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The Statute of Frauds and Part Performance

December 1, 2021

Ontario

,

Canada

Issue

Is an oral trust in respect of land enforceable?

Conclusion

Pursuant to the Statute of Frauds, neither an agreement to re-convey land nor a trust in respect of land is enforceable unless in writing. (Palkowski v. Ivancic)

Section 4 of the Statute of Frauds is clear: agreements concerning an interest in land must be evidenced by a writing. In addition, section 9 of the Statute of Frauds requires all declarations or creations of trusts in lands to be evidenced by a writing. (Samad v. Samad)

Despite the language of sections 4 and 9, courts have been willing to enforce verbal agreements relating to land if one of the parties attempts to avoid a trust obligation by relying on the Statute of Frauds. The rationale behind this exception is to prevent the statute from being used as an engine of fraud. The leading case on this principle is Rochefoucauld v. Boustead. The Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself. Consequently, notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute, in order to keep the land himself. (Samad v. Samad)

However, in order for the principle in Rochefoucauld v. Boustead to apply it must be established that the transferee knew or had notice at the time of the conveyance that he was to hold for another. (Samad v. Samad)

It has also been determined that the strict applicability of the Statute of Frauds may not be required in instances of part performance. The doctrine of part performance is an extension of the court’s equitable powers and authority. This has emerged to prevent abuse of situations where a party enters into an oral contract with another party, reaps the benefits of the other party’s partial or full performance of the terms of the contract, and then seeks to have the contract declared unenforceable because it is oral. To avoid such unfairness and fraud, such part performance can be taken as evidence of the existence of an enforceable contract, sufficient to avoid the application of s.4 of the Statute of Frauds and to permit an action against a party to the contract. (Arias v. Brennan)

Section 10 of Statute of Frauds creates a further exception to s. 9 and permits the recognition of a trust that arises by implication or construction of law. As such, where a trust is created through the legal doctrines of resulting trust or constructive trust, s. 9 of the Act does not operate so as to bar enforceability in the absence of an agreement in writing (Arias v. Brennan)

Agreements concerning the proceeds of a disposition of an interest in land are not within the Statute of Frauds. (McKenzie v. McKenzie)

Law

Pursuant to s.4 of the Statute of Frauds, RSO 1990, c S.19 ("SOF"), any agreement concerning an interest in land must be in writing:

Writing required for certain contracts

4 No action shall be brought to charge any executor or administrator upon any special promise to answer damages out of the executor’s or administrator’s own estate, or to charge any person upon any special promise to answer for the debt, default or miscarriage of any other person, or to charge any person upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them, unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party. R.S.O. 1990, c. S.19, s. 4; 1994, c. 27, s. 55.

In addition, under s.9 declarations or creations of trusts in any land must be in writing. However, under s.10 trusts that arise by operation of law need not be in writing:

Declarations or creations of trusts of land to be in writing

9 Subject to section 10, all declarations or creations of trusts or confidences of any lands, tenements or hereditaments shall be manifested and proved by a writing signed by the party who is by law enabled to declare such trust, or by his or her last will in writing, or else they are void and of no effect. R.S.O. 1990, c. S.19, s. 9.

Exception of trusts arising, transferred, or extinguished by implication of law

10 Where a conveyance is made of lands or tenements by which a trust or confidence arises or results by implication or construction of law, or is transferred or extinguished by act or operation of law, then and in every such case the trust or confidence is of the like force and effect as it would have been if this Act had not been passed. R.S.O. 1990, c. S.19, s. 10.

In Palkowski v. Ivancic, 2006 CanLII 28103 (ON SC), the plaintiffs claimed that they transferred their home to the defendant, their good friend, to hold in trust for them. The arrangement was based on a verbal trust agreement. The defendant moved to strike their claim. The parties accepted that the SOF meant that a trust in respect of land is not enforceable unless in writing:

[13] The Defendant submits, and counsel for the plaintiffs concedes, that pursuant to the Statute of Frauds, R.S.O. 1990, c.s.19, ss. 1 and 9, neither an agreement to re-convey land nor a trust in respect of land is enforceable unless in writing. Counsel for the plaintiff also concedes that the reference to the “verbal” trust agreement in the statement of claim is a reference to an oral trust agreement.

