Ward v. Ward

Citation: 104 O.R. (3d) 401, 2011 ONCA 178 Court: Court of Appeal for Ontario Judges: Laskin, Lang and LaForme JJ.A. Date: March 7, 2011

Family law -- Domestic contracts -- Parties executing Memorandum of Agreement ("MOA") setting out "deal" -- Preamble of MOA stating that it was subject to counsel working out separation agreement with satisfactory language -- Husband paying $250,000 to wife in accordance with terms of MOA shortly after execution and wife using that money to purchase home -- Wife's counsel subsequently indicating that wife was taking time to consider her options but not specifically questioning validity of MOA -- Trial judge erring in declaring that MOA was invalid -- Section 56(4)(a) and (b) of Family Law Act not engaged -- Wording and content of MOA and parties' conduct after MOA indicating that MOA was binding and that proposed separation agreement that was to follow was not condition precedent to its binding nature -- Family Law Act, R.S.O. 1990, c. F.3, s. 56(4)(a), (b).

After pursuing resolution of their matrimonial difficulties through the collaborative law process, the husband and wife executed a Memorandum of Agreement ("MOA"). Neither the husband nor the wife provided sworn financial statements during their negotiations. The wife requested a sworn financial statement from the husband at one point, but did not pursue that request. The preamble of the MOA stated that it was subject to counsel working out a separation agreement with satisfactory language. It then provided that the "Deal is" and enumerated the resolution of nine issues, including the conveyance and possession of the matrimonial home to the husband, a $250,000 payment by the husband to the wife, and child and spousal support. Shortly after the MOA was signed, the husband provided the wife with $250,000, which she used to purchase a new home. About three months later, counsel for the wife wrote that his client was "taking time to consider her options". The wife then began a family law proceeding. The husband sought a declaration that the MOA was a settlement and domestic contract in accordance with ss. 54 and 55 of the Family Law Act (the "FLA"). When the husband brought a motion for summary judgment, the parties agreed to an order for a trial to determine the issue of the validity of the MOA. The trial judge commented on the significant difference between the husband's 2004 income, which was used for the purposes of the negotiations, and his higher taxable income in 2005. He noted that the husband did not deliver a sworn financial statement, although one was "repeatedly asked for". He concluded that the MOA was at best an outline to arrive at a binding separation agreement and was not itself a valid agreement. The husband appealed.

Held, the appeal should be allowed.

The evidence supported a finding that the wife, who was represented by experienced family law counsel, fully understood both the nature and the consequences of the MOA. Section 56(4)(b) of the FLA was not engaged. The trial judge erred in finding that the agreement was invalid in part because more "information" was required. The wife had not, in fact, repeatedly requested a financial statement from the husband. The wife was knowledgeable about the husband's assets. When the MOA was negotiated, the husband would not have known about the increase in his 2005 income, and it would have been evident to the wife and her counsel that the husband's income fluctuated from year to year, sometimes significantly. Section 56(4)(a) of the FLA was not engaged. [page402]

The trial judge erred in finding that the MOA was "at best an outline" or an "agreement in principle". There were three reasons to conclude that the MOA was binding and that the proposed separation agreement that was to follow was not a condition precedent to its binding nature. First, the plain language of the preamble said so. Second, the parties reached agreement on all essential terms, and the subsequent points of contention were merely incidental to or were implicit in the final agreement already reached. Third, the parties' conduct at the time supported the conclusion that they had reached a final and binding settlement with the execution of the MOA.

APPEAL from the order of Matheson J. of the Superior Court of Justice dated February 26, 2010 declaring the Memorandum of Agreement to be invalid.

Cases referred to Andrews v. Lundrigan, [2009] O.J. No. 728, 2009 ONCA 160, 247 O.A.C. 15, 64 R.F.L. (6th) 25; Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 2734 (ON CA), [1991] O.J. No. 495, 79 D.L.R. (4th) 97, 53 O.A.C. 314, 26 A.C.W.S. (3d) 350 (C.A.); Bogue v. Bogue (1990), 1999 3284 (ON CA), 46 O.R. (3d) 1, [1999] O.J. No. 4310, 126 O.A.C. 236, 1 R.F.L. (5th) 213, 92 A.C.W.S. (3d) 766 (C.A.)

Statutes referred to Family Law Act, R.S.O. 1990, c. F.3, ss. 54 [as am.], 55 [as am.], 56(4), (a), (b), (c)

Rules and regulations referred to Ontario Child Support Guidelines, O. Reg. 391/97 [as am.], s. 7 [as am.]

Authorities referred to Rogerson, Carol, and Rollie Thompson, Spousal Support Advisory Guidelines (Ottawa: Department of Justice Canada, 2008)

Counsel: Gerald P. Sadvari, for appellant. Julie Hannaford and Golnaz Simaei, for respondent.

