A written contract is not the only way to seal a land deal.
Although Ontario’s Statute of Frauds generally bars the enforcement of an oral agreement for the purchase of land, Canadian law recognizes an exception to the rule: the equitable doctrine of part performance.
You’ll need more than a simple handshake to prove the existence of an oral agreement, but convincing a judge to apply the doctrine of part performance is possible in the right circumstances, as the recent Court of Appeal decision in 2730453 Ontario Inc. v. 2380673 Ontario Inc. demonstrates.
The facts
The roots of the case lie in an alleged September 2019 oral agreement for the $4.1-million sale of a 32-acre parcel of land between the owners of two numbered companies.
According to the Appeal Court ruling, the buyer already owned the neighbouring lot and wanted to combine it with the subject property to create a larger parcel for commercial development.
Although no formal sale agreement was signed, both parties hired lawyers and exchanged draft documents to be executed on closing.
After apparently resolving a disagreement over the removal of an easement on the property, the prospective buyer sent a revised draft of the sale agreement for the vendor to sign ahead of the expected closing the next day.
When the vendor’s lawyer did not respond, the buyer confirmed they were ready to wire the closing funds and even attempted to make full payment by certified cheque, but the vendor finally refused to close.
At trial, a judge found that the parties had entered into a binding oral sale agreement in September 2019.
Referring to the events leading up to the aborted closing — which included the buyer’s efforts to obtain an environmental assessment, survey and title searches for the property, as well as the retention of counsel and attempts to make payment — he also found that the doctrine of part performance applied and ordered specific performance of the oral agreement. In response, the abortive seller appealed the judgment.
The results
On appeal, the vendor focused its arguments on the application of the doctrine of part performance, which requires not only evidence of acts of part performance, but also detrimental reliance on the oral agreement by one of the parties.
Since the vendors never accepted payment, they argued that the buyer had not suffered any detriment as a result of their fruitless attempt to tender the funds, regardless of the other preparatory actions the parties had taken as they worked towards a sale.
However, the unanimous three-judge appeal panel sided with the buyer. It upheld the trial judge’s ruling, concluding that the vendor’s approach would lead to an overly narrow view of the detrimental reliance aspect of part performance.
“For the purpose of determining the extent to which there was part performance and resulting detriment, the court may look at what the party seeking to enforce the agreement did to achieve closing of the agreed-upon transaction, and the extent to which that conduct was acquiesced in or encouraged by the party seeking to avoid enforcement,” the ruling reads.
“The trial judge was not required to focus only on the last step of the closing process — the refused tender of funds. His findings that the respondent’s performance amounted to part performance, that this performance was to its detriment, and that it would be inequitable to permit the appellant to rely on the Statute of Frauds, were legally available on the record. They are entitled to deference,” the judges added.
The lessons
Caselaw on the doctrine of past performance is relatively rare, so any court guidance on the subject is likely to be useful to litigators and their clients. Ultimately, this was a good demonstration of how a property sale can be enforced in the absence of a formal written contract.
Still, buyers should be aware that they could face an uphill battle to prove the essential terms of an oral agreement for a land purchase. In this case, the court could point to numerous “acts of part performance” by the purchaser, and the result may have been different had the buyer simply tendered the funds without any intervening events.
For sellers who may have viewed the Statute of Frauds as a kind of get-out-of-jail-free card for backing out of oral agreements, this case is a cautionary tale. You can’t just sit back and let the deal fall apart on the grounds that there was no written contract, especially if you have been an active participant in moving the transaction toward closing.