Does the lack of a termination date void a contract?
At first glance, it seems that the obvious answer is no, since it is common practice for parties to make agreements that omit providing a termination date. However, if it was always so simple, the Ontario Court of Appeal wouldn’t have addressed this issue in a recent case.
In Forest Hill Real Estate Inc. v. Harvey Kalles Real Estate Limited, two different real estate agents were retained by a seller to co-list a property (the “Property”). Two agreements were entered into between the two agents. The first agreement provided the commission split for the sale of the Property and one particular clause of the second agreement provided that “[a]ny clients from open houses will be shared” for the sale of houses other than the Property that could ensue. One such client formed a relationship during an open house with one of the agents (the “Appellant”). As a result of this encounter, that client purchased two houses other than the Property from the Appellant and a dispute on commission ensued. The trial judge ruled that the disputed clause in the second agreement was unambiguous and that the commission had to be split.
On appeal, the Appellant challenged these conclusions, arguing that the disputed clause created no contractual obligation as it was vague and equivocal. The Ontario Court of Appeal found the clause unambiguous and upheld the trial judge’s ruling. It even made it very clear that the lack of a time limit does not void an agreement by writing that:
“The fact that there is no time limit to the agreement does not detract from its clarity or its commercial effectiveness given that the court, in contract interpretation, often implies a reasonable time period for a contract to be in force.”
Obviously, it is always preferable for parties to a commercial agreement to specify all possible terms. A good drafting style usually involves the use of a detailed template to ensure that regular or standard terms do not get missed. However, it is comforting to have the Ontario Court of Appeal state that, in case a term is omitted, a court can stand ready to infer a reasonable one.
It is also important to understand when a court will not infer missing provisions. For example, if a payment term or a time for performance is not included in a written contract, will courts infer such clauses?
The answer most often lies in the mutual intention of the parties at the time of the agreement. If we were able to ask the parties at that time what the terms were, would the answer be obvious? If it isn’t, then it is highly unlikely that a court would infer such terms.
Again, even if our courts can possibly infer omitted terms, I’ll still sleep much better at night if I don’t have to rely on it.