Equity-sale of property-McLean v. Mclean 2013 ONCA 788

By Weiler, Rouleau and Pepall JJ.A.
Ontario Court of Appeal
Dec 27, 2013

COURT OF APPEAL FOR ONTARIO

Weiler, Rouleau and Pepall JJ.A.

BETWEEN

Helen Gertrude McLean, in her personal capacity and as executrix of the Estate of Wilmur Russell McLean, deceased

Plaintiff (Appellant)

and

Melville Kenneth McLean and Maureen Holly McLean

Defendants (Respondent)

AND BETWEEN

Maureen Holly McLean

Plaintiff by Counterclaim

and

Helen Gertrude McLean, in her personal capacity and as executrix of the Estate of Wilmur Russell McLean, deceased and Trudy McLean

Defendants by Counterclaim

Avril A. Farlam, for the appellant

Stephen F. Ault, for the respondent

Heard: September 12, 2013

On appeal from the judgment of Justice Christopher Bondy of the Superior Court of Justice, dated October 26, 2012, as amended January 24, 2013.

Weiler J.A.:
A. overview

[1] In 1989, Helen and Wilmur McLean sold their farming business as a going concern, including all real and personal property, to their son, Melville McLean, and daughter-in-law, Maureen McLean. Wilmur has since died.

[2] The parties signed a memorandum of agreement outlining the terms of the transfer. It listed the various ways that the purchase price for the real and personal property was to be satisfied, including a vendor take-back mortgage in respect of the real property.

[3] Helen, the appellant, claimed rectification of the memorandum of agreement on the basis that the total purchase price was incorrectly recorded. Specifically, she alleged that the portion of the purchase price related to the real property, which was to be paid by way of the vendor take-back mortgage, was incorrectly recorded in the agreement as $222,444 or $115,000 less than the fair market value of the real property, which was $337,444. Helen testified at trial that the sale of the farming business was intended to be at fair market value, which had been appraised as $733,255.

[4] Maureen, the respondent, submits that Helen has not met the requirements for rectification. She argues that the parties did not have the requisite common intention as to the purchase price of the farm business at the time that the memorandum of agreement was signed. Although she accepted in cross-examination that the consideration for the real property was to be $337,444, she testified that she believed the total purchase price for the farming business, including both the real and personal property, was to be $625,000, not $733,255. She argues that without consensus on this amount, rectification cannot be granted.

[5] In Snell’s Equity, 32nd ed. (London: Sweet & Maxwell, 2010), rectification is defined at para. 16-001:

Where the terms of a written instrument do not accord with the true agreement between the parties, equity has the power to reform, or rectify, that instrument so as to make it accord with the true agreement. What is rectified is not a mistake in the transaction itself, but a mistake in the way in which that transaction has been expressed in writing.

As Laskin J.A. stated in Royal Bank of Canada v. El-Bris Ltd., 2008 ONCA 601, 92 O.R. (3d) 779, at para. 13, “[r]ectification is an equitable remedy designed to ensure that one party is not unjustly enriched at the expense of another.”

[6] If Helen’s claim for rectification of the memorandum of agreement were to succeed, then the necessary implication is that the purchase price of the real property and the principal amount of the vendor take-back mortgage as indicated in the parcel register for the real property in the Land Titles system would also need to be rectified.[1]

[7] Section 160 of the Land Titles Act, R.S.O. 1990, c. L.5 allows for rectification of entries in the Land Titles register. It provides:

160. Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register.

[8] Equity continues to have application to claims governed by the Land Titles Act: see MacIsaac v. Salo, 2013 ONCA 98, 114 O.R. (3d) 226, at para. 39; Durrani v. Augier (2000), 50 O.R. (3d) 353, at para. 52.

[9] The trial judge refused to grant rectification for two reasons. First, he determined that Helen failed to meet the standard of proof for rectification, which he held was “convincing proof”. Second, although the trial judge acknowledged that the documentation in issue was poorly drafted and contained errors, he held that the requirements for granting the remedy of rectification were not met because the parties did not have a common intention as to the amount of consideration for the farm business at the time that they executed the agreement.

[10] I am of the opinion that the trial judge erred in both reasons he gave for refusing rectification. The ordinary civil burden of proof on a balance of probabilities is the standard that now applies to all civil actions, including a claim for rectification. The trial judge also erred in his approach to determining whether, at the time of the sale, a common intention as to the purchase price existed but had been incorrectly expressed in the written agreement. In finding that the parties did not have a common intention, the trial judge relied almost exclusively on Maureen’s testimony that she believed the purchase price to be $625,000. Instead, he should have adopted an objective approach; that is, what a reasonable observer would have believed the parties intended, taking into consideration the evidence of all the parties as well as the surrounding documentary evidence.

[11] Applying the ordinary civil standard of proof, and considering the surrounding documentary and oral evidence as a whole, in my view, the requirements for rectification based on common mistake are met. The parties had a common intention to enter into a transaction for a total selling price at fair market value, the fair market value is clear, and the fair market value was incorrectly expressed in the documentation. Unless rectification is granted, Maureen will be unjustly enriched.
B. FACTS

[12] Helen and Wilmur McLean lived on and operated their dairy farm until they moved into a nearby bungalow in May 1988. The farm house was soon occupied by their son, Melville, and his then-fiancée, Maureen, whom he married soon after. Like Melville, Maureen had grown up on a dairy farm, and the couple intended to make farming their life’s work. They understood that they would be given the opportunity to purchase the farm from Helen and Wilmur at fair market value. That opportunity arose later in 1988.

