Wallace v. Allen et al.

93 O.R. (3d) 723

Court of Appeal for Ontario,

Laskin, R.P. Armstrong and MacFarland JJ.A.
January 16, 2009

Contracts -- Damages -- Measure -- Trial judge erring in

limiting damages for loss of opportunity to acquire business to
three months -- Three months not adequate time to find another
business opportunity and negotiate and close deal -- Reasonable
time being seven months.
Contracts -- Formation -- Offer and acceptance -- Parties
executing letter of intent with respect to purchase of shares
of business -- Purchaser not present on date set for closing as
he had gone to Florida with vendor's knowledge and approval -Vendor refusing to close -- Trial judge erring in dismissing
purchaser's subsequent action on basis that parties did not
intend that there be binding contractual relationship until
final share purchase agreement was signed -- Letter of intent
evidencing intent of parties to be bound.
Contracts -- Specific performance -- Specific performance not
appropriate remedy for loss of opportunity to acquire business
where plaintiff was entrepreneur engaged in acquisition of
businesses.
The defendant was interested in selling his business, and the
plaintiff expressed an interest in acquiring it. The parties
executed a "letter of intent for the share purchase and the
sale" of four companies. Both parties acknowledged that all the

2009 ONCA 36 (CanLII)

[Indexed as: Wallace v. Allen]

Held, the appeal should be allowed.

The trial judge erred in law in determining that the parties
did not intend to be bound by the letter of intent. When read
as a whole, the letter of intent evidenced the intention of the
parties to be bound. Moreover, the conduct of the parties after
signing the letter of intent demonstrated that they considered
themselves legally bound to its terms.
Specific performance was not an appropriate remedy in the
circumstances. While the business in question might be unique
in what it did, the plaintiff was an entrepreneur who engaged
in the acquisition of businesses for a living. An award of
damages was the appropriate remedy.
The trial judge erred in limiting the plaintiff's damages to
his loss of financial benefit for the first three months he
would have operated the business. Three months is not an
adequate time for a businessman to search out and find another
opportunity, negotiate a new agreement of purchase and sale,
and close that transaction. A reasonable time would be seven
months. The damages were increased accordingly. [page724]
APPEAL from the judgment of Eberhard J., (2007), 85 O.R. (3d)
88, [2007] O.J. No. 1074 (S.C.J.) dismissing an action for
specific performance and damages.

2009 ONCA 36 (CanLII)

terms they considered necessary or essential to the transaction

were agreed upon and included in the letter of intent. Shortly
before the date set for closing, the parties and their
solicitors met for the purpose of finalizing the specific terms
of the share purchase agreement. On the closing date, the
plaintiff was not present, as he had gone to Florida with the
defendant's knowledge and approval. The defendant treated the
transaction as at an end and refused to close. The plaintiff
sued. The trial judge dismissed the action on the basis that
the parties did not intend that there be a binding contractual
relationship until the final share purchase agreement was
signed. The plaintiff appealed.

Geoffrey D.E. Adair, Q.C., and T. Agape Lim, for appellant.

J. Daniel Dooley and Tiffany V. Little, for respondents.

[1] MACFARLAND J.A.: -- This is an appeal from the judgment

of Justice M.P. Eberhard dated March 22, 2007 wherein she
dismissed the plaintiff's claim for specific performance and
damages.
Overview
[2] In August 2004, Graham Allen mentioned to his friend and
neighbour, Kim Wallace, that he wanted to sell his business,
Region of Huronia Environmental Services Limited ("Region") and
retire. Wallace expressed an interest in acquiring the
business.
[3] On September 24, 2004, after weeks of negotiation and
discussion, the parties executed a document which they
described as "a letter of intent for the share purchase and the
sale of the following companies". There followed a list of the
four companies of which Graham Allen and his wife Gayle were
the major shareholders. Both parties acknowledged that all of
the terms they considered necessary or essential to the
transaction were agreed upon that day and included in the
agreement.
[4] On September 27 and thereafter, Wallace began to attend
the business premises daily with a view to learning the
business, getting to know the customers and staff, and doing
everything necessary to provide a smooth transition in the
ownership of the business from Allen to Wallace.
[5] On December 6, 2004, Wallace's solicitor, John Nichols,
sent a proposed first draft of a Share Purchase Agreement to
John Cockburn, solicitor for Allen. Mr. Cockburn prepared a
lengthy, detailed memorandum of issues he considered necessary
to address.

