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Tuesday, January 28, 2014

Inter-generational farm sale agreement rectified by Court of Appeal

A father and mother sold their farming business as a going-concern, including all real and personal property, to their son and daughter-in-law.  Everyone signed a memorandum of agreement outlining the terms of the transfer.  The memorandum listed various ways in which the purchase price could be satisfied, including a vendor take back mortgage for the real property.

Following the father's death, the mother brought an action for rectification of the memorandum on the basis that the total purchase price was incorrectly recorded; it was stated to be $222,444, which was $115,000 less than the fair market value of $337,444.  The mother testified at trial that the sale of the farming business was intended to be at fair market value.  Of note, the mother's action proceeded only against the daughter-in-law, who had by then separated from the son.  The son did not contest the request for rectification, and summary judgment was obtained against him.

The trial judge refused to grant rectification on two bases: 1) the mother had failed to meet the standard of proof for rectification, which was "convincing proof"; and, 2) 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.

The Court of Appeal disagreed and granted the rectification, concluding: "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, [the daughter-in-law] will be unjustly enriched."

Read the decision at: McLean v. McLean.