Failing to Commit a Contract of Purchase of Sale for Real Property to Writing: A Potential Incurable Mistake
As was discussed in my previous article, Property, Parties, Price – How Far the Court Will Go to Insert the 3 P’s of Real Estate into a Contract, it is critical that parties to a contract of purchase and sale for real property take the time to properly document the terms of their contract and ensure that they have a clear and enforceable contract. Further, s. 59 of the Law and Equity Act (“s. 59”) further requires a contract of purchase and sale for real property to be in writing except in specific circumstances.
Whether a contract for purchase and sale was formed or if there were circumstances for a non-written contract for the purchase and sale of real property falling under the exceptions in s. 59 were at the heart of the dispute in the recent case 0827857 B.C. LTD v DNR Towing Inc., 2020 BCSC 717 (CanLII).
In the case 0827857 B.C. Ltd. (“0827857”) engaged in discussions with DNR Towing Inc. (“DNR”) to purchase its assets, including a specific piece of property. No written agreement was entered, but 0827857 took the position that negotiations resulted in an enforceable oral contract including for the sale of the property. DNR opposed this position on the basis that it was mutually understood that no legally binding agreement was in place until one was committed to writing.
In the Court’s analysis, it first made clear that parties agreeing to the 3 P’s of a contract (parties, property, price) did not mean that they had entered into a binding agreement; rather, the court was still required to find an intention to contract as would be clear to a reasonable, outside observer. On this reasoning, it rejected evidence from 0827857’s principal on what he understood was agreed to and considered what a reasonable objective observing considering all the circumstances would understand the parties to have agreed to or not.
The Court held that, considering all the circumstances, that the parties did not intend to be legally bound until they entered a written contract. In part, the court relied on the parties retaining counsel to provide substantial legal advice as to the proposed contract being negotiated and to commit agreed terms to writing.
Having rejected that an oral agreement had been reached, the court rejected 0827857’s claim for performance of the alleged agreement. The Court went on to examine the alternative arguments concerning s. 59 which reads in part:
59 (3) A contract respecting land or a disposition of land is not enforceable unless;
(a) there is, in a writing signed by the party to be charged or by that party’s agent, both an indication that it has been made and a reasonable indication of the subject matter,
(b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made, or
(c) the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person’s position that an inequitable result, having regard to both parties’ interests, can be avoided only by enforcing the contract or disposition.
The Court found that with no written contract being created or signed, 0827857 was required to show that DNR did an act or acquiesce to an act done by 0827857 that was consistent with the alleged contract or 0827857 plaintiff changed its position in reliance on the alleged contract.
0827857 relied on some steps to get an environmental audit and to secure financing to establish that it had satisfied the requirements of s. 59, which the Court rejected. Whether on the traditionally more stringent approach or the more flexible approach more recently developing in the common law, the Court was unsatisfied that 0827857’s acts were sufficiently connected with the alleged contract to bring it within the requirements of s. 59.
0827857 B.C. LTD v DNR Towing Inc. again underscores how critical it is for parties to commit any contractual terms to writing. If parties are in the midst of negotiating, they should be clear with each other that no binding agreement has been entered. If dealing with real property, it is especially crucial that any contractual agreement be committed to writing as attempting to prove that such an agreement has been reached by showing that a party did an act or acquiesced to an act done by the other that was consistent with the alleged contract or that a party changed its position in reasonable reliance on an alleged contract would be a time-consuming process that leaves a great deal of discretion to the Court to interpret circumstances.
In short, where parties have the opportunity to remove doubt about the terms of a contract or where they entered one, they should do so and with appropriate legal advice as is prudent or necessary.
For additional information related to parties’ failures to properly negotiate contractual terms and pricing and disputes related to those issues, please consider my previous articles:
- Construction Estimates and Failure to Agree on Contract Pricing;
- What One Has Earned – Courts Impose Compensation Where Parties Fail to Solidify a Contract;
- Construction Disputes: A Contractor’s Right to be Paid vs. Owner’s Claims for Defective Work; and
- Contractual Terms by Convention: When Parties Fail to Explicitly Set Contractual Terms.