[13] On January 1, 1989, Melville and Maureen began to operate the farm as if it were their own. They became partners in the farm business and entered into a written partnership agreement between themselves. Maureen began doing the books for the farm, including the farm ledger, with help from Helen. She began doing the accounting on her own in January 1990.

[14] Maureen also worked as a legal secretary for a lawyer named Jennifer Sims in 1989. At this time Maureen had approximately three years of administrative experience: one year working for a financial firm and two years working as a legal secretary.

[15] Ms. Sims acted for both parties respecting the sale and purchase of the farm. The trial judge found that she “took the vast majority of her instruction from her employee and client Maureen” and did not require Helen and Wilmur to obtain independent legal advice.

[16] Ms. Sims dictated to Maureen, while Maureen typed up the documentation relating to the sale. Maureen testified that she simply typed in the figures as instructed by Ms. Sims and did not really understand what she was typing. The trial judge found that Ms. Sims was an inexperienced lawyer who made “countless errors” in drafting the documents, including the memorandum of agreement. Ms. Sims has since lost the file.

[17] The parties signed the memorandum of agreement in May 1989.[2] The transfer and the vendor take-back mortgage were not signed until October 1989. The consideration recorded on the transfer and the principal amount recorded on the mortgage is $222,444 on both instruments.

[18] Melville and Maureen ran a successful farming operation together, but they separated in 2005. In 2008, Helen became concerned about her interests. The vendor take-back mortgage remained largely unpaid. Helen read the closing documents for the sale transaction for the first time and became concerned that “the figures did not add up.” Specifically, the purchase price for the farm was $115,000 less than the total of the fair market value of all the assets. The figure listed for the principal amount of the mortgage was also missing $115,000. Notably, $115,000 was the fair market value of the stone farm house on the property.

[19] Helen brought a claim for rectification against both Melville and Maureen. She sought to add $115,000 to the principal amount of the mortgage, and consequently to the total purchase price of the property.

[20] Melville did not oppose Helen’s claim and summary judgment issued against him. Maureen did oppose the claim for rectification and was successful at trial.
C. THE TRIAL JUDGE’S DECISION

[21] In considering whether Helen’s claim for rectification was made out, the trial judge reviewed the documentary evidence and oral testimony of the witnesses to determine the intentions of the parties at the time they signed the memorandum of agreement.
(1) The Memorandum of Agreement, Schedule E, and the Mortgage

[22] The memorandum of agreement provides that the purchase price is to be based on:

values as shown on the statement as prepared by BDO Ward Mallette for the business at the close of business on the 31st day of December 1988 as attached and marked as Schedule “E” hereto.

[23] There was no Schedule E attached to the memorandum of agreement when it was signed. There was no reporting letter from Ms. Sims. The documentation that she sent to Helen and Wilmur following the sale did not include a Schedule E.

[24] A draft Schedule E appears to have been prepared before the memorandum of agreement was signed. Although Maureen typed all of the other documents relating to the sale, she maintained that she did not type Schedule E. However, in cross-examination, she acknowledged that her initials were at the bottom of a letter dated May 3, 1989, enclosing the draft documents sent by Ms. Sims to Helen and Wilmur for their review. Draft Schedule E appears to have been with the attachments sent for their review. For ease of reference, this document is shown below.

[25] The values shown in the draft Schedule E for the land ($100,000), principal residence ($115,000), barn ($110,000), and other buildings ($12,444), total $337,444, which is the amount that Helen contends was the agreed upon purchase price of the real property that should have been included in the memorandum of agreement, the transfer and the mortgage.

[26] It is not clear why Schedule E was not included in the signed copy of the memorandum of agreement. At paras. 59-60 of his reasons, the trial judge discussed the draft Schedule E document:

I make the following further observations regarding the draft Schedule E. That document recognizes that the principal residence was to be included in the purchase price and assigns it a “fair market value” of $115,000, but does not assign it a “transfer value”. No one was able to explain to me why. It follows that if the document is considered in isolation it is as likely as not the lack of a transfer value for the house was deliberate.

Complicating matters further, Maureen testified the document was not likely prepared by her. Ms. Joanne King, who was qualified as an expert in income tax matters, testified that the draft Schedule E was likely prepared for tax purposes. It follows that Schedule E may not have been intended for the purpose to which Ms. Sims put it. As a result I have no way of knowing if the Schedule E in those draft documents was intended to be incorporated in the signing copies, or if a different schedule altogether was intended to be included.

The trial judge found that “[w]ithout Schedule E it is difficult or impossible to ascertain the total purchase price and/or the apportionment of it.”

[27] Paragraph 3 of the memorandum of agreement lists the ways in which the purchase price was to be paid and satisfied. Paragraph 3(iv) states:

as to $337,444.00 by delivery of a registerable Deed for the property described in Schedule “A” attached hereto free and clear of any encumbrances of any nature whatsoever;

[28] The trial judge commented, “Presumably, that is a reference to real estate included in the deed to be delivered by the vendors on closing.”

