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Doctrine of Part Performance
Published in the October 2009 issue of Litigation Notes - View Article
The Ontario Court of Appeal orders specific performance of a contract for the sale of a property. The Court applies the doctrine of part performance to exclude the requirement in the Statute of Frauds that the agreement must be signed by the vendor.
The Ontario Court of Appeal recently released a decision on the doctrine of part performance. The Plaintiff, Erie Sand and Gravel Limited (“Erie”) operates in Essex County, Ontario and has been owned by the Koop family since 1977. The Koop family and Seres family had been neighbours for over 30 years. Tri-B Acres Inc. (“Tri-B”) is a company involved in agricultural and greenhouse operations. The principal and directing mind of that company is Peter Brunato, also a neighbour of the Seres family.
The Seres farm was on both the north and south sides of County Road 18 and was owned by a family company, Seres Farms Limited (“Seres Farms”). In 1996 Tri-B purchased 50 acres of property from Seres Farms. At the time Seres Farms gave Tri-B a right of first refusal to purchase the property on the south side of the road. That right of first refusal provided that any offer to purchase obtained by Seres Farms would be submitted to Tri-B and that Tri-B would have 5 banking days to purchase the property by delivering “… a signed Offer to Purchase with the same deposit, terms and conditions, which the Vendor shall accept immediately”.
For many years, Erie had been interested in purchasing the rest of the Seres Farms property. In April of 2002 it purchased 25 acres of land on the north side of the road. However it was really interested in the property on the south side of the road because of the aggregate deposit that it contained. Aggregate is scarce in Essex County and Erie’s continued existence depended on having an adequate supply of aggregate. 50% of the remaining aggregate in Essex County was located on the south-side property, representing a 5-10 year supply for Erie.
In December 2002 and January 2003 Erie and Seres Farms had four meetings to discuss the purchase of the south-side property. All negotiations were carried on by Frank Seres who was found by the Court to have both actual and ostensible authority to bind Seres Farms. Erie made it clear that because of Tri-B’s right of first refusal it would not give Seres Farms a written offer until all the terms of the purchase and sale had been agreed to. Once those terms and conditions had been agreed, a written offer would be provided, so that Seres Farms would have something to take to Tri-B.
By the end of the final meeting on January 8, 2003 the parties had agreed on a purchase price of $22,000 per acre and a closing date of April 11, 2003. They agreed that the acreage to be purchased was 54.231 acres, after allowing for the severance of a 180 foot by 200 foot piece of property for the Seres family home. It was further agreed that unless Tri-B matched the offer the south-side property would be sold to Erie. All other conditions to be included in the offer to purchase the south-side property would be the same as in the agreement for the purchase and sale of the property that Erie had purchased on the north side.
On January 9, 2003 Erie delivered the written offer to the lawyer for Seres Farms along with a certified cheque for the entire purchase price of $1,193,082. Frank Seres delivered the offer to Peter Brunato of Tri-B and confirmed to him that the offer was acceptable and had to be matched, or the property would be sold to Erie.
On January 10, 2003 Tri-B delivered an offer to purchase the property which was the same as the Erie offer in all respects except that the deposit was only $25,000 and the closing date was May 1 instead of April 11. The Tri-B offer was later amended to provide for a payment of $75,000 in addition to the $25,000 deposit, with the balance to be secured by a mortgage.
Erie sued for specific performance and Tri-B undertook to defend the action on its own behalf and on behalf of Seres Farms. At trial the judge granted specific performance to Erie and Tri-B appealed to the Ontario Court of Appeal. The Court of Appeal confirmed the trial judge’s finding that the parties had reached an oral agreement for the purchase of the property. Since the parties had agreed on all of the salient terms, the fact that a formal written document was to be prepared subsequently did not alter the binding validity of the contract.
However, the Court of Appeal also had to consider the application of the Statute of Frauds, Section 4 of which provides:
“No action shall be brought… to charge any person upon any contract or sale of lands…unless the agreement upon which the action is brought or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party…”
The trial judge had found and the Court of Appeal agreed that the offer presented by Erie was a “sufficient note or memorandum” within the meaning of section 4 but that it had not been “signed by the party to be charged”, namely Seres Farms.
The Court therefore had to determine whether the operation of Section 4 could be excluded by reason of the doctrine of part performance.
The Statute of Frauds was introduced to prevent fraudulent dealings in land based on perjured evidence. However it was quickly recognized that the statute could be used to perpetrate that which it was designed to prevent. As the House of Lords said in the case of Steadman v. Steadman:
“[This doctrine] was evoked when, almost from the moment of passing of the Statute of Frauds, it was appreciated that it was being used for a variant of unconscionable dealing, which the statute itself was designed to remedy. A party to an oral contract for the disposition of an interest in land could, despite performance of the reciprocal terms by the other party, by virtue of the statute disclaim liability for his own performance on the ground that the contract had not been in writing. Common Law was helpless. But Equity, with its purpose of vindicating good faith and with its remedies of injunction and specific performance, could deal with the situation. … Where, therefore, a party to a contract unenforceable under the Statute of Frauds stood by while the other party acted to his detriment in performance of his own contractual obligations, the first party would be precluded by the Court of Chancery from claiming exoneration, on the ground that the contract was unenforceable, from performance of his reciprocal obligations; and the court would, if required, decree specific performance of the contract. Equity would not, as it was put, allow the Statute of Fraud “to be used as an engine of fraud.” This became known as the doctrine of part performance - the “part” performance being that of the party who had, to the knowledge of the other party, acted to his detriment in carrying out irremediably his own obligations (or some significant part of them) under the otherwise unenforceable contract…”
In this case, the Court of Appeal confirmed the trial judge’s finding that the conduct of the parties constituted part performance sufficient to demonstrate that a valid contract had been concluded, and that Tr-B’s offer was not in conformity with the right of first refusal. The Court went on to consider whether or not it was appropriate to order specific performance in the circumstances of this case. It is well settled that specific performance should only be granted in circumstances where damages would be an inadequate remedy. For this reason specific performance is most frequently awarded in disputes relating to the sale or purchase of land, because each piece of real estate is unique. However, specific performance will not be awarded in all cases, even where real estate is involved. It is necessary to demonstrate that a particular piece of land has a peculiar or special value.
In this case, the importance to Erie of the aggregate to be found on the south-side property made it highly unique and it was therefore appropriate for specific performance to be ordered.
Erie Sand and Gravel Limited v. Tri-B Acres Inc., 2009 ONCA 709 (CanLII)