2009 ONCA 36 (CanLII)

The judgment of the court was delivered by

[7] While December 29, 2004 was selected as a target date for
closing, as the trial judge found, time was not of the essence.
[page725]
[8] While Allen and his solicitor were in attendance and
prepared to close the transaction on December 29, Wallace did
not attend on that date.
[9] There was evidence that Wallace had gone to Florida to be
with his family and did so with Allen's knowledge, approval
and, indeed, encouragement. When Wallace did not appear on
December 29, Allen treated the transaction as at an end and
refused to close the deal or to propose an alternative date for
closing and making time of the essence in relation to that new
date.
[10] Wallace sued for specific performance and the trial
judge dismissed his action, essentially finding that the
parties did not intend that there be a binding contractual
relationship until the final Share Purchase Agreement was
signed.
[11] For the reasons that follow, I would allow the appeal,
set aside the judgment dismissing the action with costs and in
its place grant judgment in favour of Wallace for damages and
costs.
The Facts
[12] In the weeks after Wallace first told Allen he would be
interested in purchasing Allen's business, the parties worked
hard at negotiating an agreement. During these negotiations,
Wallace presented two draft Letters of Intent to Allen, which
he refused to sign because, as he put it, "there remained too

2009 ONCA 36 (CanLII)

[6] On December 9, 2004, the parties, their solicitors and

Allen's accountant met for the purpose of finalizing the
specific terms of the Share Purchase Agreement. The trial judge
found that all issues raised between the parties that were
intended to form part of the final Share Purchase Agreement
were resolved and agreed to at that meeting, or at the very
latest, within a day or two thereof.

[13] On September 23, 2004, the parties and their accountants

met with a view to finalizing the outstanding issues. The
sticking point at that time was Allen's requirement that
Wallace provide a letter of credit to secure his obligations.
Wallace refused to do so but offered a limited personal
guarantee. The following day after Gayle Allen met with the
Allens' solicitor and taken legal advice on the issue of the
letter of credit as against a personal guarantee, the parties
again met to discuss a further draft Letter of Intent prepared
by Wallace. They also discussed a number of other matters not
addressed in the Letter of Intent, including Graham Allen's
personal tools and pick-up truck, Gayle Allen's Hummer and
Allen's motorhome, all of which were thought to be assets of
the business. Both parties agreed they reached agreement that
day on all matters contained in the Letter of Intent, as well
as on the additional items that were to be turned over to the
Allens on closing "free and clear". That is to say, both
parties acknowledged that all of the terms they considered
necessary or essential to the transaction were agreed upon on
September 24, 2004.
[14] Wallace's evidence was that he told Allen he would not
work in the business without a binding agreement. [page726]
[15] Wallace's intention, shared with Allen, was to bring his
friend Ralph Nelson into the business right away. Nelson at the
time had secure employment elsewhere. For Wallace it was
necessary he and Allen have a firm deal before he could ask
Nelson to leave a secure job and come to work at Region. Nelson
started to work with Region in early October 2004. In November
2004, Wallace bought a home in Orillia for his son David, who
was also going to be involved in the business.
[16] Wallace himself worked at the business daily from
September 27 through December 22, when he left to join his
family in Florida.
[17] Within two weeks of signing the letter of intent, the
Allens held a special employee meeting where he announced his

2009 ONCA 36 (CanLII)

many things up in the air".

[18] At the company Christmas party in late November 2004,

Allen, as he had throughout the fall of 2004, introduced
Wallace to employees, customers and business contacts as the
"new owner" of Region. Thereafter, Wallace spoke to all
those in attendance.
[19] Gayle Allen, in her Christmas card message to family and
friends on December 4, wrote that the Allen family had "sold
our business".
[20] On December 9, 2004, the parties met with their
solicitors and Allen's company accountant, Tom Hards. Everyone
understood the purpose of this meeting was to finalize the
terms of the Share Purchase Agreement.
[21] The parties agreed that all of the issues raised and
discussed at the December 9 meeting were resolved and agreed
upon by December 16. December 29, 2004 was selected as a target
date for closing.
[22] Allen acknowledged that when he entered his solicitor's
office on the morning of December 29, 2004, he considered
himself bound to the transaction and obliged to complete it. He
was there to sign the necessary paperwork and he had arranged
for the two minority shareholders, Laird Hollingshead and
Clarence McGillivary, to be present for signing as well.
[23] When a telephone call to Wallace's solicitor disclosed
that Wallace had not signed the necessary closing documentation
and that there was no money in trust to close the transaction
(which was an error; the money was in fact, in Mr. Nichols
trust account), Allen decided he would not close the
transaction. Despite repeated entreaties by Wallace over the
days following, the Allens refused to complete the transaction.
This action followed. [page727]
[24] The trial judge fixed the plaintiff's damages at

2009 ONCA 36 (CanLII)

retirement and the fact that he had "sold" his company and that
the "deal was solid". Allen then turned the floor over to
Wallace, who spoke to the employees.