[29] Helen testified that the entire purchase price of the real property was to be financed by way of a vendor take-back mortgage. The trial judge observed that if the amount in paragraph 3(iv) was correct, it should coincide with the corresponding mortgage amount in paragraph 3(v). Paragraph 3(v) states:

as to $222,444.00 by issuance to the Vendors of a Mortgage on the land as set out in Schedule “A” attached hereto;

[30] The principal amount of the mortgage stated in paragraph 3(v) and on the mortgage itself is $222,444. As such, there is a discrepancy of $115,000 between the amount of the mortgage, $222,444, and the amount indicated in paragraph 3(iv), $337,444.

[31] The trial judge found that the memorandum of agreement was an inaccurately written document and therefore a candidate for rectification, but that it was not possible to ascertain the intentions of the parties from that contract alone.
(2) Other Documentation

[32] Paragraph 2 of the memorandum of agreement references a statement prepared by BDO Ward Mallette for the farm business as at December 31, 1988 as the basis for the amounts listed in Schedule E. Although BDO did not prepare a statement as at December 31, 1988, it did prepare an opening balance sheet for the farm business one day later, January 1, 1989. That balance sheet values the personal property of the business at $396,311. The bill of sale for the personal property shows consideration of $395,811 (the trial judge presumed the $500 difference in the two figures was the amount of $500 shown in the starting bank account). Maureen approved the opening balance sheet on behalf of Melville.

[33] Melville and Maureen each applied to the Ministry of Agriculture for a farm grant. In her application, which she filled out sometime after December 1, 1989, Maureen reported to the Ministry in her own handwriting that the farm real estate was acquired for a total price of $337,444. She wrote that the principal residence was acquired for $115,000.

[34] After reviewing these documents, the trial judge found, at para. 44 of his reasons, that “no assistance can be had from a review of collateral documents”. Accordingly, he based his decision as to the prior intentions of the parties with respect to the purchase price on the testimony of the witnesses.
(3) Testimony of the Witnesses

[35] The trial judge found that there was consensus between the parties as to the fundamentals of the transaction. At para. 61 of his reasons, under the heading “The Facts Agreed To”, the trial judge found that the parties agreed that:

i. Melville and Maureen were buying all of the farm assets and that the farm assets included the stone farmhouse located on the lands.

ii. There were no gifts expressed or intended.

iii. The transaction was to take place at fair market value.

iv. The fair market value of the land and buildings, including the farm house, was $337,444.

v. The fair market value of the personal property was $395,811.

vi. The fair market value of all assets was $733,755.

[36] The trial judge commented, at para. 62 of his reasons, that:

[G]enerally speaking, it would not be necessary for each of them to have completed the necessary arithmetic to conclude the purchase price was $733,755 [sic $733,255] in order to establish a common intention. It follows that had the evidence gone no further, it is possible that rectification may have been an appropriate remedy in the circumstances. However, the evidence did not end there.

[37] Maureen testified that she formed an opinion that the price agreed upon for the sale was $625,000. She could not remember exactly where this number came from, but thought that she had either seen it on a document or that Melville had told her that was the price.

[38] The trial judge held that Maureen’s evidence as to her understanding of the purchase price was consistent and he accepted it. He concluded that if Maureen had been advised that the actual purchase price of the farming business was $733,255 and not $625,000 as she thought, she may not have signed the agreement. As a result, he held that it was not possible to ascertain the intention of the parties from the memorandum of agreement. The onus on Helen to provide “convincing proof” that the parties agreed on the purchase price had not been discharged. He therefore dismissed Helen’s claim.
D. Analysis
(1) Did the trial judge err in requiring Helen to present “convincing proof” as the standard for a claim for rectification?

[39] The trial judge held that Helen was required to provide “convincing proof” of a prior common intention to support her claim for rectification. He relied on the decision in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club, 2002 SCC 19, [2002] 1 S.C.R. 678, at para. 41, in which Binnie J. held that in cases of rectification, “convincing proof”, that is, “proof that may fall well short of the criminal standard, but which goes beyond the sort of proof that only reluctantly and with hesitation scrapes over the low end of the civil ‘more probable than not’ standard”, is required.

[40] Helen submits that the decision in Sylvan Lake has been superseded by the later decision of the Supreme Court of Canada, F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41, which held that the only civil standard of proof in Canadian common law is proof on a balance of probabilities. Writing for a unanimous court, Rothstein J. stated at para. 40, under the heading “The Approach Canadian Courts Should Now Adopt”:

Like the House of Lords, I think it is time to say, once and for all in Canada, that there is only one civil standard of proof at common law and that is proof on a balance of probabilities. Of course, context is all important and a judge should not be unmindful, where appropriate, of inherent probabilities or improbabilities or the seriousness of the allegations or consequences. However, these considerations do not change the standard of proof. I am of the respectful opinion that the alternatives I have listed above [including the requirement that evidence must be clear, convincing and cogent] should be rejected for the reasons that follow.

[41] Maureen submits that if the Supreme Court of Canada had intended to overrule the comments of Binnie J. in Sylvan Lake, it would have expressly said so. She alleges that McDougall is distinguishable as a case where civil damages were claimed for an alleged sexual assault at an Indian residential school many years before.

[42] I cannot accept Maureen’s submission. Rothstein J. specifically states at para. 49 that his conclusion respecting the standard of proof applies to all civil cases:

In the result, I would reaffirm that in civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred. [Emphasis added.]

