Written Agreements for the Sale of Real Estate Not Always Required

While not a recent decision, a Court of Appeal case from a few years ago, called Erie Sand and Gravel Limited v. Tri-B Acres Inc. continues to provide important guidance on the difference between a valid oral agreement and merely an “agreement to agree”.

The facts centered on the intended purchase and sale of 54 acres of farmland. Erie Sand was in the business of mining sand and stone aggregate, and its very existence depended economically on having a reliable source of it, despite a local shortage of supply. Certain farmland owned by the seller, Seres’ Farms, contained about 50 percent of the remaining aggregate in the region, which would satisfy Erie Sand’s needs for up to a decade. Erie Sand had already purchased other aggregate-rich land from Seres’ Farms in the past, and the parties had known each other for more than 30 years.

When Erie Sand offered to buy Seres’ Farms’ land, it knew that the land was already subject to a right of first refusal in favour of Tri-B Acres (“Tri-B”). Still, over the course of four meetings, Erie Sand and Seres’ Farms verbally agreed to all the essential terms of a purchase and sale, including price-per-acre and closing date; the parties shook hands and agreed that they had a deal. Seres’ Farms then asked Erie Sand to give it a written offer reflecting those agreed terms, which would be presented to Tri-B to see whether it was willing to come up with a matching offer in terms of the same deposit, terms and conditions. Seres’ Farms advised Erie Sand that it would get the land unless Tri-B did so.

Erie Sand prepared a written offer as requested, and presented it to Seres’ Farms, which forwarded it on to Tri-B. Tri-B did come up with its own offer, but one that fell short of the one put forward by Erie Sand. Nonetheless, Seres’ Farms decided to accept Tri-B’s less-favourable offer anyway. Erie Sand then immediately sued, claiming that it had a binding agreement to buy Seres’ Farms’ land, and that the court should enforce that deal by granting specific performance.

In order to resolve the dispute, the court first considered whether there had been compliance with the Statute of Frauds, which requires that any contract for the sale of land must be in writing. An exception, however, is if there has been “part performance” of a verbal contract, to the point that the parties’ conduct is “unequivocally referable” to their dealing.

Ultimately, the Court of Appeal confirmed an earlier trial ruling that Erie Sand and Seres’ Farms had a valid deal, and that ownership of the land should be transferred from Tri-B to Erie Sand.

It was found that Erie Sand and Seres’ Farms had indeed reached verbal consensus on all the essential terms, which were intended to be incorporated into a formal written document that could be presented to Tri-B for its consideration. This was not merely an “agreement to agree”. Instead, Erie Sand had made it clear that it would not present a written version until all the terms had concluded verbally, and neither party expected that a written document was necessary. To the contrary, they each felt they had reached a verbal deal. More to the point, by taking Erie Sand’s written version of the offer to Tri-B, Seres’ Farms demonstrated its own acceptance of that offer, whether it was in writing or not. As the Court of Appeal explained:

…where parties have agreed on all the essential provisions to be incorporated into a formal document and they intend the agreement to be binding, a valid and binding agreement exists -- the existence of the agreement does not depend on the formal written document. The fact that a formal written document is to be prepared and signed does not alter the binding validity of the original contract.

Also, Seres’ Farms was now precluded from raising a Statute of Frauds argument. There had been sufficient acts of “part performance” of the verbal agreement by both parties, which lent themselves to no other explanation than that a verbal deal had been struck. This included Erie Sand preparing a written offer, providing a certified cheque as “deposit” for the full $1.2 million purchase price, and delivering these to Seres’ Farms.

Finally, the trial judge had been correct in granting specific performance rather than merely damages: the land was both unique and special to Erie Sand since it contained a significant amount of the remaining aggregate in the region. In short, there was no other land of this type for sale and no readily-available substitute. Damages were therefore an inadequate remedy and the award of specific performance in Erie Sand’s favour was confirmed. See Erie Sand and Gravel Limited v. Tri-B Acres Inc., 2009 (ONCA).