Business agreement enforceable if essential terms agreed, parties intended to be bound: Court

Lawyer says decision a reminder to look at business deals like a businessperson, not a lawyer

Business agreement enforceable if essential terms agreed, parties intended to be bound: Court
Paul Fruitman, Lax O’Sullivan Lisus Gottlieb

A recent Superior Court decision is a reminder to lawyers to view business agreements – as the courts do – through the lens of a businessperson, not a lawyer, says Paul Fruitman, who acted for the plaintiff.

In Ruparell v. J.H. Cochrane Investments Inc. et al., 2020 ONSC 7466, the court found an agreement to purchase a Volkswagen dealership, which was amended due to the uncertainty arising out of the COVID-19 pandemic, is enforceable and was breached by the vendor’s attempt to sell to another party.

“Courts respect the ability of businesspeople to make agreements. Sometimes lawyers tend to look at these things like lawyers as opposed to the businesspeople, who are actually making the agreements, and they'll put more than necessary emphasis on whether certain Ts are crossed or I’s are dotted,” says Fruitman, a commercial litigator, trial lawyer and partner at Lax O’Sullivan Lisus Gottlieb.

“What the caselaw tells us… is that, even if the agreement contains only the basic or summary terms from a technical legal perspective, the courts will enforce it if they find parties intended to be bound and that the essential terms were agreed.”

In 2019, Deepak Ruparell, who owns hotels and car-dealerships across Canada and the U.S., learned the corporate owners of Town and Country Volkswagen would be interested in selling their dealership business and the land associated with it.

In Feb. 2020, Ruparell and Town and Country signed a non-binding letter of intent. The LOI set out terms of engagement, due diligence, financial review, closing expectations, a purchase price, a $1-million deposit and an exclusivity clause prohibiting Town and Country from negotiating with other parties until April 15. Ruparell’s offer for land and dealership was $31.3-million, cash. The parties agreed in the LOI to use “reasonable commercial” efforts to close the deal by April 15 through “written, definitive and executed share purchase agreements.”

On April 16, out of concern for how the COVID-19 pandemic would impact the hotel and car business, Ruparell made a new offer – this time for $24.1 million – with $9.5 million financed with a vendor-take-back mortgage.

The parties exchanged terms via text, phone call and an informal term sheet. Between April 26 and 28, their lawyers revised the share purchase agreements to reflect the new terms. But before the parties could sign them, Town and Country got a better offer from the Volkswagen dealer AWIN Group.

Town and Country had hired a team of corporate finance representatives from KPMG to advise them during the negotiations. KPMG told Ruparell about the new offer and suggested he increase his. Ruparell refused and accused Town and Country of reneging on its agreement. He left his deposit, insisted Town and Country close the deal and brought an action for specific performance.

Town and Country tried to sell to AWIN Group, but Ruparell’s certificate of pending litigation on the land title held the transaction in abeyance until the outcome of the lawsuit.

Ruparell claimed that unlike the LOI, which required “written, definitive and executed share purchase agreements,” his new offer “was on substantially different terms.” The agreement was sealed on April 24 through verbal discussions and a voicemail and summary term sheet sent to Ruparell by KPMG, said Ruparell. In the voice mail, the KPMG representative said, “we have a deal.”

Town and Country’s position was that no enforceable agreement was reached April 24. The share purchase agreements, required in the LOI, were intended to be the final agreements and “a complex transaction of this nature” cannot be finalized by a phone call or “brief memo.”

While Town and Country argued the LOI applied to the amended offer, Justice Janet Leiper disagreed. Neither the term sheet, texts, voicemails or conversations testified to by witnesses mentioned the LOI. “The transaction contemplated as of April 24 was simply not the same transaction described in the LOI,” said Leiper in the decision.

“Through the lens of an objective observer, the parties made an agreement on the essential terms of the new transaction,” said Leiper.

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