Know Your Grain Contracts: Part 2 ' Contract Formation

• Published date: 21 April 2022
• Subject Matter: Corporate/Commercial Law, Food, Drugs, Healthcare, Life Sciences, Contracts and Commercial Law, Food and Drugs Law
• Law Firm: MLT Aikins LLP
• Author: Tristan Culham and Mark Roney

This blog is the second instalment of a three-part series examining grain contracts.

As described in our previous blog, grain contracts often fall into two categories: production contracts and delivery contracts. In this blog, we'll discuss some additional issues that parties in a grain contract should consider, including steps they can take to protect themselves at the early stages of entering into a contract.

Grain contracts operate the same as any other contract, and are governed by traditional principles of contract law. When there are big price fluctuations, parties on both sides of the contract may look to exploit contractual weaknesses in order to take advantage of the price change. Since no one can predict future market prices, it is in the best interest of both parties to ensure that their contracts are valid and binding on the other party. Dotting your I's and crossing your T's is critical.

Contract Formation

A valid contract is a binding and enforceable agreement between two or more parties. To be a valid contract, there must be 1) an intention to enter into the contract, 2) a meeting of the minds on the essential terms of the contract and 3) certainty on the terms of the contract.¹

Verbal contracts are still contracts. However, if the only record of the contract is the memories of the two people who spoke, it may be difficult for either party to remember exactly what was said, and sometimes there is a misunderstanding about whether a contract was even entered into. Disagreements about whether an agreement was reached or what terms were agreed upon are resolved if the parties write down what they agreed to.

People in the food and agriculture industry are busy - spring seeding, spraying, harvesting, etc. They do not always have time to make sure the paperwork is exactly the way it should be. But if the parties do not ensure they have a written contract signed by everyone, it can lead to disputes.

A written and signed agreement is important to ensure there is proof that a contract was formed between the parties. Otherwise, disputes about whether a contract even exists could occur, particularly when there are big price fluctuations. If that happens, Courts and lawyers are left to pick through correspondence and extract witness memories to try to figure out what was ultimately agreed to.

One example is the case of Sunrise Foods International Inc. v MGM Specialty Livestock Ltd. In that case, the Court looked at the conduct of...