The judgment of the court was delivered by

LANG J.A.: --

I Introduction

[1] The appellant appeals from the decision of the trial judge, which declared invalid the parties' Memorandum of Agreement ("MOA") dealing with their matrimonial dispute.

[2] For the reasons that follow, I would allow the appeal, set aside the order below, and declare the MOA to be a valid and binding domestic contract between the respondent husband, Kenneth Ward, and the appellant wife, Wilma Ward.

II Background

[3] The parties married in 1988, when the wife was 32 and the husband 39 years of age. The wife had been previously married [page403] and the husband had not. The husband practised medicine in Ontario and owned significant assets. The wife was an X-ray technologist at the local hospital.

[4] Immediately before the marriage, the parties signed a marriage contract, which excluded the husband's pre-marriage property from equalization in the event of a future separation. The contract stipulated the value of the excluded property at $1.6 million, including the husband's interests in the Turks and Caicos Islands.

[5] The parties had two children, both boys. With the birth of their first child in 1989, the wife left her employment with the hospital. She began to work part-time in the husband's practice, first by conducting hearing tests on patients, and later by assisting with the practice's bookkeeping. According to her affidavit, at the time of separation the wife was receiving income of approximately $3,500 monthly from the practice.

[6] The parties separated in March-August 2005. When they executed the MOA on November 30, 2005, the wife was 49 and the husband was 57 years of age. Their two sons were 16 and 14. Through to December 2005, the wife continued to receive income from the husband's practice. As well, by at least January 2005, it seems the wife also had employment income from her return to work as an X-ray technologist. Under the terms of the MOA, the wife would start receiving $3,000 monthly spousal support in December 2005.

[7] After consultation with their experienced family law counsel, the parties decided to pursue resolution of their matrimonial differences through the collaborative family law process. For the purposes of the collaborative meetings, which took place between May 6 and November 30, 2005, counsel and the parties used a figure of $273,000 for the husband's income, which was rounded down from his 2004 taxable income of $273,858. They used a range of $47,000 to $55,000 for the wife's income as an X-ray technologist. Although the parties' marriage contract showed a figure of $1,672,000 as the value of the husband's assets at the date of marriage, it appears, for separation negotiations, that the parties used $1,050,659, after backing out certain excluded assets, such as the value of the medical practice.

[8] Neither the wife nor the husband provided sworn financial statements during their negotiations. While the wife requested a sworn financial statement from the husband at one point in one of their eight collaborative meetings, she did not subsequently pursue that request. The parties generally negotiated on the basis of net family property statements provided by the husband, as well as financial information provided by Sandy Wetstein. Mr. Wetstein, a chartered accountant with experience in family [page404] law matters, was also a business partner of the husband and the accountant for the husband's medical practice. He was familiar with the parties' financial situation and prepared their income tax returns. Mr. Wetstein was also a close friend of both spouses, as was Mr. Wetstein's wife.

[9] At their seventh collaborative meeting on October 17, 2005, the parties addressed potential terms of settlement. At their eighth meeting on November 30, the parties reached an agreement on essentially the same terms as discussed at the end of the October meeting. Counsel wrote out items of resolution in the MOA. The parties executed the MOA and their signatures were witnessed by their respective counsel. [See Note 1 below]

[10] During the November meeting, Mr. Wetstein shuttled back and forth between the parties to assist in building "a consensus on the issues that were being discussed". Mr. Wetstein filed an affidavit in this proceeding, which was also filed as an exhibit at trial.

[11] In his affidavit, Mr. Wetstein attested to the wife's familiarity with the husband's practice financial statements, his discussions with the wife about financial issues, the absence of any concerns raised by the wife concerning financial disclosure and his belief that the MOA was executed voluntarily and "freely and in full understanding of all of the facts necessary to address the issues before them". In his view, the parties reached a final agreement, the terms of which would be transferred to a formal, typed separation agreement.

[12] The MOA was handwritten by counsel. Its preamble specified that it was subject to counsel "working out a separation agreement [with] satisfactory language". It then provided that the "Deal is" and enumerated the resolution of nine issues. Those issues dealt with equalization of net family property, including a $250,000 payment by the husband to the wife, the conveyance and possession of the matrimonial home and cottage to the husband, child and spousal support, verification of the husband's income for the purpose of child support, s. 7 [of the Child Support Guidelines, O. Reg. 391/97] expenses, the formation of an education trust for the children and life insurance to secure the husband's obligations. [page405]

[13] A week after the MOA was signed, the husband provided the wife with $250,000 by depositing that amount with the wife's real estate lawyer. The wife used those funds to purchase a new home. In the meantime, the parties' family-law counsel began trying to reach an agreement on the language of the separation agreement, with the wife's counsel providing the first draft. After correspondence back and forth, in mid-2006, the wife had her counsel advise the husband's counsel that she was taking time to consider her options. In April 2007, she began a family law proceeding. In response, the husband sought a declaration that the MOA was a settlement and domestic contract in accordance with ss. 54 and 55 of the Family Law Act, R.S.O. 1990, c. F.3 ("FLA").

