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Friday, December 24, 2010

"A contract to make a contract is not a contract"

In a recent decision, the Ontario Superior Court of Justice dismissed a breach of contract claim by one farmer against another in connection with the sale and purchase of wheat.  The Court noted that, "Because of the rapid price fluctuations in the grain market, oral contracts are the norm. Once the oral contract is completed it is normally followed up by reduction to written form, although not always." 

Mr. Kuratli, the plaintiff in the case, and Mr. Hefti, the defendant, had done business with one another in the summer of 2007. At a party for people of Swiss descent Mr. Kuratli asked Mr. Hefti if he had any corn available. Mr. Hefti had approximately 35 tonnes of corn. He agreed to sell it to Mr. Kuratli for $175 a tonne. Mr. Kuratli picked up approximately 20 tonnes near the end of September 2007 and paid Mr. Hefti for the load, but failed to pick up the balance of the tonnage at the agreed price. Mr. Hefti had to sell it at a loss. Thereafter Mr. Hefti decided that he would not do any further business with Mr. Kuratli unless he had a contract in writing.

The wheat purchase at the heart of the case before the Court was first arranged orally.  Then, as the Court found, Mr. Hefti's intention was that a written contract would be executed.  On the basis that no written contract was executed, the Court dismissed Mr. Kuraltli's claim for damages for the failure by Mr. Hefti to deliver wheat according to the arrangement.  The Court stated the law on the issue:
Where the 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. A contract to make a contract is not a contract: see Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 CanLII 2734 (ON C.A.), [1991] 79 D.L.R. (4th) 97 (O.C.A.), and the cases cited therein.
Read the decision at: Sonibrand-Farm Inc. v. Ferme Rudolf Hefti Inc.