Revisiting the Interpretation of Separation Agreements

April 24, 2017 Ian Hull Estate & Trust, Estate Planning, Executors and Trustees, General Interest, Litigation, Uncategorized Tags: , , , , , , 0 Comments

The recent Ontario Superior Court of Justice decision of Zecha v Zecha Estate, 2017 ONSC 1972, 2017 CarswellOnt 4882, raises the issue of how separation agreements ought to be interpreted in circumstances where one party to the contract has predeceased the other.

In this case, a separation agreement was entered into by the plaintiff and her husband, who had since died. With respect to the sale of the couple’s matrimonial home, the separation agreement, dated May 31, 2012, stipulated as follows:

  • The plaintiff and the deceased would advise one another of all offers to purchase the matrimonial property;
  • If the plaintiff received an offer to purchase the property for less than $1,500,000.00, the deceased could require that the plaintiff accept the offer, but, upon compelling her to do so, would be responsible for paying any shortfall between the sale amount and $1,500,000.00;
  • If the property had not been sold within 18 months of the date of the agreement (and the plaintiff had not declined an unconditional offer to purchase the property for a price higher than $1,500,000.00):
    • The deceased would assume carriage of the sale;
    • The plaintiff would cooperate with the sale process and sign any documents to give effect to the sale; and
    • If the property sold for less than $1,500,000.00, the deceased would be responsible for any shortfall between the purchase price and $1,500,000.00.

The plaintiff listed the matrimonial property for sale on October 29, 2012.  On April 30, 2014 (23 months after the execution of the separation agreement), the plaintiff entered into an agreement of purchase and sale, and sold the property for $1,180,000.00.  There was no evidence before the Court that the plaintiff had advised the deceased that she had received or accepted an offer to purchase the property for less than $1,500,000.00. The deceased died on November 28, 2014, and the plaintiff commenced proceedings against the deceased’s estate for the difference between the sale price of $1,180,000.00 and $1,500,000.00, relying upon the terms of the separation agreement.

At trial, the plaintiff submitted that, pursuant to the terms of the separation agreement, she  was entitled to $320,000.00, representing the difference between the sale price of the property and $1,500,000.00, because the property had been sold more than 18 months from the date of the separation agreement.  The deceased’s estate asserted that the plaintiff could not enforce the terms of the separation agreement, as she had not complied with its terms as to which party would control the sale of the property if it took place more than 18 months after execution of the separation agreement. Pursuant to the separation agreement, the deceased was only responsible for paying the shortfall if (a) he had compelled the plaintiff to accept an offer to purchase the property for less than $1,500,000.00 within 18 months of the date of the separation agreement, or (b) he had assumed control of the sale of the property 18 months after the date of the separation agreement and accepted an offer to purchase the property for less than $150,000.00.

The Court found that the separation agreement was a properly executed contract and should be interpreted as a whole, giving meaning to all of its terms and avoiding an alternative interpretation that would render a term ineffective (in a manner consistent with commercial law principles).  Accordingly, the Court dismissed the action, declining to order payment of the $320,000.00 shortfall by the estate to the plaintiff. The Court stated that the plaintiff had interpreted the terms of the contract too narrowly, in an attempt to obtain a greater payout from the proceeds of sale of the matrimonial property. The Court found that, pursuant to the separation agreement, the deceased had a clear right to decide if an offer to purchase the property for less than $1,500,000.00 would be accepted at the time of its sale, being more than 18 months after the execution of the separation agreement, and the plaintiff could not rely upon the corresponding provisions of the separation agreement.

Circumstances like these, in which one party to a separation agreement has died and the assistance of the Court is required in interpreting the contract for the purposes of considering a claim made (or if an entitlement is apparently limited) under  the contract, are not uncommon.  It can be important for estate lawyers who may encounter this issue to understand how separation agreements are most likely to be interpreted by the courts.

Thank you for reading,

Ian M. Hull

Other Articles that may be of Interest:

The Effect of a Carefully Drafted Separation Agreement

When Does a Separation Agreement Release an Entitlement Under a Will?

Prenuptial Agreements in Estate Planning

 

 

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