NATURE OF THE CONTRACT – Certainty of terms – Intention to create legal obligations
Appeal by Start Up SRL from a finding that a Memorandum of Understanding (MOU) was a binding and enforceable contract for the sale of shares to the appellant by the respondents, Oswald and Mhamunkar. The parties were shareholders of ICTC, a company specializing in the manufacture, distribution and marketing of paint distribution equipment. The appellant was the principal shareholder. An ongoing corporate reorganization of ICTC would eliminate the value of the respondents’ interests. The appellant wanted the respondents to continue participating in the reorganized structure and required their cooperation in the restructuring. The respondents sought to negotiate their involvement with assurances that would mitigate the risks associated with their interests in the event of a reorganization. A memorandum of understanding provided for a guaranteed minimum price of $ 3.1 million for the Respondents ‘shares in the event that negotiations for the Respondents’ continued participation failed and they left the organization. No agreement has been reached. The respondents were looking for a specific return on the sale of their shares under the memorandum of understanding. The appellant argued that the memorandum of understanding was an agreement rather than a binding contract. The judge concluded that the memorandum of understanding constituted a binding contract that the parties objectively sought to facilitate the sale of shares at a minimum price. The judge ordered the specific execution of the sale of shares. Start Up SRL has appealed.
DECISION: Appeal dismissed. The judge applied the correct legal test to determine whether the parties entered into a binding and enforceable contract by examining whether the parties objectively intended to contract on the terms set out in the memorandum of understanding. Next, the judge correctly considered whether the terms of the MOU were sufficiently certain to create a binding contract and made findings of fact supported by the evidence from the express wording of the MOU and the surrounding factual context. No palpable and overriding error was established in concluding that there was sufficient certainty as to the possibility of a failure to reach an agreement for the Respondents’ continued participation triggering the obligation to purchase their shares from a minimum price. These findings were consistent with the business purpose of the MOU. No misinterpretation of the evidence relating to the subsequent conduct of the parties has been established. Nor has it been established that there is any inconsistency in the judge’s findings on the evidence.
Oswald v. Start Up SRL,  BCJ No. 2072, British Columbia Court of Appeal, RJ Bauman CJBC, AW MacKenzie and DC Harris JJ.A., September 28, 2021. Digest No. TLD-October252021002