Agreements to Agree

A binding contract is one that is based on a bargain. A bargain requires an offer, the acceptance of that offer, and the exchange of “consideration” between the parties to the contract. For example, a vendor offers to sell an appliance to a person for $500 and that person accepts the vendor’s offer. The exchange of offer and acceptance gives rise to an enforceable contract for the sale of the appliance. The vendor’s contractual consideration is the appliance. The purchaser’s contractual consideration is the $500 payment. An agreement to agree is not a binding contract because it lacks a material term of the bargain. In other words, an agreement to agree in the future about a material term, such as the price of the appliance, is not recognized by the courts as a binding contract. However, the law is most often not “black and white.” One court has described the problem this way: “The principle to be deduced from the cases is that, if there is an essential term which has yet to be agreed and there is no express or implied provision for its solution, the result in point of law is that there is no binding contract. In seeing whether there is an implied provision for its solution, however, there is a difference between an arrangement which is wholly executory [to be executed] on both sides, and one which has been executed on one side or the other. In the ordinary way, if there is an arrangement to supply goods at a price “to be agreed”, or to perform services on terms “to be agreed”, then while the matter is still executory, there may be no binding contract. Nevertheless, if it is executed on one side, that is, if the one does his part without having come to an agreement as to the price or the terms, then the law will say that there is necessarily implied, from the conduct of the parties, a contract that, in default of agreement, a reasonable sum is to be paid.” If two people meet at Tim Hortons to discuss the sale and purchase of land and they handwrite on a piece of paper a description of the land, the sale price, and they sign it but with a note that it is subject to entering into a formal agreement of purchase and sale, the agreement to agree may be binding. The Ontario Court of Appeal has held that, if the agreement contains all of the essential terms of a contract for the sale of land, namely “the parties, the price, and the property,” the fact that a formal written document to the same effect is to be prepared later and signed does not alter the binding validity of the original agreement.