[43] The trial judge erred in requiring Helen to present a higher standard of proof than the ordinary civil standard. 
(2) Did the trial judge err in finding that the parties had no common intention with respect to the total purchase price for the farm?
(a) Rectification Principles

[44] Rectification is an equitable remedy dependent on the trial judge’s exercise of discretion. Judicial review of the exercise of that discretion is constrained to situations where the trial judge misdirected himself, came to a decision that is so clearly wrong that it amounts to an injustice, or gave no weight, or insufficient weight, to relevant considerations: see Wasauksing First Nation v. Wasausink Lands Inc (2004), 43 B.L.R. (3d) 244, [2004] 2 C.N.L.R. 355 (Ont. C.A.), at para. 82; Penner v. Niagara (Regional Police Services Board), 2013 SCC 19, 356 D.L.R. (4th) 595, at para. 27 (dealing generally with the standard of review of a trial judge’s exercise of discretion). In addition, an appellate court may intervene where the trial judge exercised his or her discretion based on a wrong principle: see Soulos v. Korkontzilas (1995), 25 O.R. (3d) 257 (Ont. C.A.), aff’d [1997] 2 S.C.R. 217, at p. 259. For the reasons that follow, I am of the opinion that the trial judge gave insufficient weight to relevant considerations and also erred in principle.

[45] In this case, rectification is claimed on the basis of common mistake; although the figure for the real property was correctly shown as $337,444 in para 3(iv) of the memorandum of agreement, the amount of the vendor take back mortgage, which was to be for the full amount of the real property, was incorrectly recorded in para. 3(v) as $222,444 as well as in the mortgage. Helen must show: 1) that the parties had a common continuing intention prior to the making of the document alleged to be deficient; 2) that that intention remained unchanged or existed at the time when the document sought to be rectified was signed; and 3) by mistake, the parties signed a document that did not accurately reflect their common intention: see Wasauksing First Nation, at para. 81; Swainland Builders v. Freehold Properties Ltd., [2002] EWCA Civ 560, [2002] 2 E.G.L.R. 71, at para. 33, approved in Chartbrook Ltd. v. Persimmon Homes Ltd. [2009] UKHL 38, [2009] 1 A.C. 1101, at para. 48. The claimant may introduce oral or written evidence that there was a common intention between the parties that is not reflected in the written contract due to error, and the court is to decide whether to rectify the document to give effect to this true agreement.

[46] I would also add the following guidance from Swainland, at para. 34:

While a common intention must be shown, the exact form of words in which the common intention is to be expressed is immaterial if in substance and in detail the common intention can be ascertained. [Citations omitted.]

Furthermore, “[t]he fact that a party intends a particular form of words in the mistaken belief it is achieving his intention does not prevent the court giving effect to the true common intention.”
(b) Discussion

[47] The trial judge found that there was consensus as to the fundamentals of the sale including that it was to take place at fair market value, and that the fair market value of the land and buildings was $337,444, including $115,000 for the farm house. He also found that the parties agreed that the fair market value of the personal property was $395,811. The total of these two figures reflects the purchase price for the farm business of $733,255.

[48] Despite finding there was consensus on these matters, the trial judge held that the parties did not have a common intention as to the total purchase price that was to be paid for the farm business. He based his finding almost exclusively on Maureen’s oral evidence at trial that, at the time she entered into the memorandum of agreement, she had formed the impression that the total purchase price was $625,000. This figure is similar to the purchase price of $618,255 listed at the bottom of the draft Schedule E, which excludes the value of the farm house.

[49] Although Maureen agreed that fair market value for the assets was likely $733,255, she testified that she thought $625,000 was probably the fair market value. The trial judge excused the discrepancy in her evidence as “a lack of understanding on her part as to precisely what the term ‘fair market value’ means”. He found that Maureen “lacked sophistication in business matters notwithstanding her secretarial training.” The trial judge ultimately held that Maureen believed that the purchase price for the farming business was $625,000 and that she intended to close the transaction at that price.

[50] Helen testified that she did not notice the errors in the memorandum of agreement or the mortgage. With a grade eight education, she has the least formal training of any of the parties. As noted earlier, Maureen had three years of secretarial experience, including some real estate and corporate commercial work.

[51] The trial judge found that although Helen intended to sell the farm business for fair market value and Maureen intended to buy the farm business for fair market value, the fact that the parties cannot agree on the 1989 fair market value means they did not have a common intention in relation to the total purchase price of the farming business.

[52] The trial judge’s finding of fact that Maureen intended to buy the farming business for $625,000 raises two sub-issues:

1) how is the common intention of the parties to be established? and

2) was the trial judge’s finding of a lack of common intention reasonable?[3]

(i) How is the common intention of the parties to be established?

[53] The trial judge’s reliance on Maureen’s subjective belief that the purchase price of the farming business was $625,000 raises the question of how the common intention of the parties is to be established. Is the search for common intention based on the subjective understanding of each party, or on what an objective reasonable observer would have understood the parties’ intentions to be up to the time of execution of the contract for which rectification is sought?

