Now there is a philosophical question! But it is also a legal one. In the law of contracts, “agreements to agree” are not enforceable. However, there are many situations where all terms of an agreement are not or cannot be determined or specified at the time of the original deal, and are left open to some extent. What happens then? A recent case is an example of what can go wrong.
FACTS
An agreement to sell a piece of property in Vancouver was signed by both the seller and buyer. It clearly defined the property and price, set out the deposit to be held by the buyer’s lawyer in trust, and how that deposit was to be dealt with. But the ‘agreement’ stated “that the Contract of Purchase and Sale of the Property will be prepared by the Purchaser’s lawyers with terms and conditions, and the date of completion of the Property to be agree by the vendor and the purchaser”. The date of completion was subsequently written in and initialed by the parties. Five weeks later, the buyer’s lawyer sent the required closing documents to the seller’s lawyer, but the seller did not sign or return the documents and the completion date came and went. The buyer went to court to require the seller to close the deal and transfer the property.
ISSUE
Was there an agreement in place or only an agreement to agree in the future?
DECISION
Although perhaps viewed as unfair by some, the Court held that there was no binding contract because of the wording quoted used, as quoted above. The Judge was urged to take the actions of the parties into consideration in interpreting the terms of the ‘agreement’. But he concluded, “The wording of the executed document is clear. The parties have said that a contract will be prepared with terms and conditions to be agreed. ‘To be agreed,’ means some further agreement is necessary in the future”. The Judge then said that the wording used was clear and a “further contract was a condition or term of the bargain” and the parties anticipated a further meeting of the minds. It was a mere ‘agreement to agree’.
LESSONS LEARNED
This is why lawyers are consulted before contracts are signed! It is important that when the good feelings between people who have signed a ‘contract’ fade over time, the legal requirement to go through with the deal doesn’t disappear with it. If there are future events or agreements that need to be left open to some anticipated negotiation or agreement, consider setting out clearly the timing and process for reaching agreement. Think about what happens if agreement is not reached. Another means of tying down loose ends is to use an arbitration clause (e.g., we will agree to sign a standard form construction contract normally used for comparable work, but if there are any disagreements on that form of contract we will refer the matter to arbitration). The worst alternative is to leave it to a Court to determine whether there is a deal or just an “agreement to agree”.
This article was written by Robert G. Kuhn, a lawyer who practices in construction law at the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.
