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Meeting of the minds – When a contract is or is not formed

contract

In a number of previous articles, I have explored some of the difficulties encountered where parties fail to properly set out the contractual terms that dictate the rights and responsibilities between them. In the recent case of Cumberland (Village) v Ferdinandi2018 BCSC 726 (CanLII), the Court was called upon to determine whether there had been a sufficient meeting of the minds (ad idem) on the essential terms of a settlement such that an enforceable contract arose.

The action was originally commenced by the Village of Cumberland that alleged that Mr. Ferdinandi had breached the Village’s building bylaw in several ways. There was an agreement as to how to resolve the dispute, which Mr. Ferdinandi was further alleged to have breached by failing to complete certain compliance steps by the agreed upon deadline. This resulted in a contempt application.

The parties eventually met along with their legal counsel to resolve the contempt application and reached what the Village alleged was an enforceable settlement agreement. Mr. Ferdinandi contested that what was reached was not an enforceable settlement agreement given that essential terms were not agreed upon.

There was no disagreement that there was a broad consensus on certain aspects of the settlement, but Mr. Ferdinandi, through two successive counsel, requested changes to the terms of settlement proposed by the Village’s counsel. Eventually the Village’s counsel advised of the Village’s position that Mr. Ferdinandi was attempting to renegotiate an agreement (contract) already reached and that it would elect to enforce what it viewed as the agreement despite there being ongoing discussions about certain aspects of the alleged settlement.

In considering the competing views, the Court measured whether a bystander would conclude that the parties had a meeting of the minds on all essential terms and determined that, in fact, a bystander would not reach that conclusion. The court, among other things, pointed to communications from the Village which referred to the alleged agreement as one that was a potential resolution, an agreement principle and had a few outstanding points. Issues were added into the negotiation mix rather than resolved with additional communications between the parties.

The Court’s views were summarized at para. 29 as follows:

…the objective reasonable bystander would see the following. The parties were making progress toward an agreement. The Village identified three matters required for resolution in order to elevate the “tentative agreement” or “agreement in principle” to a binding contract. Mr. Ferdinandi responded by adding to that negotiation list three matters that were important to him. The Village addressed Mr. Ferdinandi’s issues — whether they did so in such a way that fully satisfied Mr. Ferdinandi’s requests is not entirely clear. The Village then set out its position on its own three issues. Mr. Ferdinandi did not accept the Village’s proposal on these issues, and added a number of different issues to the negotiation list. The objective reasonable bystander would conclude that at no time were the parties in agreement on all essential terms of a contract.

Cumberland (Village) v Ferdinandi is illustrative of how a party cannot claim an agreement has been reached out of one side of its mouth while negotiating key terms of that agreement out of the other. There remains a substantial risk that any agreement a party perceives to have reached may not be enforceable so long as material terms of that agreement continue to be negotiated. It may be critical for a party to ensure that no loose ends remain in the negotiation of any contractual relation before it can rest assured that it has an enforceable contract.

By Jeremy Burgess, litigation associate at Pushor Mitchell

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