Droogh v. Droogh, 2015 ONSC 1812-- re: son's promissory note

By Tausendfreund, J.
Ontario Superior Court
Apr 21, 2015



Plaintiffs/Moving Parties

– and –





HEARD:  February 25, 2015 at Kingston




[1]                             The Plaintiffs bring this motion for summary judgment.

[2]                             The Plaintiffs are the parents of the Defendant.  The father passed away at age 94 on December 21, 2014.  The action was then continued by the now 88 year old mother in her personal capacity and as executrix and sole beneficiary of her husband’s estate. 

[3]                             In 1992, the parents had agreed to sell their farm and related farm assets to their son.  They signed an agreement and various documents related to the sale.  Periodic payments were to be made by the son over 20 years with a lump sum on the death of the survivor of the parents.  After a number of years, the son defaulted on the terms of the agreement.  The parents then brought this action. 


[4]                             The parents were the joint owners of a 300 acre farm in the Township of Pittsburgh, in the County of Frontenac.  They have five children.  By 1990, their four oldest children all had made their way in the world.  None of these four had expressed any interest in becoming involved in their parents’ farm operation.  The Defendant was the only sibling who had remained at home.  He assisted his parents full-time to maintain their farm operation.  He was paid a salary.

[5]                             In the years 1991/1992, the parties started negotiations for the son’s purchase of his parents’ farm operation, including real property, cattle, crops, machinery, equipment and milk quota.  These negotiations initially involved an agricultural representative.  He provided information to both sides of the negotiations and prepared a written farm transfer proposal for their consideration.  The parents retained a Kingston lawyer, Peter Trousdale, to prepare the necessary documents.  These were generally based on the written proposal submitted to the parties by the farm representative.  Following their review of that initial proposal, negotiations between the parents and son resulted in certain minor changes.  The then amended terms of the agreement, as prepared by Trousdale, for the transfer to the son of the real estate and the entire farm operation were these:

a.      Sale price of $829,686.16 secured by a collateral mortgage of $500,000 and based on these five promissory notes, all at 0% interest:

                                                              i.      $68,300 for the cattle

                                                            ii.      $181,372.16 for the milk quota as valued by the Ontario Milk Marketing Board;

                                                         iii.      $19,100 for the crops;

                                                         iv.      $60,914 for machinery and equipment;

                                                            v.      $500,000 for the land;

                                                         vi.      Each promissory note was due 366 days after demand.

b.      Absent default, the promissory notes were to be paid in equal instalments of $2,000 per month for 20 years starting January 31, 1992 to and including December 31, 2011, with a then final lump sum payment of $20,000 also due December 31, 2011, for a total payment over those 20 years of $500,000.

c.      Provided regular payments of $2,000 per month were made and there was no default by the son on any of the terms of the agreement, the parents would not make a demand on the outstanding balance of the promissory notes, except for $100,000 which would be due on the death of the survivor of the parents with the balance to be then forgiven.

d.      The parents were granted a life interest in the farm home and surrounding 25 acres with the son to pay all necessary expenses for the home, as these obligations fell due.  The son agreed to continue to carry on the farming business.

[6]                             Peter Trousdale, acting for the parents, advised the son that he should obtain his own lawyer for advice and his eventual signature with respect to these documents.  The son retained a lawyer to that end.  The Statement of Defence on that issue has this pleading:

…the defendant was informed by the Plaintiffs and by their solicitor that if the defendant did not secure a lawyer to act for him, there would be no transfer of the farm property. … The Defendant followed the recommendation of the solicitor for the Plaintiffs and met with a lawyer.  That lawyer reviewed the documents … after which the documents were signed.

 [7]                             The transaction was completed in or about September 1992.  Trousdale sent a letter to the son on September 9, 1992 confirming the completion of the farm transfer and to forward to him copies of the various documents.  In this letter, Trousdale stated: 

I confirm these agreements, deeds and mortgages were reviewed by your lawyers… and your accountants… prior to you signing the same and all documents were signed by you at your own lawyer’s office.

 [8]                             The son then started to make regular payments under the terms of the agreement, but not as the agreement had contemplated.  He initially made these payments on a regular monthly basis for a number of years.  By the mid-1990s, he started to miss certain payments, then reduced the amount to $1,000 per month as of January 2000 and terminated all further payments as of May 2010.  The total amount to date paid by the son to his parents is $332,500.

