Nov 26, 2014

Bawitko Investments Ltd v Kernels Popcorn Ltd Case Brief

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

FACTS:

  • Plaintiff (respondent) was looking to acquire a franchise from the defendant (appellant), and at a meeting they made an oral agreement which partially amended part of the franchisor’s agreement draft. Prior to the signing of the formal agreement draft, a dispute arose between the parties

LEGAL ISSUES:

  • Can the oral contract in itself constitute a complete and legally enforceable contract, or was it subject to and dependent upon a formal written franchise document being settled, approved and executed by the parties

HELD:

  • Appeal allowed, action dismissed

RATIO:


  • 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 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

  • If no agreement as to ALL of the essential terms has been expressed and made manifest by parties, then there is no enforceable contract

REASONS FOR JUDGMENT


  • 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.

  • 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, the original agreement must be complete

  • The evidence does not establish agreement on the terms to be embodied in the formal written document. Rather, it establishes that the terms, other than those specifically agreed to, were to be settled and agreed to later.