[14] When the husband brought a motion seeking summary judgment, the parties agreed to an order for a trial to determine the issue of "the validity of the [MOA] . . . as set out in the Respondent's Notice of Motion". The resulting consent order did not include the validity of the parties' earlier marriage contract as an issue to be tried, even though the husband had raised the matter in his material. For the purposes of trial, the parties agreed that their filed affidavits would be treated as evidence-in-chief and that cross-examination on those affidavits would be restricted to two hours each.

[15] In addition, the husband filed the affidavit of his collaborative family law lawyer. In that affidavit, the lawyer stated that full financial disclosure was made by both parties; that agreement was reached on all "substantive terms" apart from those necessary to give effect to the agreement; and that the wife had not resiled from the agreement. As well, as I mentioned, Mr. Wetstein's affidavit was entered as an exhibit at trial. At trial, the wife's counsel acknowledged that she did not cross-examine Mr. Wetstein on the contents of his affidavit. While she told the trial judge that she would deal with that in closing, neither opening nor closing submissions were provided to this court.

III The Decision

[16] The trial judge's reasons began by setting out the background and position of the parties. He observed, at para. 45, that, in his view, "there is an argument that the [marriage contract] is open to be examined". He also commented on the significant difference between the husband's 2004 income of $273,000, which was used for the purposes of the negotiations, subject to updating, and his significantly higher taxable income of $469,968 in [page406] 2005. [See Note 2 below] The trial judge also remarked on the fact that the MOA was "handwritten". He noted that the husband did not deliver a sworn financial statement, as well as his understanding that one was "repeatedly asked for".

[17] At para. 58, the trial judge provided the following reason for declaring the MOA invalid:

I find that the Memorandum of Agreement signed November 30, 2005, is at best an outline to arrive at a binding separation agreement. There is, in my opinion, much more information needed to create a binding document. Also, financial information may be included that might have been excluded by the [marriage contract].

[18] At paras. 59-60, immediately before addressing costs, the trial judge said that he also took "into account" the wife's depression. As well, he found it "disturbing" that Mr. Wetstein was a business partner of the husband's and expressed the view that there should have been "an independent accountant".

IV Issues

[19] The husband argues that the trial judge erred by (1) taking into account matters that were not within the scope of the trial; (2) applying the wrong test; and (3) concluding that the MOA was merely an "outline". He seeks a declaration that the MOA is final and binding.

V Analysis

(1) Scope of the trial

[20] The husband argues that the trial judge took into account irrelevant considerations, including ss. 56(4)(a) and (b) of the Family Law Act, as well as the parties' earlier marriage contract.

(i) Section 56(4) of the Family Law Act

[21] Section 56(4)(c) of the FLA permits a court to set aside a domestic contract "in accordance with the law of contract", which [page407] counsel agree would include grounds such as unconscionability, duress, uncertainty, undue influence, mistake and misrepresentation. In addition to the common law grounds, ss. 56(4)(a) and (b) permit a court to set aside a domestic contract in the face of significant non-disclosure or where a party "did not understand the nature or consequences of the domestic contract".

[22] In the husband's view, the wife could not rely on s. 56(4), particularly s. 56(4)(a) or (b), because neither provision was specifically pleaded. As a result, the husband argues, the issues before the trial judge were limited to whether the MOA met the requirements of formal validity and whether it contained all the essential terms necessary to evidence an agreed-upon contract.

[23] The difficulty with the husband's argument is the parties' general lack of specificity at the time they agreed to a trial of the issue and, apparently, in the issues placed before the trial judge in their submissions.

[24] The consent order provided for a trial of the issue as set out in the husband's notice of motion, which was broadly worded. Under "grounds", the motion described the MOA as an agreement entered into voluntarily between the parties after lengthy negotiation over time through experienced counsel with full disclosure. This description in itself appears to raise a number of issues relevant to the binding nature of the MOA. Indeed, those issues are reflected in the parties' affidavits, which advanced a significant amount of evidence about the circumstances surrounding the negotiation and execution of the MOA, including the wife's evidence about her state of mind, her allegation that she did not understand the nature or consequences of the contract and the husband's secretiveness surrounding his assets. Indeed, the three volumes of exhibits, including the minutes of the collaborative law meetings, demonstrated the breadth of the issues before the trial judge. It is clear that the purpose of the affidavits and other evidence led at trial, as well as the arguments presumably made by trial counsel, engaged the application of s. 56(4) in its entirety, even if not by section number.

