Oral Contract

From Riverview Legal Group

Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 CanLII 2734 (ON CA)

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This is an appeal from the judgment of O'Driscoll J. dated June 13, 1988, declaring the appellant in breach of an oral contract to grant the respondent a franchise to operate a retail store at a shopping centre in Hamilton, Ontario, known as "Jackson Square".

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The respondent acknowledged, however, that the parties agreed at the April 18 meeting, and at all pertinent times thereafter, to embody their mutual obligations in a formal written document. Indeed, one would not expect otherwise. In the light of that fact, it is necessary to consider the legal effect to be given the informal oral contract found by the trial judge. The question is whether, on one hand, the oral contract can in itself constitute, as the trial judge held, a complete and legally enforceable contract or, whether, on the other hand, as the appellant contends, the oral contract was not in itself a complete and legally enforceable contract but was subject to and dependent upon a formal written franchise document being settled, approved and executed by the parties. Alternatively, the appellant contends that the respondent was in breach of the oral contract at the relevant time and, in any event, that the oral contract was unenforceable by reason of s.4 of the Statute of Frauds, R.S.O. 1980, c.481.

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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.