Is it a Separation Agreement? Or Merely an Outline?

The Ontario Court of Appeal in the case of Ward v. Ward had to evaluate whether a handwritten separation agreement, with the assistance of their respective lawyers, was “at best, an outline” or whether it was a binding contract between them.

The facts of the case were fairly straightforward.  The husband was a doctor and the wife an x-ray technologist.  They were married in 1988 and when they separated in 2005 they executed a memorandum of agreement (the “agreement”), which had been prepared and handwritten by their experienced Family Law lawyer with the assistance of chartered accountants and had been duly witnessed by those lawyers.

However, the preamble of the agreement specified that it was subject to counsel “working out a separation agreement [with] satisfactory language.”  It then provided that the “deal is” and detailed the resolution of nine issues, including setting a specific figure for both the husband’s and wife’s income, the equalization of net family property, designating just over $1 million of the husband’s assets as excluded property, setting a $250,000 payment by the husband to the wife and the transfer of both the matrimonial home and cottage to the husband.

After the agreement was signed, the parties conducted themselves in a manner that suggested that they considered themselves bound by this deal until the wife contested it 2 years after it was signed.  The question for the court was whether there was a valid and enforceable agreement between the parties.

At trial, the court held that there was not. The court found that the handwritten document was merely an “outline,” and the trial judge held that certain additional “information” (including filed financial statements) was needed in order to make the contract binding between the parties.

On subsequent appeal, however, the Court of Appeal reversed the trial judge’s findings, and declared the agreement valid and binding. It reasoned that, at common law, even an informal agreement is binding if it contains all the essential terms that are intended to govern the contractual relationship; even if the parties also agree that those terms will subsequently be recorded in a more formal document.  But it is important to note that this is different from an “agreement to agree” at a later date, which is not binding. In other words, in some situations the execution of a later formal document is simply the “solemn record or memorial of an already completed and binding contract.”

This was one of those situations. The plain language of the agreement’s preamble expressly stated that it was to be binding on spouses; the wording of the rest of the document demonstrated that they had reached consensus on all essential terms between them. Moreover, their conduct afterward involved taking steps that were aimed at implementing it. Although the Court had the power to set aside the agreement if it found that one or both of them had not understood the nature of consequences of it at signing, this was not such a case. The agreement was held to be valid.