In this ever-digitized world, it is not uncommon to do business via text or email, and the courts have recently been asked to determine when legally binding contracts can be formed utilizing these modes of communication. It has certainly long been established that there does not need to be a formal written set of terms for a valid contract to exist. In fact, a mere oral agreement, as long as it consists of the necessary elements of a contract, can be legally enforceable at law.
It is first important to understand that the courts will take an objective approach when examining whether a contract was formed. This can be traced all the way back to Smith v Hughes (1871) in which The Queen’s Bench stated:
“If whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”
The courts have historically avoided looking into the minds of the parties; it does not matter whether somebody says they were intending to form a contract or not. If a reasonable outside bystander would believe that, through their actions, someone was intending to contract, the contract can be held enforceable at law.
The case of Vancouver Canucks Limited Partnership v Canon Canada Inc (2015) is an interesting case which helps us understand how these tests are applied when the communication between two parties is electronic. The Vancouver Canucks had a longstanding sponsorship agreement with Canon where, in exchange for advertising opportunities, Canon would provide office supplies. The parties exchanged emails about the renewal of a five-year contract in the lead up to the hockey season. The Canucks accepted an offer from Canon via email exchange but there was no physical contract or signature. Canon did not believe this created a binding contract, so they did not honor it. The Canucks argued that, through the email exchange, a binding contract was formed. They sued Canon for breach of contract.
The British Columbia Supreme Court (later affirmed by the British Columbia Court of Appeal), decided in favor of the Canucks and determined that a binding contract was in place. There were three major factors in this judgement: would a reasonable bystander conclude the parties to be bound by the terms of the contract emails, did the emails include all essential terms, and was the agreement conditional on subsequent review and approval. Using the emails as evidence, the court found in favor of the plaintiff on all factors.
The trial judge determined that, through the contract emails, a reasonable bystander would conclude both parties intended to create a binding contract. Next, there arose a question as to what actually classifies as a key term of a contract. It was decided that a subjective, case to case, approach needs to be taken when deciding what are essential or key terms. The key terms of a sponsorship contract between a hockey team and a technology company will be different than a contract for the purchase and sale of a car. In this case, it was determined that all key terms had been negotiated. The final question was whether the contract was still subject to review. Interestingly, during the email exchange, both parties mentioned that they would have the contract reviewed by their legal counsel. It was for the trial judge to decide whether this step was a mere formality, or whether it had to be completed before the contractual relationship was operative. It was concluded that the emails themselves represented a final agreement, and a “long-form” contract to be reviewed by counsel was just a formality. A significant factor in this finding was the fact that the emails never contained a statement making their terms conditional upon formal documentation; the emails just indicated that they would have their counsel look at it. Two other factors of importance were the nature of the longstanding relationship between the parties, which dated back to 1997, and the “genesis and aim of the transaction” which was an extension of their previous agreement, not a new contractual relationship.
The formation of a contract is not black and white. Both oral and electronic communication can be held as valid and enforceable contracts in court, whether you are intending to create a binding contract or not. It is important to be mindful of how extensive your negotiations become, both verbally and electronically. It is also important to involve your lawyer early in the process to ensure the deal you strike, is one you truly want.
Written by Joanne McPhail and Wyatt Shipley