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Breach of Contact WHEN IS AN AGREEMENT A CONTRACT

The most common legal relationships that people enter into almost on a daily basis are contractual ones. Everyday agreements from promises to buy lunch to loaning money to a friend and everything in between are all contracts, the question that arises when considering the law of contract is which of these agreements are enforceable in the Courts.

Further to this most of us have heard the old saying that a verbal agreement is not worth the paper it is written on and based on this it would be suggested that many of the agreements we have suggested that occur in the course of daily living would not be considered enforceable contracts. This is of course not the case. While most verbal contracts or agreements between parties while they often should be in writing and in the case contracts in respect to interests in land must be in writing, can be enforceable whether verbal or written.

All contracts verbal or written require the following to be considered contracts and enforceable;

a) an offer
b) an acceptance
c) some type of consideration whether it be by payment, exchanged benefit or conduct
d) an agreement as to terms expressly agreed or implied a reasonable
e) the intention on the part of both parties to be legally bound by the agreement

These characteristics of a contract and the fact that legally binding agreements can be verbal are well outlined in the case of Schrempf v. Willchuk, 2013 ONSC 2863 (CanLII) which states;

5] On the first issue of whether an oral agreement existed, in Picavet v. Clute, 2012 CarswellOnt 4575 (ON S.C.), Healey J. at para. 9 summarized that where there is no written contract documenting the alleged agreement “the court must examine everything occurring between the two parties that is relevant to the alleged agreement in order to decide whether a contract exists.”

[6] Paragraph 15 of the decision of Cavarzan J. in Summers v. Sawyer, 2005 CarswellOnt 4001 (ON S.C.), provides as follows with respect to binding oral agreements:

Whether or not a binding oral agreement was formed in the circumstances here is a question which engages what has been called the objective principle of contract formation. As stated in S.M. Waddams, The Law of Contracts (5th Edition) at p. 103:
The principle function of the law of contracts is to protect reasonable expectations engendered by promises.

Every definition of contract, whether based on agreement or on promise, includes a consensual element. But the test of whether a promise is made, or of whether assent is manifested to a bargain, does not and should not depend on an inquiry into the actual state of mind of the promisor, but on how the promisor’s conduct would strike a reasonable person in the position of the promisee.

The statement by Blackburn J. in Smith v. Hughes (1871), L.R. 6 Q.B. 597 (Eng. Q.B.) at p. 607 is cited by Waddams:

If, whatever a man’s real intention maybe, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party and that another party upon that belief enters into a 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.

[7] Paragraph 10 of Picavet v. Clute, supra, provides as follows:

It is trite law to say that the absence of assent to an agreement prevents the creation of a legally enforceable contract. Far more complicated is the countervailing question: How does the court satisfy itself that both parties intended to bring an agreement into existence, an agreement containing the terms sought to be enforced? In The Law of Contract in Canada, 5th ed. (Toronto: Carswell, 2006), at p. 15, Professor G.H.L. Fridman describes the approach as follows:

Constantly reiterated in the judgments is the idea that 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. [FN1] The law is not concerned with the parties’ intentions but with their manifested intentions. [FN2] It is not what an individual party believed or understood was the meaning of what the other party said or did that is the criterion of agreement; it is whether a reasonable man in the situation of that party would have believed and understood that the other party was consenting to the identical terms. [FN3] As Fraser C.J.A. said in Ron Ghitter Property Consultants Ltd. V. Beaver Lumber Co.: [FN4]

The parties will be found to have reached a meeting of the minds, in other words, be ad idem, where it is clear to the objective reasonable bystander, in light of all the material facts, that the parties intended to contract and the essential terms of that contract can be determined with a reasonable degree of certainty.

[8] As set out in Wilson v. Graydon Hall Pizza & Catering Ltd. 1994 CarswellOnt 221 (O.C. of J. (Gen. Div.)), confirmed in appeal at 1996 CarswellOnt 1596 (O.C.A.), where an oral agreement deals with all of the fundamental terms of the contract, the oral contract is binding.

 It is also important to note that contracts whether verbal or written can and generally do include terms that were not discussed or even considered but that will be implied into the agreement by the Courts if necessary. This position is discussed in the case of Tanenbaum and Downsview Meadows Ltd. v. Wright-Winston Ltd., 1963 CanLII 630 (ON SC) which states;

It is this allegation of a verbal arrangement amending and varying the contract, ex. 5, and the denial that any such arrangement was made by Mr. Black, on behalf of the defendant, that is the chief concern in this action. I take it as settled law that a contract in writing may be varied by a subsequent oral varying contract made between the parties: Goss v. Lord Nugent (1833) , 5 B. & Ad. 58, 110 E.R. 713; and the many cases in which that view has been adopted thereafter. Whether the contract, if it was entered into, was entered into before or after breach will be dealt with. In considering the evidence as to the existence or non-existence of the alleged verbal variation of the written contract, I believe I should do so in the light of pronouncements as to the task which the person proposing such a verbal variation. faces at trial. It must be remembered, of course, that it is the plaintiff who alleges the verbal contract and that the plaintiff has the general burden of proof. In Robins v. Nat’l Trust Co., [1927] 2 D.L.R. 97, [1927] A.C. 515, [1927] 1 W.W.R. 692, Viscount Dunedin said, at pp. 100-1 D.L.R., p. 520 A.C.: Their Lordships cannot help thinking that the appellant takes rather a wrong view of what is truly the function of the question of onus in such cases. Onus is always on a person who asserts a proposition or fact which is not self-evident…. But if the tribunal, after hearing and weighing the evidence, comes to a determinate conclusion, the onus has nothing to do with it, and need not be further considered. In Earl of Darnley v. Proprietors, &e. of London, Chatham, & Dover Ry. (1867), L.R. 2 H.L. 43, Lord Cranworth said, at p. 60: When parties, who have bound themselves by a written agreement, depart from what has been so agreed on in writing, and adopt some other line of conduct, it is incumbent on the party insisting on, and endeavouring to enforce, a substituted verbal agreement, to shew, not merely what he understood to be the new terms on which the parties were proceeding, but also that the other party had the same understanding — that both parties were proceeding on a new agreement, the terms of which they both understood. This view was adopted by Hyndman, J., in the Court of Appeal of Alberta, in Kokomo Investment Co. v. Dominion Harvester Co., 43 D.L.R. 198 at p. 213, 14 A.L.R. 27, [1918] 3 W.W.R. 366. In Can. Fur Auction Sales Co. (Quebec) Ltd. v. Neely, [1954] 2 D.L.R. 154, 62 Man. R. 148, 11 W.W.R. (N.S.) 254, Beaubien, J.A., of the Manitoba Court of Appeal, noted, at p. 161: A contemporaneous agreement with respect to some collateral matter as to which a written contract is wholly silent may be proved by parol evidence, but such oral agreement must not contradict the written agreement and must be proved strictly. (The italics are my own.) See also 11 Hals., 3rd ed., pp. 404-5, and Heilbut, Symons & Co. v. Buckleton, [1913] A.C. 30, per Lord Moulton, at p. 47. There would seem to be no reason why a less strict standard of proof should be required for an oral agreement made subsequent to the written one purporting to vary the said written agreement.

Thus it is clear that verbal agreements are worth the paper they are written on and that enforcing or defending against an action in a contract can sometimes raise complex issues that must be considered in order to be successful before the Courts. 
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