However, despite the SOF, the Court stated that a party may succeed in equity if she can bring herself within the doctrine of part performance:

[16] The defendant submits, citing The Neighbourhoods of Cornell Inv. v. 1440106 Ontario Inc., [2003] O.J. No. 2919, at para. 69 (Sup. Ct.), Greenspoon v. Tsambalieros, [1998] O.J. No. 2442, at para. 29, (Gen. Div.) and Halko v. Riel, [2004] S.J. No. 189 (Sask. Q. B.), that for the doctrine of part performance to apply, the following requirements must be satisfied:

(i) the performance must be referable to the contract unequivocally;

(ii) the acts of part performance must be those of the parties relying on it;

(iii) the contract in question must be one which, if properly evidenced in writing would be specifically enforceable; and

(iv) there must be clear and proper evidence, oral or written, of the existence of a contract for the doctrine cannot be used to create a contract where none exists.

Counsel for the plaintiffs does not dispute requirements (ii), (iii) and (iv), as stated by the defendant. However, with respect to requirement (i), he submits that the acts of part performance need not be referable to the contract as alleged and to no other title, as the defendant argues is the case. The defendant says that all that is necessary is that the acts be unequivocally referable to a contract with respect to the property at issue.

[17] The defendant further argues that the plaintiff has not pleaded facts that satisfy the requirements of (i) , (iii) or (iv) and refers me to Balanyk v. University of Toronto, 1999 CanLII 14918 (ON SC), [1999] O.J. No. 2162 (Sup.Ct.) at para. 29 for the principle that if any fact material to the establishment of a cause of action is omitted, the statement of claim is bad and the remedy is a motion to strike the pleadings, not a motion for particulars. Counsel for the defendants admits that requirement (ii) is met.

[18] In the case of (i), the defendant submits that the conduct of the plaintiffs referred to in paragraphs 7, 8 and 9 of the statement of claim is not unequivocal: it is as consistent with the lease arrangement with respect to the property that the defendant says subsists as to the agreement to re-convey or trust agreement with respect to the property that the plaintiffs say exist. Moreover, the defendant relies on Hunters Square Developments Inc. v. 351658 Ontario Ltd. (2002), 2002 CanLII 49491 (ON SC), 60 O.R. (3d) 264 (Sup. Ct.) at 276 for the principle that the mere payment of money alone will not qualify as part performance.

[19] As to (iii) and (iv), counsel for the defendant argues that the alleged oral contract would in any event not be enforceable: the plaintiffs did not plead any consideration for the agreement, and did not specify its material terms, notably the price at which the property is to be re-conveyed. For his submission that the failure to specifically plead the consideration for the oral contract is fatal, counsel for the defendant relies on McPherson v. L’Hirondelle, 1927 CanLII 48 (SCC), [1927] S.C.R. 429. For his submission that the plaintiffs must plead the essential terms of the contract, counsel for the plaintiff relies on Hunters Square Developments, supra.

[20] Counsel for the plaintiff concedes that the conduct referred to in paragraphs 7,8 and 9 of the statement of claim does not amount to acts of part performance referable only to the agreement to re-convey or trust agreement alleged. He submits, however, that such acts are as consistent with such an agreement as with the oral lease arrangement that the defendant says exists, and that this suffices.

[21] As to (ii) and (iii), counsel for the plaintiff says that the key terms of the alleged oral agreement are set out in paragraph 4 of the statement of claim.

In this case, the Court concluded that the plaintiffs had not satisfied the elements of part performance and their claim was struck:

[23] Assuming but not determining that the acts relied upon need only be referable to some dealing with the land in issue, it is not “plain and obvious” that paragraphs 7, 8 and 9 of the statement of claim fail to satisfy requirement (i) of the doctrine of part performance, and that the plaintiffs accordingly have no chance of success.

[24] In McPherson v. L’ Hirondelle, supra, the Supreme Court of Canada upheld the finding of the trial judge and the Court of Appeal that there was no consideration for the contract to transfer an interest in land that was alleged. While McPherson v. L’Hirondelle was not a pleadings case, for the contract alleged by the plaintiffs in this case to be enforceable, there must be consideration for the contract. No such consideration is pled.

[25] For this reason alone, it is plain and obvious that the statement of claim does not satisfy the requirements of the doctrine of part performance, and therefore that as pled the plaintiffs’ claim has no chance of success.

[26] The issue then, is whether the plaintiffs’ claim should be struck, with leave to amend their claim to plead what the consideration is for the alleged oral agreement, or struck without leave to amend.

[27] The evidence of the plaintiffs, recounted below, is that there was no consideration for the alleged oral agreement. The plaintiffs are not in a position to cure the deficiencies in the pleading. Accordingly, the plaintiffs’ claim shall be struck without leave to amend.