[54] When the issue before the court is simply a question of contractual interpretation, and rectification is not involved, the question is what an objective reasonable bystander would think the agreement meant based on the parties’ intentions: see UBS Securities Canada, Inc. v. Sands Brothers Canada, Ltd., 2009 ONCA 328, 95 O.R. (3d) 93, at para. 47; Ron Ghitter Property Consultants Ltd. v. Beaver Lumber Co., 2003 ABCA 221, 330 AR 353, at para. 9; see also S.M. Waddams, The Law of Contracts, 5th ed. (Aurora, Ont: Canada Law Book Inc., 2005), at 105. The court begins with the words of the contract and presumes that the parties intended what is written in the contract. In construing the intention behind a particular provision, the court must consider, among other things, the contract as a whole, the factual matrix underlying it, and the need to avoid commercial absurdity. But the court does not consider the subjective intention of the parties: see Downey v. Ecore International Inc., 2012 ONCA 480, 294 O.A.C. 200, at paras. 37-38; Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16.

[55] Helen submits that the same objective approach applies when determining the common intention of the parties in cases where rectification for common mistake is sought. Neither party presented the court with any authority directly on point and further submissions on the issue were sought.

[56] In his text Misrepresentation, Mistake and Non-Disclosure, 3d ed. (London: Sweet & Maxwell, 2012), Professor John Cartwright observes, at pp. 641-42:

Judges and writers have commonly stated, or have used language which appears to suggest, that the test should be subjective. This has, however, been challenged, and in Chartbrook Ltd. v. Persimmon Homes Ltd., [2009] 1 A.C. 1101, Lord Hoffmann considered that the test was objective.

[57] Lord Hoffmann, at paras. 60-61 of Chartbrook,[4] stated that:

Now that it has been established that rectification is also available when … the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the ‘common continuing intention’ were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be. Perhaps the clearest statement is by Denning L.J. in Frederick E. Rose (London) Ltd. v. William H. Pim Jnr & Co Ltd [1953] 2 QB 450, 461:

Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties - into their intentions - any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice.

Likewise in Etablissements Georges et Paul Levy v. Adderley Navigation Co Panama SA (The Olympic Pride) [1980] 2 Lloyd’s Rep 67, 72, Mustill J. said:

The prior transaction may consist either of a concluded agreement or of a continuing common intention. In the latter event, the intention must have been objectively manifested. It is the words and acts of the parties demonstrating their intention, not the inward thoughts of the parties, which matter.

[58] The comments of Denning L.J. in Frederick E. Rose (London) were also adopted by the Supreme Court of Canada in Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157, at para. 52.

[59] Lord Hoffmann indicated in Chartbrook that the court should consider the relevant documents, the oral evidence of the parties, and the parties’ post-agreement conduct in determining common intention. This is precisely the evidence that this court considered in El-Bris in holding that the trial judge’s decision to grant rectification was reasonable, at para. 20.

[60] In my view, the question that the court must answer is whether the totality of the evidence supports the conclusion on a balance of probabilities that an agreement was in place but that an error was made in recording it. This is an objective inquiry. The totality of the evidence can include the testimony of a party as to what he or she understood the terms to be. The weight of this testimonial evidence will vary depending on the documentary and other evidence available: see Chartbrook, at para. 65; Ron Ghitter, at para. 16.

[61] As I will next discuss, in my view, the trial judge erred in determining that the parties did not have a common intention prior to signing the memorandum of agreement due to Maureen’s subjective belief concerning the total purchase price of the farming business. Instead, he ought to have adopted an objective approach that considered Maureen’s understanding of the total purchase price together with the remainder of her evidence, as well as the documentary evidence and the evidence of the other witnesses.

(ii) Was the trial judge’s finding of a lack of common intention reasonable?

[62] In relying almost exclusively on Maureen’s evidence of her subjective belief regarding the total purchase price of the farming business, the trial judge not only erred in principle, he failed to give sufficient weight to all the documentary evidence and did not consider the evidence as a whole, together with Maureen’s oral testimony and after the fact conduct. Where several documents are executed to effect a commercial transaction, the interpretation of a document in issue is informed by the related documents. Only when the related documents are considered as a whole does the intention of the parties emerge: see Salah, at para. 16; Downey, at para. 63. In this case, the related documents are the transfer and the mortgage. However, because other documentation forms part of the factual matrix respecting the transaction it must also be considered in determining the intent of the parties. That documentation includes the draft Schedule E, the appraisal given by Barry Gordon, and Maureen’s Farm Start application.

[63] When the documentary and oral evidence is considered as a whole, the only reasonable conclusions are that: 1) the parties intended to enter into a transaction at fair market value; 2) the fair market value of the farm business was $733,255; and 3) the transfer value of the real property was correctly stated in para. 3(iv) of the memorandum of agreement as $337,444 but the amount of the vendor take-back mortgage was incorrectly stated in para. 3(v) as $222,444. Draft Schedule E incorrectly stated the transfer value of the real property as did the transfer. These documents therefore do not accurately reflect the intention of the parties.

a) The totality of the evidence

[64] The following aspects of the documentary and oral evidence support Helen’s position that the purchase price agreed to for the real property was $337,444 and so the purchase price for the real property expressed in the transfer and the principal amount expressed in the vendor take-back mortgage should have been $115,000 greater than the amount indicated in these documents.

1) The memorandum of agreement. The memorandum of agreement refers to the inclusion of the farm house in the sale and indicates a total price of $337,444 for the real property:

· Paragraph 1(a) lists the real property assets to be transferred as “land, dwelling and other buildings (Schedule A)”. Schedule A details the metes and bounds description of the property and states, “Including the principal residence, barn and other buildings located thereon.”