[25] Moreover, it is not argued that reliance on s. 56(4)(a) or (b) caused any relevant prejudice to the husband in the sense that different evidence would have been adduced, argument made or position taken.

[26] I conclude that the trial judge was entitled to consider the issues pertinent to s. 56(4)(a) and (b). Accordingly, I will now turn to consider whether the evidence supported a finding on either basis that the MOA should be set aside, dealing first with whether the evidence supported a finding that the wife did not [page408] understand the nature or consequences of the MOA. After considering that issue, as well as the question of disclosure, I will move to the issue of the marriage contract.

(ii) Section 56(4)(b): Nature or consequences

[27] Although the trial judge did not specifically address s. 56(4)(b) by section number, his reasons could be read to do so to the extent that, in coming to his decision, he took into account the wife's depression at the time she signed the MOA in 2005.

[28] However, the wife's evidence at trial was that she suffered from depression in the fall of 2001 into the winter of 2002. Her counsel was unable to point to evidence that her depression was ongoing in 2005 or that she suffered from any other mental health issue that would have affected her ability to understand the nature or character of the MOA. Accordingly, I conclude that there was no evidence to support the trial judge's finding of depression in 2005.

[29] While there was evidence that the wife felt "pressured" to sign the MOA for other reasons -- such as the need for funds to buy her house, the problems in her relationship with her husband and the time at which she was to pick up her son -- they did not rise to the level required to establish that the wife did not understand either the nature of the MOA or its consequences.

[30] Indeed, to the contrary, the evidence supported a finding that the wife, who was represented by experienced family law counsel, fully understood both the nature and the consequences of the MOA. As I will discuss, this finding was supported by the parties' conduct at the time of the MOA.

(iii) Section 56(4)(a): Non-disclosure

[31] Section 56(4)(a) allows a court to set aside a domestic contract, or a provision in a domestic contract, for significant non-disclosure. In this case, while the trial judge did not find significant non-disclosure in those words, he concluded that the agreement was invalid in part because more "information" was required.

[32] The trial judge made a finding that the husband was "repeatedly" asked for his financial statement. As I mentioned earlier, neither party filed a financial statement, nor was one required under the terms of the process to which they agreed. While this did not diminish the obligation to disclose, in this case, the parties relied on the collaborative law process and other avenues of disclosure, including net family property statements and information from Mr. Wetstein. The wife never pursued the one request she made of the husband for a sworn [page409] financial statement. In these circumstances, the trial judge's finding of a "repeated" failure to provide a financial statement was not available on the evidence.

[33] Apart from the issue of a formal financial statement, the trial judge also concluded that more "information" was needed. It would have been helpful if the trial judge had expanded on this to describe the information that he found critical to the parties' entry into a binding settlement.

[34] The wife argues that the "information" referred to by the trial judge encompassed disclosure of both the husband's assets and his income. On this issue, the wife's position relates mainly to the husband's Turks and Caicos assets. However, that position was not supported by the evidence. Indeed, the evidence was clear that the wife knew about the existence of the Turks and Caicos assets. At the June 8, 2005 meeting, there was discussion about the husband's property in the Turks and Caicos. The husband held a 50 per cent interest in that property, which was worth about $1 million. They also discussed his investments in the Turks and Caicos. At the July 11 meeting, the husband acknowledged that the Turks and Caicos property and other assets had been sold in mid-June. At both the September meetings, the Turks and Caicos assets were further discussed, including the sale of the property. It was left that the wife's lawyer would "speak directly to Sandy Wetstein" to get the information.

[35] Indeed, the wife and her counsel did so. As a result, during the negotiations, the wife knew that the Turks and Caicos assets had been sold and that the husband held the proceeds in a London bank account. Mr. Wetstein told the wife that the proceeds exceeded $1 million, although, in fact, the eventual net proceeds after tax were approximately $867,000. As well, the wife was clearly aware that, in any event, the Turks and Caicos assets were excluded under the terms of the marriage contract.

[36] The wife's knowledge of the husband's assets was also supported by the unchallenged affidavits of the husband's counsel and Mr. Wetstein. While the husband deflected disclosure to Sandy Wetstein, this method of disclosure was apparently accepted by the parties as reliable. It is evident that even if the disclosure came from Mr. Wetstein, rather than the husband, the necessary information was within the wife's knowledge. Accordingly, a conclusion that the husband failed to disclose or misrepresented the Turks and Caicos assets during the negotiations was not available on the evidence.

