltd. v. Le Soleil Management Inc., 2009 BCSC 1303 at paras. 342–345 [Le Soleil];

• An enforceable agreement is reached where parties have reached a meeting of the minds and the parties express themselves outwardly in a manner that indicates an intention to be bound: Le Soleil at paras. 322–323;

• Reasonable certainty of the terms of the agreement are required: Le Soleil at paras. 339–340;

• The existence of an oral agreement is determined by applying the objective reasonable bystander test to consider how the promisor’s conduct would appear to a reasonable person in the position of the promise: Le Soleil at paras. 324–325;

• The party alleging the oral agreement must be able to prove its existence on the balance of probabilities: Bell v. Bell, 1998 CanLII 3194 at para. 14, [1998] B.C.J. No. 1457 (S.C.).

Family Verbal Agreement re Property Upheld

In Sojka v Sojka 2023 BCSC 52 the court upheld a verbal agreement made amongst family members as to the beneficial ownership of a parcel of property.

In Suenv Suen 2013 BCCA 313 the British Columbia Court of Appeal addressed agreements between family members:

[40] A contract is promissory in nature, that is, it is an undertaking by the promisor to do something for the promise in exchange for something. The exchange of promises is enforceable only if there is an agreement or consensus on the “existence, nature and scope of their [respective] rights and duties”
or the concept of a bargain, as an essential feature of the common law of contract at 8:

…what is an essential ingredient of a valid, enforceable, legally acceptable contract, is an agreement that can be called “serious,” that is, made with the kind of serious, binding intent that demarcates the casual promise, undeserving of legal recognition, from a promise which should be effective in law and should be obligatory on the future action, as well as the conscience of the promisor.

[42] The common law of contract is distinguishable from equitable or promissory estoppel where, absent consideration, reliance on a promise that is not fulfilled and gives rise to injury or damage, may be actionable. Consequently, if a promise is support only by “moral consideration”, it is generally not enforceable at common law:
The idea that moral justification could be the basis of a contract, for example, where a promise was made because of the familial relation of the parties, or out of “natural love and affection,” has long since been rejected by the common law (Fridman at 9).

[43] Communications in the family context are often no more than statements of intent or wishes. For a promise, in that context, to rise to the level of a binding enforceable contract there must be strict proof of the terms of the bargain including: the parties, the property, and the consideration. See McKenzie v. Walsh (1920), 61 S.C.R. 312 (S.C.C.), and Ross v. Ross (1957), [1958] O.R. 49, 11 D.L.R. (2d) 561 (Ont.C.A.)

The Court, in determining whether there is a verbal agreement, must apply the objective reasonable bystander test, and consider how the promisor’s conduct would appear to a reasonable person in the position of the promisee: Le Soleil at paras. 324–325. The party alleging the existence of a verbal agreement must prove its existence on a balance of probabilities: Bell v. Bell, 1998 CanLII 3194 at para. 14, [1998] B.C.J. No. 1457 (S.C.).

Where there is no written agreement between the parties but a verbal agreement is alleged, the credibility of each party is a key issue. Their evidence must be “tested against those facts that are not seriously in dispute and with the preponderance of the evidence and the probabilities surrounding the events”: Piga v. Uffelman, 2022 BCSC 983 at para. 14.

Contractual Certainty

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.

Settlement Agreements to Be Upheld

The bar to set aside a settlement agreement is a high one.

There is a great public interest in holding people to their bargains.

BC courts have repeatedly cited the principles set out by the British Columbia Court of Appeal in Robertson v. Walwyn Stodgell Cochran Murray Ltd. 24 BCLR (2d) 385 (BCCA), 1988 CarswellBC 120 at para 9, cited in Lessing Brandon & Company LLP v. Dyck and others, 2019 BCSC 2331 at para 43:

“The fact that the settlement agreement may not have been a desirable one from [one parties point of view], or the fact that they may have received poor advice from their lawyer, or the fact that they later changed their minds, cannot provide grounds for setting aside the settlement agreement, or for a refusal to enforce it […]

Sojka v Sojka 2018 BCSC 562 reviews the law with respect to enforcement of a settlement reached at a mediation where both parties were represented by counsel, and one party attempted to renege on the agreement by utilizing what the court regarded as “settler’s remorse.”