· Paragraph 3(iv) indicates that the purchase price is to be paid in part “as to $337,444.00 by delivery of a registerable Deed for the property described in Schedule “A” attached hereto free and clear of any encumbrances of any nature whatsoever”. As noted above, the trial judge presumed this to be a reference to the real property included in the sale.

2) Maureen’s cross-examination on the memorandum of agreement. In cross-examination, the following suggestion was put to Maureen:

Q: [I]t [paragraph 3(iv) of the memorandum of agreement] means that you’re going to get a deed to property for which you will pay $337,444. Can you agree with me on that?

A: Yes.

She agreed that they were purchasing the farm house, the farm acreage, and the barns. She also agreed that the purchase of the real property was to be 100 percent financed by the vendor take-back mortgage. Logically, therefore, the consideration shown on the registered transfer and the principal amount on the vendor take-back mortgage should have been $337,444, not $222,444.

3) The error in the draft Schedule E. The top portion of the draft Schedule E contains three columns: Fair Market Value, “U.C.C.” (Undepreciated Capital Cost), and Transfer Value. In the Fair Market Value column, the farm house is listed for $115,000. There is no amount shown for it in the U.C.C. column or the Transfer Value column. As a result, the total of the Transfer Value column is only $618,255. Joanne King, a chartered accountant with experience preparing financial statements for transfers of family businesses, prepared a report and testified at trial that the document appeared to have been created for tax purposes. She stated that the value of the principal residence, $115,000, was likely left out of the “Transfer Value” column – and therefore the total amount of the transfer value shown at the bottom of the column -- because there is no tax on the sale of a principal residence. This explains why the $115,000 for the farm house was left out of the total amount on the draft Schedule E.

The trial judge found that Schedule E was likely prepared for tax purposes, but that Ms. Sims may have used the document for a purpose for which it was not intended. I agree with this finding. However, the trial judge concluded that he had no way of knowing whether the draft Schedule E was intended to be included with the final signed copy of the agreement, or whether a different schedule altogether was intended to be included. The trial judge’s comment ignores the fact that draft Schedule E was sent by Maureen on behalf of Ms. Sims as an attachment to the May 3, 1989 letter to Helen and Wilmur enclosing documents for their review. Further, if the draft Schedule E was not the document referred to in the memorandum of agreement, there would be no purpose to the consideration calculation below the Transfer Value column using the $618,255 total and showing a demand mortgage in the amount of $222,444, the exact amount of the mortgage in issue. No other version of Schedule E was presented in evidence. The trial judge’s conclusion is not supported by the evidence.

4) No inference can be drawn that the land transfer tax affidavit correctly records the purchase price. The land transfer tax affidavit attached to the transfer, dated May 16, 1989, indicates that total consideration for the transaction was $222,444. Section two of the affidavit states that it must be completed where the value of the consideration for a conveyance exceeds $250,000. Section two of the affidavit was filled out in the transfer, even though the total consideration for the transaction was indicated as less than $250,000.[5]

5) The appraisal by Barry Gordon. Barry Gordon, an appraiser, prepared an appraisal of the lands and buildings on the property on February 10, 1989. He valued the farm house at $115,000, the barn at $110,000, and the acreage at $100,000. He testified that he was asked to give his opinion by Melville because he and his wife were planning to buy the farm from his parents and he wanted to establish the fair market value of the property. Mr. Gordon affirmed his appraisal at trial. In cross-examination, Maureen testified that she knew that Mr. Gordon was supposed to give an appraisal of the farm real estate.

6) Maureen’s Farm Start grant application and her evidence respecting it. After purchasing the farm, Maureen filled out a farm inventory for her application to the Farm Start grant program by hand. On the page titled “Land, Buildings and Quota”, dated January 1, 1989, she identified three parcels of “farmland owned”, including the year acquired and the cost. She wrote: (1) the acreage, acquired 1989 for $100,000; (2) the principal residence, acquired 1989 for $115,000; and (3) the barn and other buildings, acquired in 1989 for $122,444, for a total of $337,444.

The figures she inserted were identical to those of Mr. Gordon for the acreage and the principal residence. The amount for the barn and other buildings shown by Mr. Gordon was $110,000. The amount Maureen wrote on the form was $122,444, a difference of $12,444. She acknowledged that this was the amount in the draft Schedule E under “Other Buildings”. When asked in cross-examination where these values came from, she admitted that they probably came from Mr. Gordon’s appraisal and from the draft Schedule E. Maureen then amended her answer to say that her husband had given her the numbers and that he probably obtained them from Schedule E and the appraisal.

Whether Maureen obtained the figures she used in the farm grant application from Mr. Gordon’s appraisal and the draft Schedule E or whether her husband gave her the figures, this document is an implicit acknowledgment by her that she did not intend to acquire the real property for $222,444 but for $337,444. She did not dispute that she intended to pay $395,811 for the personal property. She even agreed in cross-examination that the amounts that she and Melville had agreed to pay totalled $733,255. Despite this, she testified that she did not intend to pay the mathematical total of these two amounts. Instead, she maintained that she intended to pay $625,000 and that the mortgage figure should stand.

