What you think is a casual discussion about a potential
transaction may very well be a binding verbal contract. It took two
trials and two trips to the Ontario Court of Appeal, but in UBS v.
Sands,1 Sands Brothers Canada, Ltd. ("Sands")
found that out the hard way. Sands tried to back out of a sale to
UBS Securities Canada Inc., ("UBS") of 100,000 shares
Sands held in Bourse de Montreal Inc. ("Bourse"). Bourse
was a privately held company that operated the Montreal Stock
In November of 2006, a UBS representative discussed the purchase
of the Bourse shares with Sands' president. Sands said that it
was interested in the transaction, but wanted the sale to close in
2007 for tax reasons. UBS agreed to a January 3, 2007 closing date
and Sands told UBS to "draw up the papers".
After the telephone conversation, UBS sent a confirming email to
Sands setting out the number of shares being sold, the price per
share and the closing date. Sands did not respond to the email in
writing, but it did confirm its acceptance of the terms in a
telephone call with UBS the next day.
Before the closing date, Bourse announced that it was publicly
listing its shares. Sands wrote to UBS asserting that no agreement
had been reached between the parties. UBS argued that a verbal
contract was reached over the telephone and demanded that Sands
fulfill its obligations.
After two trials it was finally determined that the verbal
contract between the parties was binding. The trial judge
considered that it was customary in the securities industry to make
binding agreements verbally. That fact, and the rest of the
evidence on the conversations between UBS and Sands, led the Judge
to conclude that a reasonable person would consider a binding
agreement to have been reached in November of 2006.
On Appeal, the Court agreed with the Judge below that Sands was
liable for anticipatory breach of its agreement with UBS. Due to
the unique nature of the shares, the appropriate remedy was an
order compelling Sands to complete the transaction.
The case should serve as a reminder that words exchanged in a
conversation can have the same consequences as words exchanged in
writing. Particularly in the securities industry, if a conversation
would leave a reasonable person with the impression that a deal was
reached, courts will enforce the bargain. To avoid unintended
consequences, any party negotiating a contract should follow up
telephone conversations with a note to the other party confirming
what was discussed. At a minimum, if the other party sends its own
note setting out what they think you agreed to, make sure to
respond in writing to set the record straight if the other
party's version of the conversation is inaccurate.
1 (2009), 95 O.R. (3d) 93 (C.A.).
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
It's not often that our little blog intersects with such titanic struggles as the U.S. presidential race – and by using the term "titanic" I certainly don't mean to suggest that anything disastrous is in the future.
J.J. v. C.C., is an interesting case in which the court held that an automotive garage owes a duty to minor children to secure the vehicles on the premises by locking the cars and safely storing the car keys...
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