[37] The trial judge also raised an issue about information provided by the husband concerning his 2005 income. During the negotiations, the parties knew the husband's income for each [page410] of the years from 2000 to 2004 inclusive. The husband's 2002 taxable income was $450,000, which included a $120,000 capital gain and $340,000 of income from his practice. In 2003, his income, which was primarily from practice, fell to $316,000. It fell further in 2004, the year before the parties' separation, to $273,858. This was the figure that the parties rounded down to use in their negotiations from May to November of 2005. During the initial months of the negotiations, it was clear the husband could not predict his income for that calendar year.

[38] His tax return for 2005, which was prepared in April 2006, apparently showed significantly increased income in the amount of $469,968. However, that figure included income from the Turks and Caicos assets, and capital gains on their sale, in addition to practice income. While the trial judge made a factual finding that the husband would have known about the increase in his 2005 income at the time of the MOA, on her own evidence, the wife, who did bookkeeping work in the practice, conceded that this would not have been the case. It was for this reason, in addition to the fact that their negotiations began in May 2005, that the parties based their negotiations on the 2004 year-end practice financial statement. Finally, it would have been evident to the wife and her counsel that the husband's income fluctuated from year to year, sometimes significantly.

[39] The parties' awareness of the potential fluctuation in the husband's income is apparent from the child support provisions of the MOA. The MOA specifically provided that "Sandy [Wetstein] to verify [the husband's] income" and that child support would be premised on that income in accordance with the Child Support Guidelines, commencing in December 2005.

[40] Child support would have been subject to variation on the basis of the husband's 2005 increased income in any event. Similarly, the MOA's provision for a 75 per cent/25 per cent sharing of s. 7 expenses, which included significant costs for private school and summer camp for both children, would be subject to variation based on material changes in the parties' relative incomes.

[41] As far as spousal support was concerned, the minutes of their meetings demonstrate that the parties had consulted the Spousal Support Advisory Guidelines (Ottawa: Department of Justice Canada, 2008) during their negotiations. From that, they determined the applicable range of spousal support based on their 2004 incomes. However, the MOA provisions for spousal support ultimately were not premised solely on the parties' respective incomes, but also, significantly, on the issues surrounding equalization. [page411]

[42] During the parties' negotiations, the wife proposed that she obtain ownership of the matrimonial home. Assuming the validity of the marriage contract, this would have required her to make equalization payments to the husband of approximately $200,000. At the time, the proposal was that the wife would fund such a payment by way of deductions from her monthly spousal support. The parties came to realize this was an unrealistic proposition.

[43] The husband made a counter-offer. He would take title to both the matrimonial home and the cottage, and provide the wife with $250,000, which she could use to buy her own home. The husband made this offer even though the net family property calculations showed that, accepting the husband took the matrimonial home and cottage, the wife would have been entitled to an equalization payment of approximately $14,000.

[44] Further offers were exchanged that resulted in the terms contained in the MOA, including the offer of $3,000 monthly spousal support. It is evident that this amount of spousal support bore no relationship to the Spousal Support Advisory Guidelines discussed during negotiations. Rather, it was intertwined with settlement of the equalization issue. This is why the parties did not frame spousal support as a minimum amount to be adjusted on the basis of the husband's 2005 income, even though they had made that stipulation with respect to child support. In any event, the spousal support of $3,000 monthly, which I observe was for an indefinite duration, would also be subject to variation in the event of materially changed circumstances, such as the husband's increased 2005 income.

[45] Finally, the trial judge was troubled by Mr. Wetstein's role in the negotiation of the MOA. Mr. Wetstein's position, acting as a friend/go-between/accountant between the parties, may have been inadvisable, particularly with the benefit of hindsight. However, it was not established on the whole of the evidence to have had an adverse impact on the parties' knowledge of each other's financial positions and the validity of the MOA.

[46] Accordingly, in my view, the evidence did not support the trial judge's conclusion that more "information" was needed to render the MOA binding.

(iv) The marriage contract

[47] In addition to concerns about more information, the trial judge observed that the "marriage contract is also being attacked because of the pressure to sign just before the marriage" and concluded, apparently, that further information was also needed in that regard. [page412]

[48] However, even though the husband had initially sought a declaration of the marriage contract's validity, that issue was specifically omitted from the order setting out the issues for trial. As well, while the wife's appellate counsel stated in argument that the marriage contract was "in play" before the trial judge, she did not pursue the issue in her oral argument or in her factum.

[49] The decision not to pursue this issue is understandable since the evidence of "pressure" arising from the parties' wedding date did not rise to the level necessary to set aside the marriage contract. Indeed, the evidence disclosed that the parties' lawyers, who were experienced family law counsel, negotiated changes to the husband's proposed marriage contract.

