Court of Appeal for Ontario

DATE: 20210625 DOCKET: C68993

Tulloch, Pardu and Roberts JJ.A.

BETWEEN

Gary George Krebs Applicant (Appellant)

and

Stephanie Valerie Cote Respondent (Respondent)

Counsel: David Goodman, for the appellant Ashley Gibson and Anthony Reitboeck, for the respondent

Heard: June 16, 2021 by videoconference

On appeal from the order of Justice David L. Edwards of the Superior Court of Justice, dated December 22, 2020.

Pardu J.A.:

A. Introduction

1The appellant, Mr. Krebs, appeals from a decision of a motion judge declaring that a cohabitation agreement with the respondent, Ms. Cote, was of no force and effect.

2The appellant submits that the motion judge erred (i) in concluding that a reconciliation terminates a cohabitation agreement, (ii) in failing to interpret the whole of the plain language of the contract in the factual context existing when it was signed, and (iii) in concluding that a payment made pursuant to the agreement exhausted the terms of the rest of the agreement.

3The respondent supports the motion judge’s decision.

4Both parties had independent legal advice before signing the cohabitation agreement and there is no challenge to the validity of the agreement.

B. Background

Family History

5The parties began an “off-and-on-again” relationship in 2006, with numerous separations. This continued in 2012-2013 when the parties separated on a few occasions. In October 2012, the respondent’s mother purchased a home in which her daughter could reside. In December 2012 or January 2013, the parties decided to resume cohabitation and, during this period, entered into the cohabitation agreement that is the subject of this appeal. The respondent moved out of the appellant’s home shortly thereafter. The appellant paid her $5,000, pursuant to the agreement, for vacant possession of his home.

6The parties reconciled in the first half of 2014. In June 2014, they married and the respondent moved back into the appellant’s home. The parties discussed adding the respondent to the title to the matrimonial home in 2016, but that was ultimately not pursued.

7The relationship broke down for the final time in January 2019.

The Notice of Motion

8The respondent brought a motion seeking the following relief:

An order for summary judgment to decide a question of law before trial pursuant to Rule 16(12)(a) of the Family Law Rules. Specifically, an Order that the Cohabitation Agreement executed by the parties in December 2012 (Applicant) and January 2013 (Respondent) is invalid, not binding on the parties and is of no force or effect.

9The question of law that the parties wanted the motion judge to decide was whether, as a matter of law, separation followed by reconciliation terminated a cohabitation agreement.

10Although the notice of motion was confined to a question of law, the motion judge went on to make findings about the subjective intentions of the parties, and to interpret the agreement. However, interpretation of a contract is a matter of mixed fact and law: Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. The motion proceeded on the basis of an agreed statement of facts.

11Both parties ask that, if necessary, this court interpret the agreement rather than sending this back for a new hearing, despite the limitations of the notice of motion.

The Motion Judge’s Decision

12The motion judge concluded that the cohabitation agreement was of no force or effect for three reasons.

1. The common law principle holding that reconciliation terminated a separation agreement applied to cohabitation agreements.
2. The discussion about transferring title to the matrimonial home to the respondent in 2016 showed that the parties did not subjectively intend that their cohabitation agreement would continue to apply in the event of a separation and reconciliation. This was, he held, “sufficient to rebut any presumption to the contrary.” The motion judge went on to note that nothing in the agreed facts supported an intention that the agreement would be applicable if there was a reconciliation, and nothing in the agreement expressly dealt with the effects of a separation and reconciliation.
3. The cohabitation agreement provided that upon breakdown of the relationship, the respondent would vacate the home owned by the appellant which the parties were then occupying as their home on 30 days’ written notice and upon payment by the appellant to the respondent of $5,000 payable on the date she left the property. The motion judge held that the consideration for the $5,000 payment was the respondent’s relocation from the matrimonial home and that, since that triggering event had occurred and payment made, the terms of the cohabitation agreement were exhausted.

C. Analysis

13I do not agree with the motion judge’s conclusion that a cohabitation agreement does not apply to the parties after a separation followed by reconciliation unless the agreement expressly provides to the contrary.

14It is well-established that, at common law, a separation agreement becomes void upon reconciliation of the parties, subject to any clause in the separation agreement overriding the common law rule or which would imply that the intent of the parties was that terms of the separation agreement would be carried out notwithstanding any subsequent reconciliation: see Ernikos v. Ernikos, 2017 ONCA 347, at para. 11; Sydor v. Sydor (2003), 178 O.A.C. 155 (C.A.), para. 22; Bailey v. Bailey (1982), 37 O.R. (2d) 117 (C.A); Bebenek v. Bebenek (1979), 24 O.R. (2d) 385 (C.A.).

