Under certain circumstances, a court may make an order for the specific performance of an obligation. By virtue of this order, the person against whom the order is made may be directed by the court to transfer property to the other party. The equitable remedy of specific performance is available in cases where damages are inadequate. In order to satisfy this condition, the person seeking the order must demonstrate that the property is unique or irreplaceable so that damages would not provide an adequate substitute. Contracts for the sale of land are specifically enforceable, whereas contracts for the sale of personal property generally are not.
A person who could be compelled to transfer property by an order for specific performance may become bankrupt, and it is necessary to determine the effect of bankruptcy on the party who has the right to compel the transfer. If the claimant can assert the right against the trustee, the claimant will obtain a transfer of the property. This will leave less for the other creditors who must satisfy their claims from the remaining assets of the bankrupt. If the right to compel a transfer is not available, the claimant must prove the claim in the bankruptcy and share with the other creditors.
In order to determine the effect of bankruptcy on a claim for specific performance, it is necessary to analyse the proprietary effect of a specifically enforceable contract. As soon as the parties enter into a specifically enforceable contract, an immediate proprietary interest arises in equity even though the contract contemplates that legal title will be conveyed at some future date. The vendor immediately holds the property under a constructive trust, and the beneficial ownership of the property passes to the purchaser.150The BIA specifically provides that
trust property is not divisible among the creditors.151For this reason, a claimant who has entered into a specifically enforceable contract for land can compel its transfer.
The analysis is rendered more complex by two difficulties. The first arises out of the decision of the Supreme Court of Canada in Semelhago v. Paramadevan.152The Court held that it was not appropriate to distinguish between land and personal property, and that courts should not assume that the land is unique and that a decree of specific performance should be granted. Unfortunately, the Court did not consider the implications of this conclusion in respect of the...