[50] Moreover, the wife did not challenge the validity of the marriage contract when negotiating the terms of the MOA. While her counsel expressed concern about the likely "grossly exaggerated" value ascribed to the medical practice (which the parties backed out of the equation), he also observed that the marriage contract "appears to be valid".

(2) The proper test

[51] The husband argued that the trial judge incorrectly applied the test for summary judgment and did not appreciate that he was hearing a trial of the issue. The husband is correct that, in error, the trial judge described the proceedings before him as a summary judgment motion at points in his reasons. This error likely arose because the trial of the issue followed from the order made on a motion for summary judgment. Despite that error of nomenclature, the trial judge knew and stated that the matter was the "trial of an issue". A fair reading of his reasons as a whole leaves no doubt that the trial judge appreciated that he was reaching a decision after a trial based on the evidence called. I would not give effect to this ground of appeal.

(3) Common law grounds: Was the MOA only an outline?

[52] I turn now to the trial judge's finding that the MOA was "at best an outline" or an "agreement in principle". This finding underpins the trial judge's view that the MOA was not a binding contract, but simply an agreement to agree. Since the trial judge did not give reasons for his determination that the MOA was an outline, beyond commenting on its handwritten nature, it is necessary to examine the evidence to see if it supports his conclusion.

[53] At common law, an agreement is binding if the parties consider that it contains all essential terms, even if the parties also agree that those terms will subsequently be recorded in a [page413] more formal document together with the usual terms ancillary to that type of agreement. However, an agreement is not final or binding if it is merely an agreement to later agree on essential provisions or to defer the binding nature of the agreement until the execution of the proposed subsequent formal contract. The proper approach was discussed in Bogue v. Bogue (1990), 1999 3284 (ON CA), 46 O.R. (3d) 1, [1999] O.J. No. 4310 (C.A.), where, at para. 12, Rosenberg J.A. cites Robins J.A. in Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 2734 (ON CA), [1991] O.J. No. 495, 79 D.L.R. (4th) 97 (C.A.), at pp. 103-104 D.L.R., as explaining the "true legal position":

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.

However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the "contract to make a contract" is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself. (Emphasis added; citations omitted)

[54] As well, to be binding, it is not necessary that the original contract include all the ancillary terms that are already implicit in its content. As Rosenberg J.A. observed in Bogue, at para. 13:

While there was no express discussion about a release, the settlement of the action implied an obligation to furnish releases: Fieguth v. Acklands Ltd. (1989), 1989 2744 (BC CA), 59 D.L.R. (4th) 114 (B.C.C.A.). At the end of those negotiations, the parties had bound themselves to the settlement. It only remained for the lawyers to reduce the terms to a formal document. This was not simply an agreement to agree.

[55] In my view, there are three reasons to conclude that the MOA was binding and the proposed separation agreement that [page414] was to follow was not a condition precedent to its binding nature. First, the plain language of the preamble says so. Second, the parties reached agreement on all essential terms and the subsequent points of contention were merely incidental to or were implicit in the final agreement already reached. Third, the parties' conduct at the time supports the conclusion that the parties had reached a final and binding settlement with the execution of the MOA.

(i) The preamble

[56] If the parties had intended the MOA to be merely an agreement to agree they could easily have said so. The preamble to the MOA could have provided that the settlement was subject to the parties reaching a consensus on the terms of a separation agreement. Instead, it provided that the parties' lawyers would work out satisfactory language for the separation agreement. The parties were not left to negotiate further essential terms. The terms had already been agreed. It was simply left to the lawyers to work out any language necessary to give effect to that agreement. On its plain language, the MOA was a "deal".

(ii) The terms of the MOA

[57] Counsel for the wife takes the position, despite the wording of the preamble, that certain essential terms were missing or, alternatively, even if the parties once had a "deal", they resiled from or repudiated the MOA through the subsequent correspondence between their counsel.

[58] Specifically, in her appeal factum in support of this position, the wife points to ongoing discussions and counsels' correspondence regarding what she characterizes as "essential terms". She says that it was essential that the parties agree to particulars allowing for the future variation of child and spousal support. However, counsel for the parties clearly recognized that support would be subject to variation in the normal course. Indeed, terms providing for present and future income disclosure and support variation were specifically set out in the wife's proposed separation agreement, which was drafted within days of the execution of the MOA. There was no uncertainty about those terms, including the wife's right to apply to vary spousal support in the event of a material change, including a material change in the husband's 2005 income.

[59] The wife also argues that the MOA lacked other essential provisions, particularly a mobility clause, the conditions of the agreed-upon education trust and the precise terms for her [page415] three-week use of the cottage. In my view, none of these were essential terms.

[60] A mobility clause was not included in the MOA, nor referenced in the minutes of the parties' collaborative meetings. It seems the parties had earlier agreed to joint custody with the children maintaining their primary residence with the wife, subject to liberal access to the husband. This apparent agreement was reflected in the wife's draft separation agreement and was not the subject of comment between counsel in their discussions of the proposed separation agreement.

