Two business people agreed to work together on a large government order and to split the profits between them. They did it over text messages and phone calls, across a few days. A written agreement was drafted. It was never signed. When the relationship broke down, the company that walked away argued there had never been a contract at all.
The court disagreed and awarded the other side just over ten million dollars.
If you run a business, that is the sentence worth sitting with. A signature is not what creates a contract. Agreement on the essential terms is.
What Made It Binding
The court looked at what the two of them had actually settled. They would work together to fill the order, and they would divide the profits in an agreed ratio. That was it. Two points.
The company argued that two points could not amount to a contract. Nobody had worked out who was responsible for what. Too much was left open.
The answer was that the terms have to be measured against the circumstances the parties were in. This was an emergency supply deal with a delivery deadline weeks away, in a market neither of them had operated in before. Neither side could have written out a division of tasks, because neither side yet knew what the tasks would be. In that setting, agreeing to work together and share the proceeds covered everything there was to agree. The court enforced it.
The Unsigned Draft Cut The Wrong Way
The company’s strongest argument was the draft agreement sitting in the file with nobody’s signature on it. Surely that showed the parties were still negotiating — an agreement to agree, which the law does not enforce.
The court read the same document the other way. Stripped of the legal boilerplate, the draft contained almost nothing beyond what had already been settled by text. It was not evidence of an open negotiation. It was evidence that the essentials were done and the paperwork was there to record them.
That distinction decides a lot of contract disputes. Sometimes the written document really is essential. Where a relationship is long-term and the detailed terms are what make it work — a multi-year franchise is the standard example — a court will find there was no agreement until those terms were settled. But where the writing is a formality meant to record a bargain already struck, the absence of a signature does not undo the bargain.
One Word, Four And A Half Million Dollars
The last part of the decision is the part most people miss.
The claim was for the agreed percentage of gross profits. That came to roughly $14.9 million. The award was the same percentage of net profits, roughly $10.2 million.
The difference was one word. In the text message where the split was agreed, the word used was net. The word gross appeared later, in the unsigned draft a lawyer had prepared. The court held the parties to the word in the text, because that was the word they had both agreed to. A draft nobody signed could not change a term already settled.
Roughly four and a half million dollars turned on which word got typed into a phone.
What To Take From It
Assume that what you send is the deal. If you are still negotiating, say you are still negotiating. And if a term matters, get it right the first time, because tidying it up in the formal agreement only works if there is still something left to agree.
This article is general information about Ontario civil law procedure and is not legal advice. It does not describe any specific client’s matter. For advice on your own situation, speak with a lawyer or set up a consult with us today.