[65] In summary, there is no dispute that the parties intended the purchase of the farm business to be at fair market value. Fair market value at the time of the sale was $733,255 and was comprised of personal property and real property. There is no dispute respecting the amount for personal property. There is no dispute that no gifts were expressed or intended. There is also no dispute that the purchase included the farm house. Maureen does not dispute the figure of $337,444 for real property mentioned in the memorandum of agreement in paragraph 3(iv) or that this amount was being paid in exchange for the deed to the real property. At no point did Maureen testify that the amount of $337,444 in paragraph 3(iv) of the memorandum of agreement for the real property was incorrect or that, at the time, she did not intend to pay this amount, even when the question was specifically put to her. Had the parties intended a lesser figure, there would have been no reason to mention the $337,444 amount. She nonetheless maintains that she intended to pay $625,000 for the farm because she had formed the impression that was what fair market value was, and, consequently, the amount of the mortgage should not be changed.

[66] The evidence I have outlined above indicates that there was an agreement to sell the property for fair market value and that the parties agreed the fair market value of the real property being conveyed was $337,444, including the farm house valued at $115,000. However, through multiple errors in drafting, the fair market value of the farm house was not included in the consideration for the real property and the principal amount of the vendor take-back mortgage was incorrectly expressed as $222,444.

[67] In refusing to order rectification, the trial judge placed too much weight on Maureen’s oral evidence that she intended to pay $625,000 for the farming business and failed to place any weight on her oral evidence agreeing that the purchase price of the real property was $337,444 and her subsequent conduct in filling out the Farm Start application indicating that the cost of acquiring the real property was $337,444.

[68] A reasonable third party bystander would conclude that the amount for the farm house had been mistakenly left out of the documents registered on title. Due to error, the common intention of the parties to purchase the real property for $337,444 was not reflected in either para. 3(v) of the memorandum of agreement, or the transfer, or the mortgage.

b) Other considerations

[69] Maureen submits that this was not a case of common mistake but rather of mutual mistake. In Lee v. 1435375 Ontario Ltd., 2013 ONCA 516, 363 D.L.R. (4th) 222, Strathy J.A. commented on the distinction between common and mutual mistake, at para. 28:

While the Purchaser put his amended claim in both mutual mistake and common mistake, the motion judge held that it was a case of common mistake, rather than mutual mistake. She noted that mutual mistake exists when the “‘parties misunderstand each other and are at cross purposes’ – where both parties are mistaken, but about different things and are therefore not ‘on the same page’”: referring to M.P. Furnston, Cheshire and Fifoot’s Law of Contract, 9th ed. (London: Butterworths, 1976) at pp. 206-20 and Ron Ghitter Property Consultants Inc. v. Beaver Lumber Co. Ltd., 2003 ABCA 221, 330 A.R. 353, at para. 10. Common mistake, she observed, is “one in which both parties make the same mistake. Each party knows what the other party wants, but the parties are ‘mistaken about some underlying and fundamental fact’”: referring to Cheshire and Fifoot’s, at p. 206.

Professor G.H.L. Fridman states in his text The Law of Contract in Canada, 6th ed. (Toronto: Thomson Reuters, 2011) at 252:

Whether the kind of mistake that is involved is described as “mutual” or as “common”, it is suggested that, in the final analysis, the rationale for invalidating the alleged contract at common law is the same: was there any error as to the intention to contract, or, putting this slightly differently, did the contracting party seeking to avoid the contract for mistake obtain the consideration for which he had bargained?

[70] This is not a case of mutual mistake. Rather, the parties agreed to a sale of the farming business at fair market value, and this is not reflected in the documentation. Helen bargained for a purchase price of real property that reflected the property’s fair market value. She did not obtain the consideration for which she had bargained.

[71] Maureen also submits that this was a case of unilateral mistake.[6] For the reasons given above I have implicitly rejected that submission.

[72] With respect to unilateral mistake, the question as set out in Sylvan Lake, at para. 31, is whether one party knew or ought to have known of the other party’s mistake, sought to take advantage of it, and whether permitting that party to take advantage of the mistake would amount to unfair dealing.

[73] This is not a case where one party knew or ought to have known of the other party’s mistake and sought to take advantage of it. It is, however, a case where the effect of the trial judge’s refusal to exercise his discretion to rectify the memorandum of agreement and the mortgage is to allow Maureen to be unjustly enriched at Helen’s expense. There is no juristic reason for this deprivation. This is yet another case where the pitfalls of having the same lawyer act for both parties involved in a real estate transaction are all too apparent. The purpose of rectification, to prevent unjust enrichment, is fulfilled in granting this remedy. 
E. CONCLUSION

[74] The trial judge erred in both reasons he gave for refusing rectification. The ordinary civil burden of proof on a balance of probabilities is the standard that now applies to all civil actions, including rectification.

[75] The trial judge also erred in his approach to rectification. Instead of adopting the objective reasonable bystander approach, he relied almost exclusively on Maureen’s testimony as to her subjective intention that the total purchase price for the farming business was $625,000. Instead of considering the documentary and oral evidence as a whole, he looked at individual aspects of the evidence and did not give sufficient weight to the cumulative effect of the evidence including: Maureen’s acknowledgment that she and her former husband were to pay $337,444 for the real property; the exclusion of the farm house for tax reasons in draft Schedule E leading to the error on that document in calculating the consideration for the property and the amount of the mortgage; and the manner in which Maureen filled out the Farm Start application.