15I would not extend the common law rule to cohabitation agreements.

16The common law rule is ancient. In Nicol v. Nicol (1885), 30 Ch. D. 143, at p. 145, North J. of the Chancery Division explained the rationale for the common law rule that reconciliation brings a separation agreement to an end:

I think it clearly established by numerous authorities (no case in any way conflicting with them), that where a separation arrangement is made pure and simple, that arrangement is for the term of the separation, and for no longer. It comes to an end when the separation ends, not because the fact of reconciliation or recohabitation makes it void, but it dies a natural death. The agreement was to provide for a state of things which has come to an end, the state of things being that the parties were living separate although married. When they live together again as man and wife the state of things is totally different, and the arrangement comes to an end.

17The rule was not absolute and depended on an interpretation of the parties’ intentions, as evinced by the whole of the agreement. For example, where a separation agreement had separation for one of its objects but also other matters within its purview, such as settlement of property issues, those aspects of the agreement may continue despite a return to cohabitation. As described by Montague Lush and Walter Hussey Griffith in Law of Husband and Wife within the Jurisdiction of the King’s Bench & Chancery Divisions, 3rd ed. (London: Stevens and Sons, Limited, 1910), at pp. 461-463:

[I]t is a well-established principle of law that a separation deed properly so called— i.e., a separation deed whose only object is to provide for the parties living apart from one another—is ipso facto put an end to for all future purposes if the parties subsequently become reconciled and return to cohabitation.

This principle is too well known and too plain to require observation. For the very nature and object of the instrument is to provide for a state of circumstances which comes to an end on a cesser of the separation.

But a separation deed the primary object of which is to provide for the parties living apart may have also a secondary object—viz., that of effecting a permanent settlement of property to continue not only during the separation but in any event.

The question whether a deed is a separation deed which will be avoided upon a return to cohabitation or a post-nuptial settlement which will continue valid notwithstanding a return to cohabitation turns upon the intention of the parties to be gathered from the terms of the deed. [Emphasis added. Internal citations omitted.]

18The common law rule dates from a time when views about marriage, cohabitation, separation, and divorce were very different. At one time, separation agreements were considered “contrary to public policy.” To cohabit without the benefit of marriage was “to live in sin.” The courts of equity would not enforce an executory separation agreement, i.e. one entered before the separation, though in contemplation of a future separation. Cohabitation for even a short time after execution of the agreement rendered the deed of separation void: see Law of Husband and Wife, at p. 457.

19Today, marriage contracts, cohabitation agreements, and separation agreements are all part of the legislative landscape: Family Law Act, R.S.O. 1990, c. F.3, ss. 52-54. Parties should be encouraged to enter agreements to define their rights and obligations. Jurisprudential shoals upon which an agreement may founder unnecessarily do not advance that goal.

20Notwithstanding the sea change in family law over the past century, the common law reconciliation rule remains a part of Canadian common law and continues to make some sense. Where the raison d’être of the agreement is separation and parties reconcile, the foundation for the separation agreement dissolves. I see no basis to extend this logic so as to void a cohabitation agreement following reconciliation of the parties. Under such circumstances, the reconciled parties have returned to the very state contemplated by the cohabitation agreement.

21In Langdon v. Langdon, 2015 MBQB 153, 321 Man. R. (2d) 52, Little J. remarked, in obiter, that he was “far from certain” that reconciliation should affect a cohabitation agreement in the same manner as a separation agreement. He explained, at paras. 138-140:

I do not think it a proper inference or presumption to say that a resumption of cohabitation nullifies [a cohabitation agreement] concerning a property and support regime. Renewed cohabitation in that context is more reflective of an intention to return to a relationship where one's rights were formerly delineated by the agreement. It does not seem to me to be at all reflective of an intention to enhance one party's rights or to impose greater obligations on the other, something that will inevitably result when the cohabitation agreement no longer exists.

It seems to me that if there is to be an inference or a presumption at all it ought to be (barring other evidence of intention) that the resumption of cohabitation returns you to the position you held in the relationship to which you have now chosen to return. Presuming the termination of the cohabitation agreement on resumption of cohabitation could lead to strategic separations and reconciliations designed to nullify cohabitation agreements. It also results in a policy requiring redocumentation on resumption of cohabitation.

I do not regard the first as good policy; the second is impracticable and is not in keeping with the way people typically lead their lives.

