A Binding Contract Can Exist Before Signing on the Dotted Line

The Supreme Court of Canada recently affirmed that a binding agreement or contract can be considered valid even if parties do not have a signed document indicating a contract. Particularly if both sides to the contract show that they intended to enter into an agreement through their actions.

In the recent case of Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., the Supreme Court provided a stark reminder that contracts don’t have to be in writing in order to be considered valid and in force. Having a signed contract in place makes it much easier to prove the specific terms of the contract or agreement, but isn’t a requirement to establish the existence of that agreement. In determining either the existence of an agreement between two sides or the terms of the agreement, the courts will look at the actions of both parties. If both sides showed by their conduct they intended to enter an agreement and acted as though there had been both an offer of contractual terms and an acceptance of those terms, as well as an exchange of consideration, then there is a legally binding agreement.

Privity of Contract

In general, if there is no written contract but one side is claiming that a contract nevertheless exists, the courts need to look at whether there is “privity of contract” between the parties, which will be instrumental in determining whether an agreement between two parties is in place. Privity of contract is a common law doctrine that states that a contract cannot confer rights nor impose obligations upon anyone who isn’t a party to the contract. More specifically, the courts will need to consider and ultimately determine whether, absent a written contract, a “reasonable person” would consider that the conduct and actions of one party constituted a contractual offer to another party and conversely, whether the conduct and actions of the other party constituted an acceptance of those terms. If so, then a contract or an agreement is effectively in place even without a signed contractual document.

Binding Terms in Pre-Incorporation Contract

The case at hand concerned a dispute between a condominium corporation and a corporation (“Crystal Square Parking Corporation”) which owned and operated the parking structure at the same “Crystal Development” location where the condo in question was also situated. The developer of the Crystal Square complex (which includes a mall, office tower, hotel, police office and cultural centre in addition to both the parking garage and the residential tower) signed a contract with the City of Burnaby which provided access to parking for each component of the Crystal Square complex and indicated how much they would pay for it, in the form of an annual fee. The Developer sold the parking garage space to Crystal Square Parking Corporation and also assigned to them the contract it had signed with the City of Burnaby regarding the parking space fees. The members of the condominium corporation parked and paid fees as contemplated by this agreement for the next 10 years.

After that 10 year period, the condominium corporation felt that the parking cost was too high. They recalled that they never formally signed a contract with Crystal Square for parking fees, and argued that as such they had never formally agreed to the terms of any such contract and so the terms could not be enforced against them. Conversely, Crystal Square Parking argued that the condominium corporation had accepted the terms of an agreement (particularly regarding the parking fees) because they followed those terms for quite some time, and therefore a contract was in place.

The case made it all the way up to the Supreme Court who decided in favour of Crystal Square Parking. In the decision, the Court indicated firstly that although a corporation (such as the condominium corporation in this case) is not bound by a contract made by other parties before it was incorporated (and thus before it existed), it may, after coming into existence, enter into a new contract on the same terms as those of that prior contract. The Court ruled that this is effectively what the condominium corporation did with Crystal Square Parking. Crystal Square Parking made parking passes available to the condominium corporation. The condominium then used the parking spots and paid the fees as set out in the agreement between the Developer and Crystal Square Parking. In this situation, there was no reason for Crystal Square Parking to think the condominium corporation members had not agreed to these same contractual terms. Therefore, there was a de facto contractual offer and acceptance between Crystal Square Parking and the strata corporation for the use of the parking spaces.

Drafting Contracts

When creating or entering into agreements, businesses (including those dealing with any form of real estate or air space parcels) will want to make note that just because there isn’t a written or signed contract in place, it doesn’t mean that there isn’t a contractual agreement in place between two different organizations or corporations. The facts of the Crystal Square case are somewhat complex, involving the ability of a contract created pre-incorporation can be applied to that corporation once it comes into existence. Businesses will need to examine their own conduct and actions in addition to the written contracts they may have on file. This case demonstrates that the conduct of a business (or individual for that matter) can be just as important to determining the existence of a binding agreement as a written document. Where a potential dispute arises about the possible existence of a contract, seeking experienced legal advice is strongly recommended.

The lawyers at Prudent Law in Mississauga are trusted advocates in any type of civil litigation, including contract disputes. We provide practical advice and passionate representation in litigation, real estate disputes and business law matters. If you are facing a legal dispute and you’d like to discuss it with one of our experienced litigation lawyers, please call us at 905-361-9789 or contact us online.

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