Promissory Note – Is it an interest in Property?

Does a monetary deposit with a promise to transfer a property in the future, confirmed by a Promissory Note, constitute an interest in the property under the Family Law Act?

This is indeed an unusual situation in that there are a number of ways that the issue can be approached.  Frankly, I do not see any way that the wife can claim the husband has an interest in the property.  There is no instrument from the parents gifting it to him.

As for the note itself, even were it to be held as akin to a written Agreement of Purchase and Sale, and in conformity with the Statute of Frauds, the fact that the contract was never completed is evidence that no property passed – especially in view of the fact that the deposit was returned.

At root, this is a real property matter.  In Germain v. Kapchinsky, for instance, the plaintiff purchaser provided a deposit that was not in the form prescribed under the Agreement.  As a result, the defendant vendor treated the defect as entitling him to terminate the Agreement.  The Court determined that the defendant validly terminated the contract.

So, looking at this as a simple real estate matter, I can see no legal ground by which to determine that the husband has a tangible interest in this property simply due to the giving of the deposit.  If that is the basis of the other side’s claim, then I would argue that they are staking their claim in contract law – and that, on that basis alone, the agreement was null and void by mutual consent between the parties.

Re: The Husband’s Beneficial Interest in the Cottage

The other side might claim that the Husband has a beneficial interest in the cottage.  If that were indeed the case, I point you to the B.C. decision of Warn v. Warn, where the court described another case, Dennis v. Dennis, noted at paragraph 71:

Ms. Champagne (Dennis) has discharged the burden on her to demonstrate that any interest she has in the Sheridan Lake property beneficially is not a family asset… Even if I had concluded that her interest was a family asset, given that it was acquired by way of gift from Ms. Champagne’s mother and the cost of preserving it, which seems to be the taxes, was borne by Ms. Champagne’s mother, then in those circumstances, I would, in any event, substantially reapportion the asset in favour of Ms. Champagne (Dennis) because an equal division of her interest in that asset would be unfair given those factors.

Of course, your case is distinguishable from that above, since in your client’s case, there is no question of the parents setting up the son as a trustee of the cottage (placing it in his name, etc.).  In my reading of it, the fact that the parents required a substantial deposit to begin with shows that this could not be considered a gift.  So, in my reading, the note is evidence that this cottage was NOT intended to be set aside for the ownership of the husband UNLESS there was payment in due course – which, ultimately, there was not.

As noted in the case above – and in most cases dealing with a beneficial interest  in a family context – another question is :

Was the cottage used frequently by the Husband and Wife, thus opening an argument by her that the cottage should be treated as a family asset?  Is there a Will in effect granting the Husband a future interest in this property (i.e. giving him the right to do with it, or convey it as he pleases upon his parents’ death?)

In the case cited above, the Court noted that the Wife was not given the opportunity by the mother to convey the property, as she wanted the cottage “in the family” among the siblings in perpetuity.

If this husband has siblings, perhaps a similar factual argument might be raised.

In contrast, the judge in the Warn matter did rule that there was a beneficial interest, so that in this one case, you can see how a court looks at both sides of the issue.

Re: Can a Note of This Nature Constitute An Agreement of Purchase and Sale?

In Brett v. Brett, the Ontario court noted at paragraphs 50-52:

In Lawrence Management Services Ltd. v. Hartford Investments Ltd. (1964), 49 W.W.R. 129 (Man. Q.B.), Dickson J. (as he then was) concluded that an agreement of purchase and sale of land could be found:

In a careful study and assessment of all relevant correspondence, documents, words and conduct of the parties in order to determine whether one may properly infer the existence of a binding agreement.

In that case Dickson J. found the parties were ad idem. He relied on Brogden v. Metropolitan Railway Co. (1877), 2 App. Cas. 666 (H.L.) , in this respect:

Circumstances in the conduct of two parties may establish a binding contract between them, although the agreement, reduced into writing as a draft, has not been formally executed by either.

And in another passage at page 672:

… still there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of a incomplete and imperfect description.

Dickson J. concluded that:

The plaintiff’s subsequent decision to terminate the transaction was prompted, not by the failure or delay of the defendant to satisfy the conditions, but by the plaintiff’s realization that they had made an improvident bargain.

52     In Hoyle v. Hoyle, [1893] 1 Ch. 84, the Court of Appeal in England interpreted what is almost the equivalent of Section 4 of the Ontario Statute of Frauds. In that case, the issue was whether what appeared as an acknowledgement of debt in a preamble in a will constituted a “memorandum or note in writing”. There was some opinion that Section 4 applied, but to the extent that it did, the court concluded the statement in the will sufficed. At page 99 the court said:

The question is not one of intention of the party who signs the document, but simply one of evidence against [that party]. The court is not in quest of the intention of the parties, but only of evidence under the hand of one of the parties that [the party] has entered into it. Any document signed by [the party] and containing the terms of the contract is sufficient for that purpose.

So, on the question as to whether the note constitutes an agreement, it is indeed arguable – if the parents wanted to initiate an action against their son for specific performance.  So, again, on pure contract terms, I don’t think the note is much of an issue.  And if it were, I see it as being more in your client’s favour than in the wife’s favour – since it is evidence that the parents wanted a bona fide transaction and were not simply setting up a gift or beneficial interest for the husband.

Also, on the issue of specific performance, the Court noted that, even where the note sets up a valid agreement, the repudiation by the purchaser relieved the vendor of a duty to tender.  As the Court noted at paragraph 60:

It is admitted that Ed did not tender but it is also admitted that John and Carolyn repudiated the agreement at $600,000. Since I find that the agreement was at a purchase price of $600,000, the repudiation by the purchasers relieved the vendors of the obligation to tender…

So, even here, the Wife would be hard-pressed to raise an argument that a valid agreement, that has been repudiated by one side, sets up an interest – or a right to that interest on behalf of the person who repudiated.

In any case, the facts in this decision are otherwise wholly distinguishable from yours.

Like I said: while the note arguably sets up a valid agreement, an uncompleted agreement does not set up an interest, particularly when both parties to the transaction are ad idem on NOT completing the transaction.  Frankly, I’m not finding cases where an uncompleted agreement sets up an interest, particularly when both parties to the agreement do not want it.

In sum:

Given the diffuse nature of this research request – as well as the highly unusual fact parameters – I was not able to find any useful decisions directly on point with the crucial facts here.

As I said, while the note can arguably set up an agreement  within the Statute of Frauds, it is virtually unheard of for an individual to argue that an aborted agreement sets up an ownership interest, particularly when both parties to the agreement mutually do not want ownership to pass.

The only other issue I could see raised by the wife is that the parents, by their conduct, were evidencing an intention to set up a beneficial ownership interest for the son.

But tactically, I wouldn’t go too far addressing this if the other side has not raised it.  In short, from what you sent me, it seems that the Wife is attempting to ground her claim in contract principles – which seems pretty dodgy to me based on what I’ve seen.

Jamie Cooper

Barrister & Solicitor