February 17, 2026
We have written previously about the importance of “getting it in writing”. Although oral agreements may create enforceable contracts in Ontario, subject to certain exceptions mainly found in the Statute of Frauds, enforcing them depends upon proof of the requirements of a binding contract.
In order for an oral agreement to be enforceable ,“the parties must have agreed upon at least (i) who the parties were, (ii) what was being sold, and (iii) what price was being paid.”
These elements are best proven by documents. By the time a dispute arises, memories will have faded at best. At worst, one side will decide not to tell the truth. In between we see a wide spectrum of differing recollections and ambiguities.
The outcome will almost always turn on the facts of the case. It is a truism among judges as well as lawyers that civil lawsuits are 90 per cent about the facts, and only 10% about the law. As a retired Ontario Court of Appeal judge who is still a leading instructor of judges and lawyers on legal writing puts it, judges will “bend the law” to fit the equities of a case. And equities depend upon facts.
THE ISSUE
Is an oral agreement to defer debts in return for a share in a corporation enforceable?
THE CASE
The Facts
At the time of its incorporation, the Plaintiff, Henry Klassen was a one-third shareholder in the corporation which eventually became 1117726 Ontario Inc., he was the sole director and officer of the corporation. When the corporation encountered financial difficulties, he personally paid debts of the corporation.
He subsequently transferred his shares to his fellow shareholders in return for an agreement that the corporation would pay him back for these debts. The transaction provided (in writing) that the shares would be held in escrow until the debts were repaid to Klassen. The escrow agreement did not provide a mechanism for Klassen to demand return of his shares.
The remaining shareholders soon afterwards sold all the shares in corporation to Robert Beausoleil. Beausoleil assumed responsibility for the escrow agreement. The debts to outside creditors were paid but amounts were still owed to Klassen and hos mother that were part of the escrow agreement.
Klassen alleged in his lawsuit that there was an oral agreement by which he was to receive a 50% stake in the corporation in return for deferring payment of the debts, paying additional funds to the corporation (which at the time was still struggling) and acting as a senior manager advising Beausoleil (by this time, Klassen had a full time “day job”).
Beausoleil denied any such agreement existed.
The corporation continued to struggle. Klasen recruited new investors, for whom he prepared a spreadsheet based on each shareholder, including himself, owning 25%, and the new investors (but not Klassen) making contributions in cash and kind.
This arrangement fell through when the new investors received legal advice that the financial situation regarding debts was “murky” and they should seek more information. Beausoleil denied that there was any finalized deal with the investors and further denied the existence of a 50/50 deal with Klassen.
About seven years later, in 2014, the relationship between Klassen and Beausoleil soured. They exchanged emails about ending the relationship. Beausoleil’s email asked, “What relationship are you referring to?”
Klassen responded that he was referring to their “50/50 ownership”.
Beausoleil replied that Klassen had long since released any ownership interest in return for an agreement to pay him back wages. He pointed out that 17 or18 years had passed with nothing being put in place about ownership, which he considered to be proof that no such agreement had ever existed.
The Judgment
The trial judge found that there was no oral agreement. Key to his reasoning was that:
it makes little sense to me that a bargain as significant as the alleged oral agreement purports to be would not have been reduced to writing immediately after it was said to have been struck on August 20, 1997, or at least at some point much earlier than 2014.
But furthermore…
The judge does not just stop there. Both before and after this finding, the judge goes through a very detailed examination of the evidence.
He did not find Klassen to be credible. The judge felt that the deferral of the payment was done for other practical reasons not sufficient to prove the alleged agreement. He further found that Klassen’s version made “little commercial sense”. Agreeing to wait for payment was not new consideration, one of the essential elements of a contract.
Similarly, the “senor management” services were viewed as merely Klassen trying to help the store succeed so that his debts would be paid, and that he had exaggerated the extent of his services, reducing his credibility.
Beausoleil’s evidence that no agreement had ever been reached with the new investors was supported by those individuals, so there was no proof that Beausoleil ever agreed to Klassen having a 25% interest, let alone 50%.
Klassen admitted that he knew the importance of corporations and businesspeople documenting their dealing in writing. His failure to do so hurt his credibility.
And then there is the limitation issue.
We have posted many articles about the necessity of bringing lawsuits in a timely fashion, so do not propose to repeat much about that important topic here but not mentioning it when this case does might be a missed opportunity to remind readers about limitations.
The 1996 loan was paid off in 2016. The back wages were paid off after the lawsuit was started.
The escrow agreements were not clear as to when Klassen could demand return of the shares.
The judge found that the limitation date for the remaining claims expired June 30, 2009, applying the prior Limitations Act, which continues to apply to claims that arose prior to 2004. By acknowledging the 1996 loan and back wage amounts as owing after 2004, the new time limit applied to those amounts, which is why Beausoleil was wise to pay them rather than leave them to be part of the lawsuit.
Klassen’s claim was dismissed. The shares held in escrow were ordered to be transferred to Beausoleil.
The judgment does not finalize the costs owing by Klassen to Beausoleil, but it is safe to say that they greatly exceed the cost of having a lawyer properly prepare documentation of an oral agreement.
TAKEAWAYS
- As explained in several of our articles, a “cavalier approach” to the administration of your corporation is never a good thing.
- Signed contracts are not always necessary, but
- If you are relying upon other evidence to establish a contract, it must meet the “objective bystander” test.
- Thus, signed contracts are always best.
- In the absence of a signed contract, other document may help, but credibility is always a difficult issue to predict in advance, and because most disputes are resolved on findings of fact more than application of law, the better your document(ideally that signed contract), the better your outcome is likely to be
- If you want it done right, you might need a lawyer to document the deal.
WHAT WEILERS LLP CAN DO TO HELP YOU
Weilers LLP has a corporate team that, in addition to being trusted advisors and deal makers, is equipped to document your corporate activity, including key contracts, at predictable and manageable costs to give you peace of mind. Our “progressive approach” is anything but cavalier when it comes to documenting our clients’ interests properly.
If a dispute arises about your rights, our litigation team has extensive experience in resolving disputes, including taking them to court in a timely and cost-effective fashion, when necessary.
Whether you are already a client or were incorporated elsewhere, feel free to contact us to see if we are the right lawyers for you.