Today’s business environment encompasses a large range of participants.  They range from Harvard MBA’s operating multi-national companies to high school students working on “start-ups” in the family garage. There is one common element in this diverse business community, namely, the daily ritual of business people entering into a wide range of agreements both in written and non-written form.

Written business agreements, such as agreements of purchase and sale, supply agreements, employment agreements and the like, are the root of a significant amount of litigation. This is the case notwithstanding that the warring parties may have spent a great deal of time and money to develop the terms of a written agreement that were seemingly clear and concise at the time. For example, in the well-known case involving Rogers Communications Inc. and Aliant Inc. the outcome of a multi-million dollar lawsuit turned on the placement of a comma in the agreement in dispute.  This type of case illustrates that even something as inherently harmless as a punctuation mark can result in expensive and time consuming litigation. If such a dispute can result from a carefully drafted written agreement, you can just imagine the mayhem that can result from an oral agreement.

Oral agreements are entered into all the time.  They can be just as binding as written agreements and they continue to play a major role in the way people conduct business.  There are numerous reasons why people enter into oral agreements. For example, many people have historically done business through word of mouth.  Hence, relationships have been built on trust and have worked for many years.  Accordingly, the parties do not wish to upset their relationship by suggesting that their agreements be reduced to writing.  They also worry that presenting a written agreement to the other party may make them nervous or anxious or even insult them.

Ontario’s Statute of Frauds contains a list of agreements which are required to be in writing. Examples include agreements relating to the sale of real property, and certain leasing, estate and trust agreements. Accordingly, if the subject matter of your agreement falls within the ambit of this statute you should consult your lawyer to ascertain whether your agreement should be in writing to make it valid and enforceable.

For agreements not governed by the Statute of Frauds, Ontario Courts have historically enforced these types of agreements so long as the basic elements of a contract exist such as offer and acceptance, certainty of terms and the exchange of consideration. In this regard one can refer as far back as 1921 where an Ontario court decided in Lindsey v. Heron & Co. that an oral agreement is just as enforceable as a written one so long as the Court is satisfied that the parties were in agreement on the essential terms.  If there is an issue in this regard, the Courts will decide that there is a valid contract if a reasonable person would come to that conclusion based on the conduct of the parties (including their oral statements). Furthermore, the court will often look to the actions of all parties taken before and after the agreement is entered into to determine whether their conduct is consistent with the alleged terms of the agreement.

Despite the fact that many oral agreements are valid and binding, they have the potential to result in disaster. If parties can litigate over detailed written agreements, the potential for litigation with oral agreements is so much greater. As you can imagine, it can be very difficult for a court to determine the agreed upon terms of an agreement based on the actions of the parties that may have occurred many years earlier. Furthermore, in some instances there are major discrepancies as to what really happened between the parties. In the end, the entire litigation may come down to a “he said, she said” conflict and there is the potential for anyone to win or lose.  Of course, the costs of such litigation can be so much greater because of the time required to establish the facts versus more straight-forward contractual interpretation issues.

The point to be made is that although oral agreements are simple and easy, and don’t upset long standing relationships, they can ultimately result in expensive litigation. Inevitably a dispute will arise and it would be best to have in place a written agreement in order to limit potential misunderstandings. Furthermore, by reducing the terms of the contract to writing the parties will be able to identify and address potential issues before they happen, rather than trying to address them in the midst of an emotional dispute.

Jordan Plener is an Associate with the law firm of BrazeauSeller.LLP. He practices in the areas of Corporate & Commercial and Technology Law. Jordan can be reached at 613-237-4000 ext. 240 or at jplener@brazeauseller.com. For more information about Jordan, please visit www.brazeauseller.com.