[61] Apart from the usual terms concerning custody and access, the wife's counsel inserted an unusual mobility clause into the draft separation agreement, which purported to prohibit either parent from moving more than 50 kilometres without the consent of the other "while a child remains a minor". This proposed provision, particularly to the extent that it prohibited the husband from moving, could not be an essential term of the parties' agreement in the circumstances of this case, particularly given the children's ages of 14 and 16 years at the time of the agreement.

[62] As far as the education trust, its essential conditions were set out in the MOA, including the provision for a third party trustee. It may be, had matters proceeded in the normal course, that the trustee would have been Sandy Wetstein, as proposed in the wife's draft separation agreement. However, the identity of the third party trustee was merely incidental to the MOA and could (and still can be) readily resolved by the parties or a court.

[63] Finally, the wife describes uncertainty regarding the agreed-upon term in the MOA that she would have use of the cottage for three weeks each year "with specific times to be finalized". However, any problem in reaching an agreement in a year regarding specific times could be resolved through the usual family law processes. The need to particularize timing could not be said to have rendered the MOA uncertain in any essential way. The wife's subsequent proposal, incorporated into her draft separation agreement, that she would notify the husband by May 1 of each year when she would use the cottage and on which days, does not diminish the finality of the term to which the parties had already agreed. [See Note 3 below] Any breach of the provisions of [page416] the agreed-upon term would be the subject of separate negotiations or proceedings.

[64] In this case, the trial judge's conclusion about the MOA was apparently also influenced by another consideration. He found the fact that the MOA was handwritten was worthy of comment in light of the fact that "it was meant to deal with a great deal of money". However, many family law settlements are initially handwritten during a settlement meeting in contemplation of later incorporation into a final separation agreement, together with other usual, agreed-upon, implied or "boilerplate" terms. The fact that the MOA was handwritten in this case does not support the inference that the parties considered it to be merely a starting point for their negotiations, particularly when viewed with the other circumstances, including its preparation by counsel and witnessed execution by the parties.

(iii) The parties' conduct

[65] In determining whether a contract was binding, the court can look to the parties' conduct at the time. The use of conduct evidence for this purpose was discussed in Bawitko, which involved a purported franchise agreement. In that case, at p. 107 D.L.R., this court concluded that the parties' oral contract was not binding, based in part on the fact that their conduct demonstrated that they were "not ad idem on all of the terms".

[66] In Andrews v. Lundrigan, 2009 ONCA 160, [2009] O.J. No. 728, 247 O.A.C. 15 (C.A.), this court upheld the decision of the motion judge and concluded that the parties, not having agreed on the essential terms of a formal document, had not entered into a binding contract. In doing so, this court confirmed the importance of discerning intention, including by looking at the parties' conduct, to determine whether the proposed formal document was merely a solemn record of an agreement already reached or a means by which an agreement was to be reached in the future. The court explained, at para. 8:

As the passage quoted above from Bawitko indicates, the intention of the parties is important in determining whether or not there was a final settlement that was merely to be recorded in a formal document. The term "intention" is not used in a subjective sense but rather to refer to whether "in the eyes of a hypothetical onlooker [the parties] appeared to have reached an agreement": G.H.L. Fridman, The Law of Contract in Canada, 5th ed. (Toronto: Thomson Carswell, 2006), at p. 6. In making this determination, the court will look at the conduct of the parties at the time. As was said in Bawitko at p. 104, if in examining what transpired it is apparent that "execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself", there is no contract, or in this case, no settlement. [page417]

[67] Finally, the motion judge in Bogue, Belch J., granted judgment on the basis of the parties' oral settlement, which was reached with the help of counsel following lengthy discussions. After the oral settlement, the husband's counsel prepared a draft separation agreement that included an unusual form of release. Correspondence between counsel ensued. The husband took the position that the wife's refusal to accept the unusual term was a "deal breaker". The motion judge concluded that the husband's proposed clause did not fit within the category of a standard release clause. His decision was upheld by this court.

[68] In this case, despite the able argument of the wife's counsel to the contrary, the binding nature of the MOA is supported by the parties' conduct at the time. The MOA was executed on November 30, a Wednesday. By the following Wednesday, the wife's then counsel had prepared and forwarded a proposed separation agreement to the husband's then counsel. The husband's counsel responded immediately with suggestions about the wording, saying, "I have the following comments for your consideration". From this, it is apparent that counsel were acting in accordance with the wording of the agreement: they were trying to reach an agreement about the formal document's language. There was no suggestion that the parties were not bound by the MOA.