In Perruzza v. Spatone, 2010 ONSC 841 (CanLII), the Court explained that courts have ensured that the SOF cannot be used as an instrument of fraud to prevent the trustee of an oral trust from avoiding his or her obligations:

[32] In a leading text on trust law, Waters, Gillen, Smith, Waters’ Law of Trusts in Canada, Third Edition (Thomson Carswell: Toronto, 2005), the authors state that courts have ensured that the Statute of Frauds cannot be used as an instrument of fraud to prevent the trustee of an oral trust from avoiding his or her obligations. The authors state (at 255):

In their efforts to prevent the trustee of an oral trust from avoiding his obligations, the courts have applied the concept of fraud. The principle upon which the courts work was set out in the leading case of Rochefoucauld v. Boustead [(1896), [1897] 1 Ch. 196 (Eng. C.A.)]. … Lindley L.J. said:

It is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself. Consequently, notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute in order to keep the land himself.

[33] The above principle is consistent with my earlier decision in Baker cited above that a CPL can be issued based on a claim to a beneficial interest in land from an alleged oral agreement.

In Samad v. Samad, 2008 CanLII 31424 (ON SC), the Court refused to allow parol evidence of a trust agreement for part ownership in land, noting that even if such evidence were admissible, the oral agreement would not be enforceable by virtue of ss.4 and 9 of the SOF:

(III) Statute of Frauds

[23] Even if I were to allow into evidence parol evidence to establish the alleged oral agreement, this agreement would violate the Statute of Frauds. Section 4 of the Statute states the following:

No action shall be brought to charge any executor or administrator upon any special promise to answer damages out of the executor’s or administrator’s own estate, or to charge any person upon any special promise to answer for the debt, default or miscarriage of any other person, or to charge any person upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning `them, unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party.

[24] Section 4 is clear: agreements concerning an interest in land must be evidenced by a writing. There is no written document or note confirming the defendant’s agreement with his brothers that he will continue to have a one-third interest in the home. The oral agreement is in direct conflict with the wording of the transfer.

[25] In addition, section 9 of the Statute of Frauds requires all declarations or creations of trusts in lands to be evidenced by a writing:

Subject to section 10, all declarations or creations of trusts or confidences of any lands, tenements or hereditaments shall be manifested and proved by a writing signed by the party who is by law enabled to declare such trust, or by his or her last will in writing, or else they are void and of no effect.

The defendant countered that courts have been willing to enforce oral trust relating to land if one of the parties attempts to avoid a trust by relying on the SOF. However, the Court explained that in order for this principle to succeed, it must be established that "the transferee knew or had notice at the time of the conveyance that he was to hold for another". The defendant failed to do this. Therefore, the SOF applied and the alleged oral agreement could not be enforced:

[26] The defendant argues that despite the language of sections 4 and 9, courts have been willing to enforce verbal agreements relating to land if one of the parties attempts to avoid a trust obligation by relying on the Statute of Frauds. The rationale behind this exception is to prevent the statute from being used as an engine of fraud. The leading case is Rochefoucauld v. Boustead, [1897] 1 Ch. 196 (C.A.), where Lindley L.J. said at 206:

It is further established by a series of cases, the propriety of which cannot now be questioned, that the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself. Consequently, notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute, in order to keep the land himself.

[27] However, as D.W.M. Waters notes in Law of Trusts in Canada, 3rd Ed. (Toronto: Carswell, 2005) at 256, in order for the principle in Rochefoucauld v. Boustead to apply “it must be established that the transferee knew or had notice at the time of the conveyance that he was to hold for another.” The defendant has not established that the plaintiff knew at the time of the transfer that he was to hold his brother’s interest in trust for him. I will elaborate further on this point.

[28] The defendant acknowledged that he never included the plaintiff in the Nigerian scheme and that the plaintiff did not know anything about this business venture. The defendant also testified that when he discovered that he was defrauded, he was not sure if he had informed the plaintiff of this key fact. It is clear that the brothers did not have an easy relationship. Even before the home was purchased, the defendant testified that he did not trust the plaintiff and was not happy about the decision to include him in the plan to purchase the home. When the plaintiff came on board to purchase the home, the defendant testified that he drew up the partnership agreement in order to avoid the problems that he believed would be created by the plaintiff’s involvement.

[29] The defendant submits that even if the plaintiff was not initially aware of his troubles, the plaintiff attended the family meeting where the decision was made that the defendant would transfer his share in order to avoid investors in the Nigerian scheme. However, the plaintiff denies that he ever attended this meeting. One of the attendees, Aftab Ahmad, who is the uncle of the parties, testified at this trial and confirmed that the plaintiff never attended this meeting. I accept the evidence of the plaintiff and his uncle that the plaintiff did not attend that meeting. Aftab Ahmad has no interest in this litigation. I found him to be objective and impartial. I find that at the time of the transfer, the plaintiff did not know about the defendant’s intention to defraud his creditors. I accept his testimony that he believed that the defendant was selling his share in order to pay his debts.

