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Can Court Rectify Purchase Price Based on the Intention of the Parties?

In a recent Ontario Court of Appeal decision called McLean v. McLean, the issue was whether a court has the power to rectify an agreement if the parties reached consensus on all its details, but merely made an error when reducing them to writing.

In 1989, Helen agreed to sell her farming business and assets to her son Melville and his wife, Maureen.  The memorandum of agreement outlined the terms, including a vendor take-back mortgage on the land-related part of the deal.   Melville and Maureen operated the farm successfully until 2005, when they separated.

At that time, Helen became concerned about her interests.  The vendor take-back mortgage remained unpaid, and she realized that numbers on the farm sale “did not add up” since the recorded purchase price was about $115,000 less than what she thought they had agreed to at the time.

Helen took the matter to court, asking that the memorandum of agreement be formally rectified to add $115,000 to both the purchase price and the related mortgage.  (Her son Melville did not oppose her claim, but his former wife Maureen did).   Helen claimed that all  parties had intended that the farming business would be sold at fair market value, which was appraised at $733,255.

Maureen, in contrast, recalled the total purchase price was to be $625,000.  From a legal standpoint, she said, this meant that the court had no power to intervene by rectifying the agreement, since that remedy was only available if the parties clearly had a “common intention” that had been incorrectly recorded.  Here, given that there had been no consensus on the purchase price, rectification was simply not available.  The trial court agreed, and dismissed Helen’s claim.

The Court of Appeal later reversed that decision.  It confirmed that courts have a general power to rectify an agreement in the right circumstances, to correct a document and bring it in line with the parties’ true agreement. This power is designed to cure situations where one party would otherwise be unjustly enriched at the expense of the other.

For a rectification order, Helen was only required to provide: 1) “convincing proof” of a common intention; 2) proof that it still existed at the time the documents were signed; and 3) evidence that, by mistake, the parties signed a document that did not reflect it.  Further, the assessment was an objective one, to determine whether on the balance of probabilities it could be said that an agreement was in place, but that there was simply an error in recording it.

Here, the trial judge had erred in refusing to rectify the farm sale agreement in Helen’s favour.  Specifically, the judge had not given proper consideration to all the evidence on the agreed purchase price, preferring to accept Maureen’s verbal account instead.  Yet when viewed as a whole, that evidence – consisting of the documentation itself, other related documents pertaining to farm grants and the testimony of witnesses – showed a clear consensus as to the fundamentals of the transaction.

Admittedly, this was not a case where one party knew of the other’s mistake and sought to take advantage of it.  Still, were the trial judge’s decision allowed to stand, Maureen would be unjustly enriched at Helen’s expense, without any legal justification.

On all the evidence, the only reasonable conclusion was that the transaction was mutually intended to be at a fair market value of $733,255.  The Court allowed the appeal, rectified the agreement and ordered that the vendor take-back mortgage be amended correspondingly. See McLean v. McLean, 2013 (ONCA).