In Qureshi v. Zeema Investments Incorporated, 2024 ONSC 5855, the Ontario Superior Court of Justice emphasized the importance of ensuring that the essential terms of contractual agreement are comprehensive and clear.
This summary judgment arose from an unpaid commission payment on a real estate transaction. A broker was mediating a purchase and sale of a hotel between a buyer and seller. the broker and buyer had executed a Buyer’s Representation Agreement (the “BRA”) listing the commission owing to the broker by the buyer on closing at “TBD,” and was to be confirmed upon executing an agreement. The BRA required a commission to be paid to the broker in the event of buyer default on any agreement of purchase and sale that is entered.
The broker subsequently entered a Commission Agreement with the seller, which included a commission payment of $650,000 that was owed by the seller to the broker on closing. A third agreement between the parties – a Co-op Agreement, was executed by the buyer, seller and broker and confirmed that the broker represented both the buyer and seller in the transaction. This Co-op agreement was silent on the amount of commission owing to the broker, and who would pay it, on closing. The Co-Op Agreement was revised by the parties after an agreement of purchase and sale was executed by the parties, stating that the broker only represented the buyer in the transaction from that agreement’s date.
The purchase and sale failed to close due to the buyer’s default. The broker moved for a summary judgment that the buyer owed a commission of $650,000 to the broker under the BRA. The broker’s argument was that the terms of the BRA, the Commission Agreement, and the revised Co-Op Agreement, read together, demonstrated that the broker represented the buyer and the broker was owed a $650,000 commission despite the transaction not closing.
The Court disagreed, and dismissed the broker’s summary judgment motion. It set out the following general principles of interpreting a commercial contract:
“[56] ….When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties.”
The Court then restated some seminal principles which underline the importance of stipulating clear and complete essential terms in a contract:
[62] “A contract must contain all essential terms. If it does not, the agreement is neither enforceable nor binding. These essential terms must be certain. A document that omits essential terms, or that contains vague or incomplete material terms, will not constitute an enforceable contract.” [citations omitted]
The court found that the broker intended for a commission of $650,000 to be payable by the buyer under the BRA, having regard to its Commission Agreement with the Seller. However – the buyer was not a party to the Commission Agreement and was not legally bound to its terms, through the Commission Agreement itself or the terms of any other agreement. The parties had agreed to a commission of “TBD” under the BRA, and this essential term was insufficiently certain to find that the buyer owed the broker any commission under the BRA.
How important was this seemingly minor oversight to the overall interpretation of the BRA? The Court states:
“[65] At this point, [the broker] should have asked [the buyer] to sign a revised BRA that substituted the agreed commission amount of $650,000 for the “TBD” that was filled in at para. 3 of the BRA. Had this occurred, [the broker] would have been successful on this motion for summary judgment.” [insertions added]
Contracting parties need to ensure their contracts are certain on their essential terms to give agreements their mutually-intended effects. Leaving it to a court to interpret the provisions in accordance with the objective facts surrounding a contract’s formation can lead to unintended results.
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