[30] The defendant’s relationship with the other co-owner in the home, Narool, would also have been strained during this period. The defendant had taken a leadership role in attracting investors to the Nigerian scheme. One of the first people he contacted was his brother Narool who invested and lost a good deal of money in this scheme. On his evidence, he lost roughly $47,000. As a result, the relationship between the defendant and Narool would have been understandably tense, an impression which is supported by Narool’s testimony. Both the plaintiff and Narool are currently estranged from the defendant. It does not seem plausible to me, in light of the difficult relationship between the brothers, that the plaintiff and Narool would have taken out a loan against the house for $60,000 in order to loan that money to the defendant. The plaintiff testified that his brother’s interest was sold to both himself and Narool. I accept his evidence.

[31] The defendant called several members of his family to testify during the trial. Not one of them verified the defendant’s evidence that the plaintiff knew that he was holding an interest in the home in trust for him. Only Narool testified that he thought that the $60,000 was given to the defendant as some kind of loan. His evidence was unclear as to whether the plaintiff was a party to this loan, or if he even knew about it. I will talk more about the reliability of Narool’s evidence later on in this judgment. Suffice it to say that given the defendant’s dislike of the plaintiff and his unwillingness to do business with him, it is my considered view, based on the entirety of the evidence, that the plaintiff was not involved in these discussions about loaning the defendant money or about the defendant’s fraudulent intentions.

[32] The defendant also relies on a letter drafted by his solicitor to the plaintiff’s lawyer, when the plaintiff was buying Narool’s share in the home. On February 16, 2004, the defendant had his solicitor, Mr. Andrew Fortis, draft a direction to the plaintiff’s lawyer, Mr. Abbott. This direction requested that the proceeds of the plaintiff’s unregistered one third interest in the home, which is listed as being worth $14,834, should be forwarded to the plaintiff to be held in trust. This letter, the defendant submits, is evidence of an oral contract that the plaintiff was to hold the defendant’s share in the home in trust for him, after he removed his name from the title.

[33] Mr. Andrew Fortis testified during the trial. Mr. Fortis stated that he was acting under the defendant’s direction when he drafted this direction. He did not have any personal knowledge whether the content of the direction was true or not. Mr. Fortis also admitted that the plaintiff’s solicitor, Mr. Abbott, never responded in writing to his letter. He also testified that he does not know if the defendant’s alleged equity in the home was ever transferred to the plaintiff. This direction is not proof of the plaintiff’s agreement to hold the land in trust for the defendant. It is an entirely self serving document. It does not assist in any way in determining whether the trust existed.

[34] I find that the defendant has not established that the plaintiff knew at the time of the transfer that he was required to hold the defendant’s interest in the land in trust for him. The Statute of Frauds applies and the alleged oral agreement cannot be enforced.

The defendant next relied on the doctrine of part performance to enforce the oral agreement. The defendant pointed to several actions as being examples of part performance:

[35] The defendant also relies on the doctrine of part performance to demonstrate that there is an oral agreement. The doctrine of part performance is an equitable doctrine. It may allow an individual to enforce an oral contract relating to land, if it has been partly performed: Carvery v. Fletcher (1987), 1987 CanLII 5367 (NS SC), 34 D.L.R. (4th) 739 (NSTD) at para. 10. As Victor Di Castri notes in his book The Law of Vendor and Purchaser , looseleaf (Toronto: Carswell, 2007) at 4-14:

The doctrine is an invention of the Court of Chancery to ensure equity being done where the defendant has stood by and allowed the plaintiff, to his detriment, to fulfil his part of the oral contract, and where it would be unconscionable for the defendant to set up the statute by asserting that the contract is unenforceable so that he might retain benefits which have accrued to him from that contract.

[36] In order to attempt to rely on the doctrine of part performance, an individual must have engaged in actions that can only be explained on the basis of the oral contract. Examples of relevant actions include possession of the land in question, improvements to the land, and the payment of mortgage moneys. Actions which the defendant points to as being examples of part performance of the verbal agreement include:

o Alleged mortgage and property tax contributions made by him;

o His payment of the legal fees associated with the transfer of the home to his two brothers;

o Interest payments made by him towards the plaintiff’s and Narool’s line of credit;

o An appraisal of the home, conducted on his behalf, after the transfer of his interest in the home;

His renovation work on his office in 2005;

Various housekeeping tasks done by him around the home; and

o His continued possession of the home.