The plaintiff brought on a court application to enforce the minutes of settlement that were signed by the parties and their counsel, and relied upon S 8(3) of the Law and Equity act and the inherent jurisdiction of the court to enforce the terms of settlement, which the court in fact did.

The defendants in their attempt to renege on the settlement argued that they were mistaken as to certain evaluations of property at the mediation, which the court found was not in fact the case, finding that the minutes of settlement and release constituted a clear agreement between the parties.

The court followed the decision of Roumanis v Hill 2013 BCSC 1047 as to when the enforceability of a settlement agreement ought to be decided on a summary procedure.
The court stated:

The question of the proper procedure to adjudicate the enforceability of the settlement was addressed in Mackenzie v Mackenzie (1975) BCJ 1114 were the court reviewed the authorities and concluded that the court ought to enforce settlement upon application in the action of justice could be done by proceeding summarily.

The court found that there is a sound policy for the courts to enforce the terms of a valid settlement agreement as stated by the BC Court of Appeal in Robertson v Walwyn et al (1988) 24 BCLR )2d) 385 (BCCA):

“Justice affects both parties and requires a balancing of their interests. The fact that the settlement agreement may not have been a desirable one from the point of view of the Robertsons, or the fact that they may have received for advice from their lawyer, or the fact that the later change their minds, cannot provide grounds for setting aside the settlement agreement, or refusal to enforce it. And it would do scant justice to the interests of the defendants in this case to recognize the validity of the settlement agreement, and that it will ultimately prevail, but to refuse to enforce it at this time and in these proceedings.”

Hawitt v Campbell 1983 Carswell BC 199 (BCCA) set out that a court could refuse to exercise its discretion to perfect a settlement where:

1. There was a limitation on the instructions of the solicitor known to the opposite party;
2. There was a misapprehension by the solicitor making the settlement of the instructions of the client or the facts of the type that would result in an justice or make it unreasonable or unfair to enforce the settlement;
3. There was fraud or collusion;
4. There was an issue to be tried as to whether there was such a limitation, misapprehension, fraud or collusion in relation to the settlement.

Breach of Confidentiality Agreements

A breach of a confidentiality agreement may occasionally arise in estate litigation, particularly on behalf of the executor.

In order to found an action for breach of a confidentiality clause, the information in question must have the necessary quality of confidence.

A list of the factors to be considered confidential quality  is found in Foreman v. Chambers et al, 2006 BCSC 1244 at para. 61, citing Pharand Ski Corp. v. Alberta (1991), 80 Alta. L.R. (2d) 216 (Q.B.):

a) the extent to which the information is known outside the owner’s business;
b) the extent to which it is known by employees and other involved in the owner’s business;
c) the extent of measures taken by the owner to guard the secrecy of the information;
d) the value of the information to the owner and his competitors;
e) the amount of money or effort expended by the owner in developing the information; and
f) the ease or difficulty with which the information could be properly acquired or duplicated by others by their independent endeavours.

The mere assembly of publicly available facts by itself does not render the information confidential. Rather, the information must be difficult to assemble, assembled in an innovative manner or analysed in an innovative manner: Foreman at para. 65.

Interpreting Insurance Policies

Estate litigation occasionally involves the interpretation of coverage under a policy of insurance.

 

The general principles of interpreting insurance policies was discussed in Co-operators General Insurance Company v. Kane, 2017 BCSC 1720, as follows:

 

  1. a)    the general purpose of insurance is to protect an insured against losses arising from unforeseen and accidental actions: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 at paras. 68-69;

 

  1. b)    it is necessary to interpret insurance contracts as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law: National Bank of Greece v. Katsikonouris, [1990] 2 S.C.R. 1029 at 1043;

 

  1. c)     courts should interpret a contract of insurance as a whole: Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2010 SCC 33 at para. 22, citing Scaleraat para. 71;

 

  1. d)    as contracts of adhesion, courts should prefer interpretations that are consistent with the reasonable expectations of the parties, and avoid interpretations that would give rise to an unrealistic result or that which would not have been in their contemplation at the time the policy was concluded: Progressive Homesat para. 23; Scaleraat para. 71; and

 

  1. e)    as contracts of adhesion, where there is an ambiguity which the rules of construction fail to resolve, courts will construe the policy contra proferentemagainst the insurer. A corollary of the contra proferentemrule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly: Progressive Homes at para. 24; Scalera at para. 70.