[9]                             In or about 2012, the son sold the milk quota for $1,000,000 and the cattle for $110,000.  The son now carries on a sheep farm operation. 

[10]                        In 2004, the son was involved in matrimonial litigation with his then wife.  As part of that process, he swore a financial statement which detailed these obligations to his parents:

Mortgage:  $287,000

Cattle loan:  $68,300

Farm machinery and cattle:  $60,914

Milk quota:  $181,372

Crops:  $19,100

 [11]                        Since 1992, the parents have paid certain expenses over the years to adequately maintain the farm home which they occupy.  These expenses total $35,151.

[12]                        On May 14, 2013, Peter Trousdale, on behalf of the parents, sent this letter to the son:

Our clients have notified us that you have stopped making your loan payments contemplated by the 1992 farm transfer agreement.  We have also been advised that you have failed to pay for the various repair, maintenance, legal, tax and accounting expenses incurred by our clients in breach of the terms of said agreement.


In light of the foregoing, our clients hereby make formal demand that you repay the remaining balance owed in connection with the farm transfer.  The total sum owed by you on account of the promissory notes is currently $497,186.11.  You also owe the sum of $38,651.84, which represents the outstanding repair, maintenance, legal, tax and accounting expenses incurred by our clients to date.


[13]                        This action then followed.


[14]                        The following issues are raised on this motion:

a.      Is there a genuine issue requiring a trial with respect to the son’s default under the terms of the 1992 agreement and his failure to pay the obligations contemplated by that agreement?

b.      Is there a genuine issue requiring a trial with respect to the amount of damages owed to the parents?

c.      Do any of the defences raised by the son require a trial?

[15]                        Rule 20.04(2) of the Rules of Civil Procedure provides:


The court shall grant summary judgment if,

 (a)   the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; …


[16]                        The Supreme Court in Hryniak v. Mauldin, 2014 SCC 7 (CanLII) held that:

49     There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment.  This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

 50     … the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that s[he] can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.


[17]                        The son states that granting summary judgment which the parents seek is not appropriate, as the following issues require a trial:

a.      Contractual terms are ambiguous and require parol evidence for clarification;

b.      The question of whether the son understood the farm agreement when he signed it;

c.      Is there a Limitations Act defence?

d.      Does the son’s counterclaim advanced as a set-off against the parents’ claims require a trial on all issues or can these claims be severed?

Are the contractual terms ambiguous?

[18]                        In the event that I should find the contractual terms to be ambiguous, parol evidence may and should be allowed to clarify that ambiguity:  see TransCanada Pipelines Ltd. v. Northern & Central Gas Corp., (1983), 1983 CanLII 1617 (ON CA)41 O.R. (2d) 447 (Ont. C.A.) at para. 18.

[19]                        The parents allege that the son has “defaulted” under the terms of the agreement.  “Default” is not a defined term in the agreement.  The son states that the agreement is not clear on:

a.      what consequences will arise if there is a default that occurs; and

b.      what is to occur if there is default and it is rectified, and/or what is to occur if the default is not rectified before the death of the parents.

[20]                        The son asserts that his total obligation under the agreement required him to pay over 20 years the sum of $500,000 and a further sum of $100,000 at the time of the death of the survivor of the parents.  I agree with the interpretation, provided there was no default.  The parents here claim against the son for the balance of the full amount of $829,686.16, less the sum of $332,500 paid by the son to date.  In addition, the parents seek to be reimbursed for the amount of $35,151 they expended since 1992 for maintenance and repair costs to the home they occupied on the farm. 

[21]                        “Default” is not a defined term of the agreement.  Yet it is not a “term of art.”  The Oxford dictionary defines “default” as a failure to fulfill an obligation, especially to repay a loan.  Para. 2(f) and (g) of the agreement provides: 

(f)   It is the intention of the parties hereto that such notes be repaid in the equal instalments of $2000.00 per month, commencing January 31, 1992 and continuing on the last day of each and every month at the rate of $2,000.00 per month up to and including December 31, 2011.  A final lump sum payment of $20,000 will be made on December 31, 2011.

