September 22, 2023

By Mark Mikulasik

In order for there to be a contract, there must be a “meeting of the minds”.

Sometimes, this is evidenced by a written and signed agreement.

But what if the “agreement” is said to have been verbal, but one party claims that they accurately reduced it to writing?

This was reviewed in the Ontario Superior Court of Justice in Neu Solutions v eSolutions MN. The judge begins with basic principles of contract formation set out previously by the Court of Appeal:

• Through discussion and negotiations, parties planning to make a formal written document “frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared”;
• The parties’ agreement may be expressed through oral communication or in writing in the form of a memorandum, exchange of correspondence, or other less formal documents;
• The agreement reached between the parties may include a “contract to make a contract”; the parties may bind themselves to execute, at a future date, a formal written agreement that contains all the specific terms and conditions to which the parties have agreed; and
• The prerequisites for the formation of a contract are met if the parties (a) have agreed on all the essential terms to be incorporated in the formal document to be prepared at a later date and (b) intend that their agreement shall become binding.  The validity of the agreement is not affected by the timing of the preparation of the document or its execution.

But what about negotiations that fall short of forming a contract? Indicators of this include:

• The essential terms intended to govern the contractual relationship have not been agreed upon or settled;
• The contract is too general or uncertain to be valid on its own and is dependent on a formal contract being made; or
• Even if there is certainty between the parties as to their understanding and intention, their legal obligations are to be deferred until a formal contract has been approved and executed.

If one or more of these circumstances exist, the existence of a formal written contract is essential to prove that a binding agreement has been reached.

In Neu Solutions, a “cavalier approach” to corporate administration led to a finding that an alleged share transfer had not taken place. In the circumstances, the formalities were more than details; they were essential to proof of the existence of the agreement. An exchange of emails containing different terms cannot be a meeting of the minds, even if one says, “This is what we agreed upon”.

This was an “agreement to agree” at best. No share transfer had been agreed to. The proposed seller remained a shareholder, for better or for worse. Since it resulted in a lawsuit, we suspect it was for worse – no businessman should want litigation over a contract.

TAKEAWAYS

• As explained in our article on corporate records, a “cavalier approach” to the administration of your corporation is never a good thing.
• Signed contracts are not always necessary, but
• If you are relying upon other evidence to establish a contract, it must meet the “objective bystander” test
  • Thus, signed contracts are always best.
• If you want it done right, you might need a lawyer to document the deal.

WHAT WEILERS LLP CAN DO TO HELP YOU

Weilers LLP has a corporate team that, in addition to being trusted advisors and deal makers, is equipped to document your corporate activity, including key contracts, at predictable and manageable costs to give you peace of mind. Our “progressive approach” is anything but cavalier when it comes to documenting our clients’ interests properly.

Whether you are already a client or were incorporated elsewhere, feel free to contact us to see if we are the right fit for you.