May 1, 2025
The Statute of Frauds is intended to prevent frauds, not to allow them. The most well-known provision of the Statute is the requirement that an agreement for the purchase and sale of land must be in writing.
THE ISSUE
Usually, this rule works well to prevent fraudulent claims to land. In order to prevent it being used as a shield for fraud, certain exceptions, not set out in the statute, have been recognized by the courts. These exceptions are examples of equity in action.
THE CASE
The doctrine of part performance is an exception to the rule.
The Ontario Court of Appeal reviews and clarifies the principles surrounding this doctrine in 2730453 Ontario Inc. v. 2380673 Ontario Inc..
The principals of the two corporations had agreed verbally that The defendant would sell a parcel of development land to its neighbour for 4.1 million dollars. They had agreed on a closing date. No formal written agreement was prepared, but both parties engaged lawyers who proceeded to prepare to close the deal.
Part performance has both an evidentiary aspect (proof of the deal) and a detrimental reliance aspect, which takes the place of consideration in making a binding agreement.
In this case, there was plenty of evidence of the deal, mostly in correspondence and draft documents exchanged by the lawyers.
The core issue was whether the purchaser could show detrimental reliance.
The vendor argued that there was no detrimental reliance, because when the deal did not close, the purchaser had its closing funds returned.
Both the trial judge and the Court of Appeal found in favour of the purchaser.
Key points made by the Court of Appeal include that:
- Acts of both parties may be considered in determining part performance.
- A party has detrimentally relied on there being a binding contract when it performs its obligations without an expectation that it would be compensated for them, therefore the entirety of the acts must be considered, not just the tender of payment.
- The courts should take a realistic view of detrimental reliance.
- Non-acceptance of the tendered payment is not conclusive on the topic of detrimental reliance.
- There is no dollar limit or financial threshold that determines when the doctrine of part performance will apply. “Equity cannot be reduced to a precise formula.”
- Not acquiring the property which the purchaser planned to develop was the sort of realistic detriment that counted.
- Part performance is rooted in fairness.
The purchaser was awarded specific performance, ending up with the land as it wanted.
TAKEAWAYS
It is always best to get the deal in writing. But if you do not, all hope is not lost if the doctrine of part performance applies.
WHAT WEILERS LLP CAN DO TO HELP YOU
The real estate section at Weilers LLP carries on our proud tradition of advising clients about the risks and obligations that they are accepting before they sign a contract. It seldom happens that we are retained to close a deal without a formal contract, but if so, we understand equity and part performance.
If difficulties arise, we work with our clients and their other advisors to attempt to resolve the problems.
If the problems cannot be resolved on a friendly basis, then our litigation lawyers may be able to assist with damage control. If there is a question about how to calculate or prove damages, we have the benefit of having Brian Babcock as counsel. Brian has taught the course on Remedies, including specific performance, numerous times at the Bora Laskin School of Law.
We know the law, we know equity, the rules of evidence, the art of advocacy, and how to blend them together to get your best possible results.
Our litigation team works well with outside real estate lawyers who do not do litigation, as well as with our own clients.
If you find yourself needing advice about your risks or obligations under a real estate contract, it is best to seek the advice early. Feel free to give Weilers LLP a call and see if we are the right lawyers for you.