 

These general interpretation principles apply equally to the duty to defend and exclusion clauses: Derksen v. 539938 Ontario Ltd., 2001 SCC 72 at para. 49.

 

Other general principles that apply in relation to the duty to defend and exclusion clauses are:

  1. a)    an insurer is only required to defend a claim where the facts alleged in the pleadings, if proven, would require the insurer to indemnify the insured (i.e. the “pleadings rule”): Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at para. 28; Progressive Homesat para. 19; Lombard General Insurance Company of Canada v. 328354 B.C. Ltd., 2012 BCSC 431 at para. 21; Canadian Northern Shield Insurance Company v. Intact Insurance Company,2015 BCSC 767 at para. 18;
  2. b)    all that is necessary, in order to trigger the duty to defend, is the mere possibility that a claim falls within coverage under the insurance policy based on a review of the pleadings: Monencoat paras. 29-30; Progressive Homesat para. 19; Lombard at para. 23; Johnson v. Aviva Insurance Company of Canada, 2014 ABQB 688 at paras. 33-35;
  3. c)     where pleadings are not framed with sufficient precision to determine whether claims are covered by the policy, the duty to defend will be triggered where, on a reasonable reading of the pleadings, coverage can be inferred: Monencoat para. 31;
  4. d)    “the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy”: Scaleraat para. 75, citing Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801. This is consistent with resolving any ambiguity in favour of the insured: Monencoat paras. 31-32; Lombard at para. 24; Johnson at para. 33.

This interpretation exercise of the Policy concerns, to a large degree, the scope of Co-operators’ duty to defend the various causes of action raised in the Complaint. In Lombard, Justice Butler discussed the extent of an insurer’s duty to defend where numerous causes of action are alleged, some of which may be covered under the insurance coverage and some of which may not, as follows:

Where the pleadings allege numerous claims against an insured, some of which are covered and some are not, it is axiomatic that an insurer’s prima facie duty to defend arises only in respect of the claims which, if proved at trial, would trigger its duty to indemnify. However, the extent of the insurer’s responsibility to contribute to the costs of defending the action is a separate question that cannot always be determined according to the scope of its prima facie obligation.

It is well settled that where it is possible to distinguish between claims falling within and outside the policy coverage, the extent of an insurer’s defence obligation can be limited accordingly:  Continental Insurance Co. v. Dia Met Minerals Ltd. (1996), 77 B.C.A.C. 251. An insurer has no duty to defend claims which clearly fall outside the grant of coverage:  Progressive Homes at para. 19.

On these principles, the extent of an insurer’s defence obligation in a case involving a mix of covered and non-covered claims will depend primarily on the precision of the allegations in the pleadings and the operative language in the coverage provisions of the policy. In this respect, it is worth recalling that on a duty to defend application, any uncertainty is resolved in the insured’s favour.

Accordingly, in light of the various Causes of Action alleged in the Complaint, the governing principle here is that, unless all occurrences which potentially caused or contributed to the loss or damage are clearly and unambiguously excluded, coverage for the duty to defend will not be ousted. If there are different causes of action or theories of recovery, one of which is covered under the Policy, Co-operators is bound to defend those causes of action which, if proved, would be within the coverage: Progressive Homes at para. 54; Derksen at paras. 55-56, 67; Hartup v. BCAA Insurance Corp., 2002 BCSC 972 at para. 9; Miller v. Grain Insurance and Guarantee Co., 2005 SKQB 546 at paras. 15-18.

 

Breach of Contract

Issues involving an alleged  breach of contract occasionally occur in estate disputes, especially involving the executor.

A cause of action in breach of contract requires, as its foundation, the existence of a valid and enforceable contract.

The plaintiff must prove, on the balance of probabilities that:

 

  1. there was a mutual intention to create legal relations;
  2. consideration flowed in return for a promise;
  3. the essential terms of the alleged contract are sufficiently clear, on an objective assessment; and
  4. there was matching offer and acceptance of the terms of the contract.

See: Govorcin Fisheries Ltd. v. Medanic Fisheries Ltd., 2021 BCSC 1092 at para. 22.