 (g)   … If the regular payments of $2,000.00 per month are made and there is no default on the terms of this agreement then demand will not be made on the outstanding balance of the promissory notes save and except the $100,000.00…

 [22]                        I find the contract to be clear and unambiguous with respect to the son’s obligation to make regular payments of $2,000.00 per month up to and including December 31, 2011, with a final lump sum payment of $20,000.00 also to be payable on December 31, 2011.  He failed to honour that obligation.  As such, I find him to be in default under the terms of the agreement.  This default entitles the parents to seek payment for the full amount.

[23]                        In 2012, the son sold the milk quota and the dairy herd for $1,110,000.00.  There is no evidence that he made any effort to pay any of these funds to his parents, so as to put himself into good standing on his obligations under the terms of the agreement. 

Did son not understand the agreement when he signed it?

[24]                        The son pleads in his Statement of Defence that he did not understand the agreement and did not have the benefit of independent legal advice before he signed it.  With respect to his claim that he did not have legal advice, I find the evidence to be clear that this is not so.  He consulted a lawyer and perhaps even sought a second opinion, before he signed it.  He had been directed by Mr. Trousdale to seek out his own lawyer as a necessary condition before the agreement could be signed.  In fact, the son confirmed that he did so. 

[25]                        His sworn 2004 Financial Statement indicates a detailed reference to his financial obligations to his parents as detailed in the agreement. 

[26]                        I note that the Defendant has pleaded neither undue influence, fraud, misrepresentation nor non est factum.  Carelessness in signing a document is not a defence:  Bulut v. Carter, [2014] O.J. No. 2476 (Ont. C.A.) at paras. 18-26.

[27]                        I am satisfied on the evidence that the Defendant son knew and understood the particulars of the agreement before he signed it.

Application of Limitations Act

[28]                        The son pleads that the Limitations Act, 2002, S.O. 2002 is a complete bar to the parents for the claim they advance.  The last payment he made to them was in April 2010.

[29]                        The parents gave a written demand for payment on May 14, 2013.  This action was started on May 30, 2014.

[30]                        The British Columbia Supreme Court in Zeitler v. Zeitler Estate, 2008 BCSC 775 (CanLII)[2008] B.C.J. No. 1126 addresses the application of limitation periods to demand promissory notes:

89     In relation to a demand promissory note, it is settled law that time begins to run, in terms of the limitation period, from the date the note is given, as opposed to the date of a demand upon it …


90     However, an exception emerges for promissory notes containing the delayed-demand feature that may be properly characterized as a contingent future event.


[31]                        The promissory note of $500,000.00 signed by the son on January 1, 1992 reads:

Arnold Peter Droogh promises to pay Adrianus Johannes Droogh and Elizabeth Droogh jointly, the sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00), together with interest at the rate of zero percent (0%) per annum, THREE HUNDRED AND SIXTY-SIX (366) days after demand.


[32]                        Each of the promissory notes, as detailed in para. 2 of the agreement provides that each such note was due 366 days after demand.  The first demand the parents made was on May 14, 2013. 

[33]                        I find that each of the promissory notes is a delayed-demand note.  The parents’ right to enforce the son’s obligation with respect to these notes does not arise until after demand was made by them.  That date of demand, namely May 14, 2013, I find to be the start of the limitation period.  That was also the date when the parents first made their demand for reimbursement of the funds expended by them for the maintenance, repair and taxes on the farm home in which they had reserved a life interest.

The Son’s Counterclaim

[34]                        In his counterclaim, the Defendant pleads that for 20 years prior to the 1992 agreement, he worked on the parents’ farm, at their request and on the understanding that he would receive the farm at some future date in the form of an inheritance.  He pleads that he was paid less than a reasonable wage during those 20 years.  Yet he continued to work and assist his parents.  Essentially, he advances a quantum meruit claim.  That claim is separate and distinct from the claim which the parents advance based on the terms of the contract and the wording of the promissory notes.  In my view, these claims can and should be separated.

[35]                        The Plaintiffs shall have judgment in the amount of $532,337.16 plus pre-judgment and post-judgment interest in accordance with the Courts of Justice Act.

[36]                        In the ordinary course and absent offers to settle, the Plaintiffs would be entitled to costs.  If the parties are unable to resolve these costs, I may be spoken to within 30 days.


Honourable Mr. Justice Wolf Tausendfreund


Released: April 21, 2015