Court of Appeal Demonstrates a Circumstance Where an Verbal Contract can Trump a Will

A recent Ontario Court of Appeal decision is an example of the difficulties of sibling rivalry in estate litigation.

The Mountain case involved a dispute between the son (Gary) and daughter (Louanne) of the late Jack and Helen Mountain.  During his life, Jack and his wife Helen owned and operated a dairy farm that had been in the Mountain family since 1830.  Gary worked full-time on the farm for 24 years.  He was the fifth-generation of Mountains to operate the farm.  Jack died suddenly of cancer in 2001. 

However, even though he mentioned that the farm and most of the farm assets would be transferred to Gary, he did not make specific provisions in his will. Jack and Helen had identical wills: each left all of his/her estate to the other absolutely, and if either spouse died first, the estate would go to Gary and Louanne in equal shares.  Gary and Louanne were also named as co-executors under both wills.

After Jack’s death, in 2004, Gary brought an action for a declaration that he was beneficially entitled to the farm property and farm business, naming Jack’s estate, his mother Helen and his sister Louanne as defendants.  Gary claimed that he had an oral agreement with his parents that if he stayed on the farm and farmed with them, he would receive the farmland and its assets after his parents stopped farming.  Helen was suffering from Alzheimer’s disease at the time. 

Arguably, Helen lacked the capacity to prepare a new will.  The farmland and most of the assets had not been transferred to Gary before Jack’s death. Louanne filed a counterclaim.  TD Canada Trust Company was appointed Estate Trustee during litigation. Helen later died in 2009. 

The trial was heard in 2010.  The trial judge found that Gary had not proven his oral contract with his parents and dismissed his claim.  Further, the trial judge awarded costs to Louanne on a substantial indemnity basis fixed at $275,000 payable by Gary and not by the estate.  This amount did not include the amount of legal fees that Gary had to pay his own lawyer.

The Court of Appeal heard the appeal in 2012.  The Court of Appeal held that the trial judge committed errors of law and made an unreasonable finding of fact that there was no oral agreement because there was no signed document. The Court of Appeal held that the trial judge did not properly analyze or apply the doctrine of part performance to discredit Gary’s claim that there was a legally binding oral agreement between him and his father. 

The Court of Appeal also implied that Gary may use the issue of detrimental reliance as the basis of a remedy in his favour. Essentially, the Court of Appeal held that, in essence, Gary and his father were partners in the farming operation.  The Court of Appeal found that the trial judge had applied the wrong test for part performance and that the Court could rely on acts of part performance by persons other than Gary.  This included evidence that Jack had asked for a lawyer to put the transfer of the farm into effect and signed a document transferring a milk quota to Gary.  This document was also was witnessed by Louanne. The Court of Appeal ordered that a new trial was required. 

Additionally, the Court of Appeal directed that mediation be conducted prior to any new trial.  At this time, it is unknown whether Gary and Louanne have settled their dispute outside of Court.  Nonetheless, this case demonstrates that even in the absence of a formal written agreement, an oral contract concerning land, may be found valid and binding.