[25] The appellant raises five grounds of appeal.

1. Did the learned trial judge err in determining that the
parties did not intend to create legal relations in
entering into the Letter of Intent?
[26] The appellant submits that the trial judge erred in law
in determining that the parties did not intend to be bound by
the Letter of Intent. It is submitted that the trial judge
failed to apply the presumption in law that one who executes a
commercial document intends to be bound thereby, and that her
construction of the Letter of Intent defeated the expectations
of the parties and was contrary to the overwhelming weight of
the evidence.
[27] In my view, the appellant's submissions are sound. When
read as a whole, the document, the Letter of Intent dated
September 24, 2004, evidences the intention of the parties to
be bound. The critical clauses in the Letter of Intent, which
contemplate a further agreement, are clear and unambiguous.
Those clauses read:
IT IS ALSO AGREED BY THE PARTIES THAT THERE WILL BE MUCH
LEGAL WORK TO BE DONE UPON ACCEPTANCE BY BOTH SIDES AND THAT
THE WORDING OF THIS AGREEMENT MAY ALTER SOMEWHAT
and
THIS LETTER OF INTENT MUST BE REDUCED INTO A BINDING
AGREEMENT OF PURCHASE OF SALE BY THE PARTIES WITHIN THE NEXT

2009 ONCA 36 (CanLII)

$240,000, representing the loss of financial benefit to Wallace

for the first three months that he would have operated the
business had the transaction closed in a timely way. The trial
judge found Wallace had mitigated his damages within the threemonth period by using the $300,000 earmarked as the down
payment for the Allen transaction to purchase his partner's
interest in a marina business. Wallace's evidence was that he
had ample resources to fund both deals and would in fact have
done so. His statement of net worth, filed in evidence
(contrary to the trial judge's finding) and unchallenged at
trial, corroborated his ability to do so.
Analysis

[28] Both clauses contemplate that it is the wording of

"this" agreement (not some other agreement) that "may alter
somewhat" and "must be reduced into a binding agreement of
purchase and sale" -- and only the wording, not the substance.
I agree with the appellant that the document plainly expressed
an intention on the part of the parties to be bound by the
terms of the Letter of Intent, which terms were to be
incorporated into a [page728] more formal document. The Letter
of Intent was prepared by Wallace, who had had some prior
experience in share/purchase agreements. Wallace was asked to
comment on the reference to "much legal work to be done" and
the contemplation of a further agreement between the parties.
He explained as follows:
. . . A three or four page agreement in fact needed to become
twenty or fifty pages or whatever. The details of, of this
agreement needed to be spelled out and, you know, Graham and
I knew it was going to become a lengthy process to spell out
the terms of this agreement.
Q. And how did you know that sir?
A. Just through my past experience. I've been through share
purchases and sales before and the paper, the paperwork
is mind-boggling in the end.
Q. What, if anything, did you think the agreement of
purchase and sale would cover that was not in the
letter of intent?
A. Nothing that I can think of off hand.
Q. Now Mr. Wallace, sir, assuming for the moment that both
sides kept to the terms of the letter of intent, what
was your belief and position as to whether or not
either side was free to just ignore it and walk away?
A. No. This letter of intent dated September 24 was binding
to the both of us, we both had an equal amount to lose
or gain.
[29] The parties used the language of contract -- they used
terms such as "it is agreed" and "upon acceptance" and "this
agreement".