The Court was not convinced and stated that several of the acts were merely evidence of a landlord-tenant relationship. In addition, the defendant did not have "clean hands":

[48] The defendant also submits that when Narool was negotiating the purchase price for his interest in the home, an appraisal was done on his behalf by his uncle as per the original partnership agreement. The partnership agreement allowed each co-owner to appoint one appraiser to determine the fair market value of the home. The fair market value would be the mathematical average of these three figures. According to the defendant, the fact that three appraisals were done demonstrates that there were three owners and that he continued to have an interest in the home. The evidence indicates that the appraisals were requested by Narool. Furthermore, the testimony of the witnesses who attended the meeting when the three appraisals were discussed stated that the plaintiff and Narool had a disagreement over the appraisals, while the defendant was relatively passive on this issue. I conclude that there is no significance to the evidence of the appraisals.

[49] Furthermore, several of the acts that the defendant points to as evidencing part performance of the oral contract are consistent with a landlord tenant relationship. For example, he claims that he did work around the house including housekeeping and yard work. However, these are common activities that are engaged in by tenants as well as owners. His claim of continued possession of the house is also not strong evidence of the part performance of the contract since he could have stayed on as a lessee.

[50] Finally, his claim that he renovated his office in 2005 does not demonstrate that he has an interest in the home. The defendant acknowledged that his office is his place of business. Therefore, it was presumably not a space shared by the other members of the household. It was designed for his business use only. In addition, this renovation is not inconsistent with a landlord tenant relationship.

[51] Even if the defendant’s actions were evidence of part performance of the alleged oral contract, (which I have concluded that they are not) the doctrine would not apply. The doctrine of part performance is an equitable doctrine. Equity requires clean hands on the part of the defendant.

In McLean v. Morrison, 2015 ONSC 1600 (CanLII), the Court noted the two exceptions to ss.4 and 9 of the SOF. However, neither exception applied in this case since the plaintiff failed to establish that the defendant knew at the time of the transfer that they were to hold the property in trust for him. In addition, the plaintiff's actions did not meet the requirements of part performance:

[18] If Dan is unable to rely on the Trust Agreement, his claim for beneficial ownership runs aground on the basis of ss. 4 and 9 of the Statute of Frauds,[4] which provide in essence that agreements about an interest in land must be in writing.[5] Neither of the two exceptions apply. This is not a case where one party is attempting to avoid a trust obligation by relying on the Statute of Frauds. The plaintiff has not established that the defendants knew at the time of the transfer that they were to hold the Property in trust for him.[6] Nor is this a case where the doctrine of part performance would support an otherwise oral agreement. The plaintiff’s actions (paying, in essence, the purchase price) are equally consistent with the defendants’ allegation that the monies were paid as part of the overall gift.

In Arias v. Brennan, 2020 ONSC 1603 (CanLII), the Court explained that s.10 of the SOF provides for an exception for trusts that arise as a matter of law. Therefore, the SOF does not prevent a party from relying on resulting or constructive trusts:

[64] I turn lastly to addressing an argument relating to the Statute of Frauds. On this issue, the defendant argues that s. 1(1) of the Act requires that the agreement in this case had to be written in order to be enforceable. Further, the defendant notes that s. 4 of the Act prohibits a claim based on certain types of oral agreements. In my view, this is not a case like Abdollahpour v. Banifatemi, 2015 ONCA 834, where the claim was based on a purported oral agreement to relinquish a proprietary gift following a failed marriage. Here the claim is based on the recognition of a resulting or constructive trust. While s. 9 of the Statute of Frauds bars the creation of a trust by way of an oral agreement, s. 10 of Statute of Frauds creates an exception to s. 9 and permits the recognition of a trust that arises by implication or construction of law. As such, where a trust is created through the legal doctrines of resulting trust or constructive trust, s. 9 of the Act does not operate so as to bar enforceability in the absence of an agreement in writing

The Court also summarized the implications of the doctrine of part performance:

[65] In any event, it has also been determined that the strict applicability of the Statute of Frauds may not be required in instances of part performance. As Lederman J. states in Steinberg v. Marlow, 2011 ONSC 3042, at para. 17:

The doctrine of part performance is an extension of the court’s equitable powers and authority. This has emerged to prevent abuse of situations where a party enters into an oral contract with another party, reaps the benefits of the other party’s partial or full performance of the terms of the contract, and then seeks to have the contract declared unenforceable because it is oral. To avoid such unfairness and fraud, such part performance can be taken as evidence of the existence of an enforceable contract, sufficient to avoid the application of section 4 of the Statute of Frauds, and to permit an action against a party to t

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