[69] Most significantly, the husband and wife acted as though they had a binding agreement. The husband delivered his $250,000 cheque to the wife's real estate lawyer on December 7, 2005. The wife accepted those funds and used them to close the purchase of her new home. She expressed no second thoughts or concerns about the terms of the executed MOA. This was not the conduct of parties who thought they had yet to negotiate other terms. Rather, it was the conduct of parties who acted and performed as though they had a deal, knowing as they did that the language of the separation agreement was being worked out by their counsel.

[70] After the husband's counsel sent his comments on December 7, matters were apparently held in abeyance over Christmas while the wife closed her real estate transaction and moved into her new home with the children. At no time did the wife indicate there was not a binding contract or try to return the $250,000. On January 4, 2006, the husband's counsel wrote the wife's counsel seeking his "thoughts" in response to the December 7, 2005 letter. On January 30, 2006, after obtaining his client's request for several changes to the proposed draft agreement, the husband's counsel suggested that the parties [page418] and counsel meet to deal expeditiously with the "issues in dispute". No one suggested those issues were essential.

[71] Apparently, counsel continued to be in contact. On February 13, a further letter followed outlining the husband's "instructions in relation to the draft Separation Agreement". While the letter contained a number of comments about the detail and legal wording of the wife's proposed separation agreement, many of the paragraphs were expressed in terms of the husband's wishes, suggestions, proposals and indications. There was no indication or suggestion that the husband took the position that the parties had not already reached an agreement or that he repudiated the terms of the MOA. The letter concluded, "I look forward to speaking with you once you have had an opportunity of speaking to [the wife] concerning the above."

[72] Again, the wife's counsel did not respond by denying that the MOA was a binding agreement. Indeed, the parties continued to take steps to implement the terms incidental to those set out in the MOA. For example, on February 28, the husband's counsel sent a bank letter confirming that the wife was not responsible on the line of credit.

[73] On March 3, the wife's counsel wrote, "further amendments to the agreement will be predicated on your client bringing support into good standing, if it is not already so, and maintaining his payments on time". This was an affirmation of the parties' earlier agreement. On March 6, counsel confirmed that the husband followed through and had paid child and spousal support. He enquired whether the wife had received the March cheque. This also evidenced the husband's belief in the binding nature of the parties' earlier agreement.

[74] It was not until March 7, more than three months after the MOA and its partial implementation, that the wife's counsel wrote that his client was not content with "the proposed wording changes" and was taking "time to consider her options". Even at this point, the wife did not take the position that there was no contract or that it been repudiated.

[75] On April 26, the husband's counsel wrote, "[p]ursuant to the written agreement reached between the parties" it was necessary to execute property transfers to implement the MOA. The husband's counsel followed up on this with letters dated June 14 and June 29. For the most part, with the exception of the summer use of the cottage, the parties continued to abide by the agreement until the wife's launch of this litigation in April 2007 and her subsequent denial of the MOA.

[76] In short, the parties' conduct at the time of the agreement was in keeping with the conclusion that the MOA was a binding [page419] contract and their conduct thereafter is also consistent with that conclusion. Accordingly, I would not give effect to the wife's grounds of attack on the validity of the MOA.

[77] In that light, it is unnecessary to deal with the husband's appeal of the costs disposition at trial.

VI Result

[78] For these reasons, I would allow the appeal, set aside the order below and declare valid the parties' domestic contract of November 30, 2005. Any issues surrounding the usual ancillary terms to implement the MOA and any issue surrounding its enforcement are matters to be determined by a judge of the Superior Court of Justice.

VII Costs

[79] In light of the disposition of this appeal, the costs order below is also set aside. If the parties are unable to agree regarding trial costs, they may make brief written submissions. The appellant may do so within 30 days from the release of these reasons, through the office of the senior legal officer, John Kromkamp. The respondent may make submissions within 15 days thereafter.

[80] Costs of the appeal are awarded to the successful appellant fixed in the agreed-upon amount of $15,000 (inclusive of disbursements), plus applicable taxes.

Appeal allowed.

Notes

Note 1: In accordance with the collaborative process agreed upon by the parties, the lawyers who represented them during the negotiations leading to the MOA could not represent them in the litigation that ensued, including this appeal. Accordingly, the parties were represented by different counsel at trial and the husband by a third counsel on this appeal.

Note 2: The husband's income for 2005 of $469,968 included income from the Turks and Caicos assets, capital gains from their sale and income from his medical practice. The breakdown of the various sources of income was unclear on appeal since the husband's 2005 income tax return did not form part of the record put before this court.

Note 3: I observe that the wife also proposed that, at her option, she take her three weeks' use of the cottage by taking all 21 days during the summer weekends. Such a proposal would indeed fall outside the norm of a "usual" provision in a separation agreement.