Laws `WYSIWYG’

In order to attempt to meet this problem the “letter of intent” is often used, presumably on the theory that it will “tie up” the property-owner and keep him happy (because he has a piece of paper) while a definitive agreement is being worked out A lot of property-owners appear to be satisfied with a letter of intent But should they? And, for that matter, should the mining company? Each side “sees” something in a letter of intent, but what is in fact given and received?

Some things to consider are the following:

* It is surprising how often a simple letter that is intended merely to outline the principal features of a proposed deal is, at law, an agreement

* In order to be a true letter of intent (i e not an agreement) and in order that there can be no future misunderstanding between the parties, the letter should so state clearly on its face and should not have at its end a place for the property-owner to accept or agree with its contents From a practical point-of-view, the property- owner is given a document indicating the deal that the offeror is willing to make and can go shopping to other bidders with it, knowing that the document is not binding because that is what it says On the other hand, the property owner may refuse bona fide offers because he has such a letter, only to have the offeror change its mind and walk away

* In order to avoid the above problem a letter of intent can be made into an agreement But as soon as this is done, the letter has to be in terms that the parties are prepared to live with, and there is always the problem that, if the courts become involved, some “strange” or innovative interpretations of the wording may result With a simple option to purchase for cash, a relatively simple agreement can be entered into provided that a little forethought and care are taken For example, it is surprising how many of thes e types of agreements do not specifically provide that the optionee may enter upon the property and carry out such work as it considers appropriate (a serious oversight if a farmer who raises prize cattle that are in the process of calving claims that he did not realize that the optionee intends to come on the property with a drill)

With a more complex farm-in/joint- venture type of agreement, it would be unfair to expect field personnel to draft a comprehensive letter

* Sometimes a party will try to be cute and deliver a letter that is intended to make the property-owner think that he is bound but is really only a non-binding expression of intent, leaving the offeror free to back out Chances are that such a letter will end up being an agreement rather than a letter of intent, but this, of course, will depend upon its terms and the circumstances under which it was delivered As a general rule, it does not pay to be cute in this area of the law

* Some mining companies use form agreements These may work fine if the property owner is satisfied to agree to the standard deal contemplated in the form agreement Property-owners are, however, often not co-operative at all in this regard and have their own ideas of the type of deal that they will, or will not, accept If the deal strays from the standard, problems may be expected

Accordingly, it is good advice with regard to the initial letter between offeror and property-owner to have it truly be what it appears to be — either it is binding or non-binding and this should be clearly stated on its face

What follows are a few of the types of problems that might be addressed in the field when it is desirable to have a binding agreement immediately with the property owner:

First and foremost, keep the agreement as simple and straightforward as possible Do not try to play lawyer and include some of these “marvellous” phrases or provisions that seem to appear in legal agreements unless you can do so accurately and know their proper meaning and use Use language that both of the individuals involved in preparing and signing the agreement understand

If there are conditions to the agreement, make sure they are included and clearly set forth A fairly normal condition is that any obligations of the offeror are conditional upon receiving a favorable title report within a specified number of days The consequences of failure to fulfill a condition and the right to waive fulfilment should also be included

The title to property is critical Many owners have little or no idea what they own In most jurisdictions, if unpatented mining claims are involved, the records of the mining recorder may be safely relied upon (provided that they are up to date) But if real property is involved, a lawyer should be involved because there are many potential pitfalls This is so even if the property is registered under the Land Titles system which allegedly guarantees title In some jurisdictions, like Ontario, the “guarantee” as it relates to mining rights is virtually non-existent and should be completely forgotten In these jurisdictions, a properly carried out title search should check title right back to the issue of the Crown patent

Often when a draft agreement is being reviewed by an owner, he will remember that there was some agreement that he made some time ago This recall is usually prompted by the representations relating to good and unencumbered title that appear in a definitive form of agreement If this happens, then the representations have served a useful purpose It may be true that, at law, if a bona fide purchaser takes without notice of an underlying agreement the purchaser is not bound by it, but if an unknown agreement does exist, then there may well be a lawsuit to establish thi s right of the purchaser It is better, therefore, to know the whole story from the start Even a passing comment may be sufficient to put a party on notice of an adverse claim

Often when doing a “quick and dirty” agreement in the field it is provided that the parties will later sign an expanded version of the field agreement This no more than a statement of intention and is not binding upon the parties At law, an agreement to agree cannot be enforced

Royalties are becoming quite commonplace in property acquisition agreements They are complex arrangements which should not be dealt with on an ad lib basis in the field Field personnel who have authority to execute agreements should carry with them an approved set of royalty provisions that can be copied and affixed to a field agreement as a schedule (after being referred to in the body of the agreement)

The property-owner often has concerns that will have to be addressed in the agreement The cottage-owner is concerned about the appearance of his property and his trees or the farmer does not want his stock or crops disturbed or wants to be able to harvest without interference or wants gates kept closed, and so on These concerns must be dealt with in the agre
ement in a simple and straightforward manner

In short, think before you write and decide whether you want a non- binding letter of intent or a binding agreement Set out this decision clearly in the document If field agreements must be done, keep them simple and expressed in terms that the individuals who sign them clearly understand If it is thought worthwhile to contemplate the preparation later of a proper agreement, do so but in realization that it may never happen and that the field agreement may govern the relationship for its entire duration of the project If a further agreement is thought to be advisable, prepare and settle it as quickly as possible after signing the field agreement — while both parties remember the details of their discussions and are, it is hoped, still friendly In this way, you may get what you see, or think you see Karl J C Harries is a graduate mining engineer and partner with the Toronto law firm of Fasken & Calvin The information in this article is summary and general in nature and is not intended to be taken or acted upon as legal advice

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