A determination of whether there is an enforceable contract involves a contextual analysis of all the material facts and circumstances: Oswald v. Start Up SRL, 2020 BCSC 1730 at para. 122; Berthin v. Berthin, 2016 BCCA 104 at para. 46.  Whatever the subjective intentions of the parties were is irrelevant: Oswald at para. 122; Berthin at para. 46.

The usual principles of contract formation apply.  That is, the court must analyze the evidence to determine whether, in all the circumstances, it is clear to the objective, reasonable bystander that the parties intended to contract, and whether the essential terms of that contract can be determined with a reasonable degree of certainty: Kuo v. Kuo, 2017 BCCA 245 at para. 38.

To determine whether a binding agreement was created vis-à-vis the parties’ manifest intentions, the court may consider their conduct leading up to, and following, the conclusion of the alleged agreement: Salminen v. Garvie, 2011 BCSC 339 at para. 28.  Where the alleged agreement contemplates the execution of a further formal contract or further negotiations to take place, the court must determine whether the parties intended to create a binding contract or whether they simply reached a basis for further agreement: Salminen at para. 32.

The analysis is an objective one: the mere perception on the part of one party that another has agreed to the terms of a contract is insufficient in law to support a finding that a contract has come into existence: Hammerton v. MGM Ford-Lincoln Sales Ltd., 2007 BCCA 188 at para. 23.

 

A party’s subjective intention is irrelevant and the court must instead determine the parties’ mutual intention based on “objective evidence of their conduct and the surrounding circumstances”: Leemhuis v Kardash Plumbing Ltd 2020 BCCA 99 at paras. 15-17;

While the existence of a binding and enforceable contract requires an intention to contract, it is not subjective intention that is relevant, but objective intention: Aubrey v. Teck Highland Valley Copper Partnership, 2017 BCCA 144 at para. 35; Rudyak v. Bekturova, 2018 BCCA 414 at para. 23.

The seminal case, Smith v. Hughes (1871), L.R. 6 Q.B. 597 at 607 stated:

“If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that [the] other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”

This Court in Berthin v. Berthin, 2016 BCCA 104, put the requirement this way:

[46]      The test, of course, is not what the parties subjectively intended but “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”: see G.H.L. Fridman, The Law of Contract in Canada (6th ed, 2011) at 15. As stated by Mr. Justice Williams in Salminen v. Garvie 2011 BCSC 339:

The test for determining consensus ad idem at the time of contract formation is objective: it is “whether the 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”; it is “whether a reasonable… [person] in the situation of that party would have believed and understood that the other party was consenting to the identical term”: Fridman, supra, p. 15; see also Smith v. Hughes (1871), L.R. 6 Q.B. 597 at 607 adopted in St. John Tugboat Co. Ltd. v. Irving Refining Ltd., [1964] S.C.R. 614, 1964 CarswellNB 4 at para. 19, and Remington Energy Ltd. v. B.C. Hydro & Power Authority, 2005 BCCA 191 at para. 31, 42 B.C.L.R. (4th) 31. The actual state of mind and personal knowledge or understanding of the promisor are not relevant in this inquiry: Hammerton v. MGM Ford‑Lincoln Sales Ltd., 2007 BCCA 188 at para. 23, 30 B.L.R. (4th) 183, citing S.M. Waddams, The Law of Contracts, 5th ed. (Toronto: Canada Law Book Inc., 2005) at 103. … [At para. 27.]

In determining intention to contract, a court is not confined to the four corners of the agreement, but may look at “all the circumstances” or “all the material facts”: Langley Lo‑Cost Builders Ltd. v. 474835 B.C. Ltd., 2000 BCCA 365 at para. 21; Vancouver Canucks Limited Partnership v. Canon Canada Inc., 2015 BCCA 144 at para. 75; Lacroix v. Loewen, 2010 BCCA 224 at para. 36 (per Finch C.J.B.C.). In Langley, McEachern C.J.B.C. observed that McLachlin J. (as she then was) in Osorio v. Cardona (1984), 15 D.L.R. (4th) 619 (B.C.S.C.), considered “evidence of past agreements involving other parties, the circumstances in which the alleged agreement was made, and future actions and representations by both parties.”