As parties work out the terms of a deal, many letters of intent
and other commercial documents come with warning labels as to the
non-binding nature of the terms set out in that
document. "This letter is not to serve as a legal
agreement but as a summary of the understanding of A and B,"
is one such warning and seems clear enough. However, a recent
decision of the Ontario Court of Appeal demonstrates that in some
situations, the statement of the parties' intentions as
expressed in such a warning label will not prevail. Contracting
parties need to take care to ensure that their actions do not
speak louder than the words in the warning.
In Nordlund Retreat1, the Court addressed a dispute
between two neighbours of real property in Northern
Ontario. One neighbour (Plominski) was landlocked, and the
other (Nordlund) had water access only. They struck a deal in
principle to provide Nordlund with a road access easement, and to
sever a portion of the waterfront property to give Plominski some
water access. They converted their understanding as to the
terms of their arrangements into two documents called an Easement
Summary and a Severance Summary, each with its own warning label as
to its intended status as a non-binding agreement. However,
when Plominski kept trying to sweeten the arrangements with his
neighbour by demanding that additional terms for his own benefit be
satisfied before he would grant the easement, Nordlund brought an
action for specific performance of the Easement Summary as a valid
and enforceable agreement.
The Ontario Court of Appeal rejected Plominski's contention
that the Easement Summary with its warning label was nothing more
than an "agreement to agree" and that the parties were
continuing to negotiate. The Court concluded that
notwithstanding the warning label, the neighbours had both intended
to enter into a binding "preliminary" agreement for the
provision of an easement. In confirming the motion judge's
finding that the Easement Summary was an enforceable contract, the
Court focussed on several key factors:
The Easement Summary contained all of the essential terms in
connection with the dimensions, location and construction of the
The parties had acted for a period of one year as if the
agreement was in place in terms of contacting provincial government
ministries and other third parties to obtain consents and in
authorizing surveyors to act as agents to obtain the
Nordlund had paid to Plominski $45,000 in advance as the
purchase price for the easement, and Plominski accepted that
payment even though Nordlund was not obligated to make it until a
valid easement agreement had been signed and
In preparing letters to certain provincial government ministries
seeking consent and in completing government forms, Plominski
confirmed that he had agreed to grant the easement to Nordlund and
that "official documents evidencing the easement" would
be prepared as soon as accurate legal descriptions were
The increasing demands of Plominski in attempting to negotiate
better terms than those set out in the Easement Summary were not
viewed as evidence that the agreement was still being negotiated,
but rather as efforts to obtain additional consideration for an
easement Plominski had already agreed to provide5
At the time he acquired his property, Plominski had acknowledged
an earlier preliminary agreement granted by one of his predecessors
on title in connection with the granting of an
Although the decision in Nordlund Retreat relates to real
property easements, it is a decision of the Ontario Court of Appeal
and another indication of the Court's desire to give effect to
the reasonable expectations of the contracting parties.
Lenders should still of course ensure that any term sheets,
letters of intent or other preliminary documents they issue are
supported with strongly worded warnings as to their non-binding
nature. However, they must also ensure that the actions in
dealing with the proposed borrower and third parties after issuing
the non-binding document concerning a proposed loan are consistent
with those non-binding intentions until such time as a definitive
agreement is executed.
1 Nordlund Family Retreat Inc. v. Plominski, 2014
ONCA 444 [Nordlund Retreat].
2 Nordlund Retreat, at para 59.
3 Nordlund Retreat, at para 62.
4 Nordlund Retreat, at paras 64 and 65.
5 Nordlund Retreat, at para 66.
6 Nordlund Retreat, at para 54.
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