[76] The cumulative effect of the evidence is that the parties had a common intention with respect to the amount of the purchase price for the real property and the amount of the vendor take-back mortgage.

[77] I would accordingly allow the appeal, set aside paragraphs 1, 2(a), and 7(a) of the order of the trial judge, and grant Helen’s claim for rectification of the memorandum of agreement by changing the amount in paragraph 3(v) from $222,444 to $337,444. I would also order that the draft Schedule E be attached to the memorandum of agreement and be amended to show the value of the farm house at $115,000 in the Transfer Value column, with the total as $733,255. I would also set aside paragraph 3 of the trial judge’s order awarding costs to Maureen.

[78] I would further order the Land Registrar for the Office of Land Titles Leeds (No. 28) at Brockville to rectify the Parcel Register for Parcel 44238-0060(LT) by indicating that the amount of the transfer and the charge is $377,444 instead of $222,444.

[79] If necessary to give effect to these reasons, I would order the Land Registrar to permit the registration of a corrected transfer and a corrected mortgage in the amount of $377,444 instead of $222,444, upon payment of any prescribed fee. I note that additional land transfer tax liability may arise with the addition of $115,000 to the consideration paid for the real property.

[80] Having regard to the decision of Blair J.A. in Re Regal Constellation Hotel Ltd. (2004), 71 O.R. (3d) 355 (C.A.), at para. 35-36, this decision is stayed until the time to file a Notice of Appeal has passed or the outcome of any appeal has been determined.

[81] In addition, having regard to the opening words of s. 160 of the Land Titles Act, and the jurisprudence respecting it, this decision is subject to the rights of any third parties for value without notice who may have registered an interest in the property. Thus, any existing charge to a third party for value without notice registered before this judgment would take priority over the $115,000 increase in the mortgage to Helen.
F. COSTS

[82] Helen is entitled to her costs of both the appeal and the trial. The costs at trial were fixed in the amount of $27,343.46 payable by Helen to Maureen. I would set aside that order. In its place, and subject to Helen wishing to have her trial costs assessed in the Superior Court, or other agreement of counsel, I would order that Maureen pay the same amount to Helen. Insofar as the costs of the appeal are concerned, having regard to the costs outlines submitted, I would order costs in the amount of $30,000.00 inclusive of all taxes and disbursements payable by Maureen to Helen.

Released: December 27, 2013

(K.M.W.)

“Karen M. Weiler J.A.”

“I agree Paul Rouleau J.A,”

“I agree S.E. Pepall J.A.”

[1] Presently, the parcel register indicates that the real property was sold by Helen and Wilmur to Maureen and Melville for $222,444, and a vendor-take back mortgage is shown for the same amount. The implication of Helen’s claim is that the consideration for the transfer and the principal amount of the mortgage should be in the amount of $337,444.

[2] It appears that the memorandum of agreement was intended to be effective as of January 1, 1989, though it was not actually signed until May 1989. Although the signed copy of the memorandum of agreement is dated January 1, 1989, Ms. Sims sent a letter to Helen and Wilmur containing the draft sale documents for their review on May 3, 1989. This package included a draft copy of the memorandum of agreement. The remainder of the documents, including a general security agreement and a promissory note, were signed on May 16, 1989. The trial judge found that the memorandum of agreement was also signed in May 1989 and the parties also take this position.

[3] In Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235, at para. 10, a majority of the Supreme Court of Canada held that findings of fact should be reversed where it can be established that the finding is a “palpable and overriding” error. In H.L. v. Canada (A.G.), 2005 SCC 25, [2005] 1 S.C.R. 401, at paras. 55-56, Fish J. clarified that the “palpable and overriding” error test is met if the findings are “clearly wrong” or can “properly be characterized as ‘unreasonable’ and ‘unsupported by the evidence.’” In para. 20 of El-Bris Ltd., a case involving rectification, Laskin J.A. framed the issue before the court as whether the trial judge’s finding of common intention was reasonable.

[4] Although Lord Hoffmann decided the issue in Chartbrook as a matter of construction of the contract in issue, he held that both parties were mistaken in thinking that the written contract reflected their prior consensus and would have otherwise granted rectification. Lord Hope of Craghead did not comment on this aspect of Lord Hoffmann’s decision, but the other Law Lords on the case, Rodger of Earlsferry, Walker of Gestingthorpe, and Baroness Hale of Richmond, associated themselves with his views on rectification. In his text, Professor Cartwright comments at p. 644, “Lord Hoffmann’s approach in Chartbrook has now been followed, although it has not been met with unanimous approval.”

[5] In 1989, land with a value greater than $250,000 that did not contain a single family residence was taxed at a lower rate than land of the same value that did. In 1989, the definition of a single family residence in the Land Transfer Tax Act, R.S.O. 1980, c. 231 as am. by S.O. 1985, c. 21 excluded such residences located on farm land. Filling out section two would therefore have entitled the parties to a lower tax rate.

[6] I note that even when the situation is one of unilateral mistake, the issue of whether a party “ought to have known” of the other’s mistake and is seeking to take advantage of it in circumstances that would amount to unfair dealing or unconscionable conduct, the inquiry is an objective one: see Downtown King West Development v. Massey Ferguson Industries Ltd. (1996), 28 O.R. (3d) 327 (C.A.), at paras. 34-35