A recent decision of the Court of Appeal illustrates the importance of documenting intentions with respect to inter-familial loans. It also addresses the importance of solicitors’ evidence in establishing the wishes and intentions of a testator.

The case, Middleton Estate v. Middleton, 2020 ONCA 552 (CanLII), involves a promissory note given by the deceased’s daughter to the deceased. The daughter was borrowing $142,000 to buy an interest in a cottage. A promissory note was signed by the daughter on July 16, 2014. Prior to signing, the note was reviewed by the deceased’s lawyer. The daughter discussed the note with the deceased and added a clause stating that the loan was to be forgiven upon the deceased’s death. The deceased’s lawyer reviewed this revision and advised against it. The deceased took the forgiveness term out of the promissory note, and the daughter signed it.

Following the deceased’s death, the daughter produced a second promissory note dated July 22, 2014. This promissory note provided that the loan was to be forgiven upon the deceased’s death. The daughter gave evidence that she discussed the loan with the deceased and the deceased had originally wanted to put a forgiveness clause in her will, but after having second thoughts, decided to have the forgiveness clause put into the second promissory note.

In rejecting the validity of the second promissory note, the lower court found that the deceased relied on the first promissory note only when advancing the funds. The second note was never discussed with her lawyer after the first note was signed. The deceased then went to another lawyer to discuss her estate plan. This second lawyer was given a copy of the first promissory note by the deceased, and there was no mention of the second promissory note.

Thus, while the second promissory note was signed by the daughter, there was insufficient evidence to convince the court that the deceased had accepted those terms.

Thank you for reading.

Paul Trudelle