April 23, 2024
“An oral contract is worth the paper it is written on” is an old saying. Not quite accurate, but it does illustrate the difficulty convincing a judge that a binding deal was reached if it not out in writing. We have written before about the importance of getting it in writing.
THE ISSUE
Is it good enough if it is an informal note- what lawyers often refer to as a “contract written on the back of a napkin”?
THE CASE
A formal written contract is always better, but the decision in Valtrol v. 1373007 Ontario Ltd., is a useful reminder that some writing is better than no writing. An informal document, whether on a literal napkin or not, can serve as a “memorandum of agreement”, which is enough to confirm an oral contract.
Valtrol was a tenant of the numbered company. There were issues of unpaid additional rent for management fees. The principals of the two companies met. The tenant representative made a handwritten note that both people signed.
Subsequently, the landlord denied that this document served to extend the lease. The tenant said it did.
The Superior Court judge relied on two Ontario Court of Appeal cases from 1991 and 2009.
The 1991 case explains that:
As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement, necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of memorandum, by exchange of correspondence, or other informal writings. The parties may “contract to make a contract”, that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.
The 2009 case tells us that:
For a contract to exist, there must be a meeting of minds, commonly referred to as consensus ad idem. The test as to whether there has been a meeting of the minds is an objective one — would an [page103] objective, reasonable bystander conclude that, in all the circumstances, the parties intended to contract? As intention alone is insufficient to create an enforceable agreement, it is necessary that the essential terms of the agreement are also sufficiently certain. However, an agreement is not incomplete simply because it calls for the execution of further documents.
What are the essential terms? For a lease they are set out in a 1981 Court of Appeal case:
terms of the extension as noted above were certain as to the parties, the premises, the commencement and duration of the term, the rent, and material terms incident to the relation of landlord and tenant, as required for a lease to be valid.
The judge in Valtrol carefully considered each set of words on the note and determined that the
handwritten notes included the essential terms that were clear, and they formed an extension agreement that was binding and valid. The preparation of a formal extension agreement does not alter the binding nature and validity of the terms set out in the handwritten notes.
The note in question even dealt with terms to repay the outstanding management fees. The judge concluded that “it is not necessary for the handwritten notes to include additional language and legal words in order to form a binding agreement between the parties.”
TAKEAWAYS
- it is still best to “get it in writing”, BUT
- that writing does not need to be in any particular form as long as it includes the essential terms of a contract.
HOW WEILERS LLP CAN HELP YOU
The lawyers at Weilers LLP are adept at helping clients record their deal in a document that reduces the potential for future conflict. If conflict is inevitable, our litigation team has the experience and skills to bring the litigation to a conclusion in the least painful and least expensive fashion possible.
So, whether you need to get it in writing, or need advocacy after the fact, call us. Weilers LLP might be the right lawyers for you.