As Good As Your Word – The binding power of verbal agreements

Commit it to paper. Sign it. Seal it. Shake on it. This sums up the best practice to transact a contract in the legal community. Why? Because, the coveted realm within the four corners of a document is a confirmation binding one to their word.

With the Ontario Divisional Court’s recent decision in Shete, Lada, and Chung v. Bombardier Inc.,[1] however, it is now clear that verbal or unsigned agreements may be enforceable if there was a meeting of minds.

Bombardier terminated three employees, and offered them a termination package, with a Release precluding any future legal actions. The employees stated that they would accept the package if an additional $2,500 was added to each package to cover the cost of legal fees. Bombardier consented and returned the revised offers for the employees to sign. The employees never executed the offers. Two months later, the employees brought an action against Bombardier for wrongful termination.  Bombardier tried to dismiss the case by relying on the Releases.

The motions judge held the Releases were unenforceable because Bombardier’s revised offer constituted a new agreement that the employees had not accepted.

On appeal, the court ruled in favour of Bombardier, resolving that the Releases were enforceable even without the signatures of the employees. The court found that it was clear from the sequence of events that the parties had reached a settlement. The employees represented that they accepted the Releases conditionally, as long as Bombardier paid the additional $2,500 each. Bombardier conceded, and no other terms were added or modified; nor were any such requests made by the employees. Even though the employees may have reconsidered their position, an enforceable contracted existed nonetheless.

This case has opened up inquiries as to what now constitutes a preliminary agreement; at what point a contract is binding without a signature, and finally, what happens when there is a brief meeting of minds, but a party has reconsidered their position, thereafter? Until such questions are clarified, don’t throw caution to the wind: just get the signature.

 

[1] 2019 ONSC 4083