Agreement to agree or binding contract?

Ward v. Ward, 2011 ONCA 178 is an important family law decision upholding a domestic contract. The Court considered various factors and, in dealing with an argument that the contract lacked certainty, wrote:

[53]         At common law, an agreement is binding if the parties consider that it contains all essential terms, even if the parties also agree that those terms will subsequently be recorded in a more formal document together with the usual terms ancillary to that type of agreement. However, an agreement is not final or binding if it is merely an agreement to later agree on essential provisions, or to defer the binding nature of the agreement until the execution of the proposed subsequent formal contract. The proper approach was discussed in Bogue v. Bogue (1990), 46 O.R. (3d) 1 (C.A.) where, at para. 12, Rosenberg J.A. cites Robins J.A. in Bawitko Investments Ltd. v. Kernels Popcorn Ltd.  (1991), 79 D.L.R. (4th) 97 (Ont. C.A.) at pp. 103 - 104 as explaining the "true legal position":

As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement, necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of memorandum, by exchange of correspondence, or other informal writings. The parties may "contract to make a contract", that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.

However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the "contract to make a contract" is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself. [Emphasis added, citations omitted.]

[54]         As well, to be binding, it is not necessary that the original contract include all the ancillary terms that are already implicit in its content. As Rosenberg J.A. observed in Bogue at para. 13:

While there was no express discussion about a release, the settlement of the action implied an obligation to furnish releases: Fieguth v. Acklands Ltd. (1989), 59 D.L.R. (4th) 114 (B.C.C.A.). At the end of those negotiations, the parties had bound themselves to the settlement. It only remained for the lawyers to reduce the terms to a formal document. This was not simply an agreement to agree.