2009 ONCA 36 (CanLII)

40 DAYS

[31] In addition to the matters covered in the Letter of

Intent, the parties discussed other issues not specifically
contemplated in the Letter of Intent, including Allen's tools,
vehicles used by the Allens and a motorhome, and agreed on
these matters on September 24. In light of Allen's evidence
that he had refused to sign earlier drafts of the Letter of
Intent because they "left too much up in the air", his
signature on this document evidences an intention to be bound.
2. Did the learned trial judge err in law in determining
that the parties had no intention to create legal
relations until such time as the agreed upon Share
Purchase Agreement was, in fact, executed?
[32] In my view, the conduct of the parties after signing the
Letter of Intent clearly demonstrates that the parties
considered themselves legally bound to its terms. [page729]
[33] Wallace instituted efforts to get his son David and
Nelson into the business. He began immediately to work in the
business every day, on a full-time basis, through to December
22 when he left for Florida. Even the trial judge found that
his efforts in this regard went beyond due diligence.
[34] Allen, for his part, announced his retirement and the
sale of his business on at least two separate occasions, and
introduced Wallace to one and all, as the new owner.
[35] Further, the first draft of the Share Purchase Agreement
was delivered December 6, 2004. On December 9, 2004, the
parties met for the express purpose of addressing any and all
outstanding issues.
[36] From September 24 through to December 29, the parties
conducted themselves as though they had a deal. Wallace put his
solicitor in funds to close. The Allens showed up with the two
minority shareholders for what they thought was the December 29
closing, prepared to sign the Share Purchase Agreement.

2009 ONCA 36 (CanLII)

[30] In my view, contrary to the finding of the trial judge,

the language of the document itself speaks to an intention to
be bound upon the signing of the document.

[38] In view
issues, it is
4. Did the
remedy

of my findings in relation to the first two

unnecessary to deal with this third issue.
learned trial judge err in law in rejecting the
of specific performance?

[39] The appellant submits as a matter of law where the

object of the contract is unique, specific performance is the
appropriate remedy, absent some good reason to the contrary.
[40] The argument can be made that every business is unique.
The appellant is an entrepreneur engaged in the acquisition of
businesses. His own evidence discloses that he has experience
in the sale and purchase of shares of companies. Indeed, soon
after the respondents refused to close the subject transaction,
the appellant bought out a business partner's share in a marina
business. While the company itself may be unique in what it
does, the appellant's acquisition of the business was not
-- the appellant acquires businesses for a living. In my view,
the trial judge did not err in rejecting the remedy of specific
performance. While the court's required supervisory role may
have been a limited one, now some near four years have passed
since this deal was scheduled to close [page730] and over four
years since the deal was negotiated. On all the evidence, an
award of damages is the appropriate remedy.
5. Did the learned trial judge err in limiting the
plaintiff's damages to three months' loss of financial
benefit?
[41] The answer to this question must be yes. I accept the
appellant's submission in para. 62 of his factum:
The sole justification for limiting the plaintiff's damages

2009 ONCA 36 (CanLII)

[37] To suggest that the parties did not consider themselves

bound would be contrary to the evidence.
3. Did the learned trial judge err in law in failing to
regard the parties as being bound to the Letter of
Intent to the extent of at least having agreed to an
obligation to negotiate a Share Purchase Agreement in
good faith?

[42] In my view, three months is simply not adequate time for

a businessman to search out and find another opportunity,
negotiate a new Agreement of Purchase and Sale, and close that
transaction. If one considers that the parties hereto began
negotiations early in August and were able to settle on a
proposed closing date at the end of December -- some five
months later -- in my view, seven months is reasonable. I would
allow an additional two months to search out and locate a new
investment opportunity. Here, the opportunity, or venture, had
already been found and negotiations began in earnest
immediately. There must in addition be some allowance for
locating a suitable business investment and doing preliminary
inquiries before the serious negotiation that will follow once
an opportunity for investment has been located and selected. In
my view, a reasonable time period to complete the foregoing
would be seven months, and I would increase the damages
accordingly.
[43] The trial judge assessed damages for three months at
$240,000, or $80,000 per month, based on a careful
consideration of the expert evidence before her. Other than the
time period for which damages should be awarded, I see no basis
to interfere with her calculation of those damages.
[44] Substituting the period of seven months for the three
found by the trial judge, I would assess the plaintiff's
damages at $560,000.
[45] For these reasons, I would allow the appeal, set aside
the judgment dismissing the action and in its place, judgment
shall issue in favour of the plaintiff in the sum of $540,000,
plus appropriate prejudgment interest and costs.
[46] As the parties have agreed on the quantum of costs of
this appeal, costs are awarded to the appellant in the sum of
$35,000, inclusive of disbursements and GST. If the parties are

2009 ONCA 36 (CanLII)

to three months lay in his supposed mitigation combined with

the finding that the plaintiff did not place any evidence
before the Court that he was in a position to carry out both
this transaction and the marina transaction.

[47] Finally, if the parties are unable to agree on

prejudgment interest, written submissions, not to exceed three
pages, may be filed with this court.
Appeal allowed.

2009 ONCA 36 (CanLII)

unable to agree on the trial costs payable to the appellant in

view of the result of this appeal, those costs may be assessed.
[page731]