22I agree with the views expressed in these passages, although I would not go so far as to say there is a presumption in favour of the cohabitation agreement’s continued validity following reconciliation. The applicability of a cohabitation agreement to the circumstances of the parties will depend on the interpretation of that agreement and the light it sheds on the intentions of the parties.

Interpretation of the cohabitation agreement

23The words of the contract are central to the interpretive exercise. As observed in Sattva, at paras. 47-49, the goal is to ascertain the objective intent of the parties and the scope of their understanding, reading the contract as a whole, giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of the formation of the contract.

24Deference is owed to first-instance decisionmakers on interpretation of contracts, absent an extricable error of law which may include “the application of an incorrect principle, the failure to consider a required element of the legal test or the failure to consider a relevant factor”: Sattva, at para. 53.

25In this case, the motion judge made extricable errors of law in his interpretation of the cohabitation agreement. He approached the interpretive process with the idea that the agreement had to gainsay application of the common law test. He did not analyse the intentions of the parties at the time they entered into the agreement nor the contractual language itself. He made a finding about their subjective intentions not feasible on the record before him, based on a proposed transfer that was contemplated by the cohabitation agreement and not, as he held, incompatible with it.

26The cohabitation agreement at issue envisaged cohabitation, marriage, divorce, separation, and death of a party. It provides “the parties intend by this Agreement to outline their respective rights and obligations while cohabiting, before or during marriage, upon death and in the event of separation”.

27There is nothing in this language that temporally restricts the application of the terms to cohabitation at a defined time or restricts the broad language to cohabitation before separation followed by reconciliation. Were this the intention of the parties, such language would be expected in a context where the parties executed the agreement in the context of a relationship punctuated by multiple separations. That there could be multiple separations and reconciliations in the future would have been within the reasonable contemplation of these parties at the time the agreement was signed. An ordinary person reading this agreement would consider that if the parties cohabited under any circumstances, the agreement applied.

28The agreement was intended to be long-lasting, noting “the parties have considered in developing this Agreement future untold events, such as loss of income and major illness or disability.”

29The release of claims for support, property and equalization were broad:

7. SUPPORT AFTER BREAKDOWN OF MARRIAGE

(2) Krebs and Cote each release the other from any and all obligations to provide spousal support, maintenance, or financial assistance of any nature or kind, pursuant to the provisions of the Family Law Act, the Divorce Act, the Succession Law Reform Act or any other law of any jurisdiction whatever, and release all rights to claim or obtain support, interim support, maintenance, interim maintenance, compensation for any loss of employment opportunity or career advancement as a result of the cohabitation or marriage, or any financial assistance of any nature or kind, pursuant to any laws of the Province of Ontario or any other jurisdiction.

8. REAL PROPERTY

(e) Subject to the rights of each party contained in Part II of the Family Law Act, in the event of separation, or death after marriage, each party hereto waives and releases the other from any claims which either may have or may acquire under the laws or any jurisdiction, and in particular under the provisions of the Family Law Act (Ontario), to any claim to any right or any title in the real property owned or registered in the name of the other, including any matrimonial home registered solely in the name of one of the parties, including all claims, rights and interest to and in:

(i) ownership of the property of the other; (ii) possession of the property of the other; (iii) division or equalization of the real property of the other; (iv) compensation by payment of any amount of money or by award of a share in property or an interest therein, for contribution of any kind whether direct or indirect, monetary or non-monetary made to the property of the other.

(g) In the event the parties do not marry, neither shall have any claim to any right, title or interest in any real property registered in the name of the other, including:

(i) ownership of the property of the other; (ii) possession of the property of the other; (iii) division or equalization of the real property of the other; (iv) compensation by payment of any amount of money or by award or a share in property or an interest therein, for contribution of any kind whether direct or indirect, monetary or non-monetary made to the property of the other.

9. PERSONAL PROPERTY

(1) Each party waives all rights under Part 1 of the Family Law Act and the law of any other applicable jurisdiction, and, instead, each with the other agree by this Agreement that, whether they have married or not:

(a) Rights of ownership govern the division of property between them, and there will be no division or equalization of property except according to ownership or as may be otherwise provided herein, it being acknowledged and agreed by Krebs and Cote that the assets listed in Schedule “A” to this Agreement were owned by Krebs on the date hereof and that the assets listed in Schedule “B” to this Agreement were owned by Cote on the date hereof and as such, for the purposes of this Contract, those assets, or any assets that can be traced into or from the same, and any accretions to or increase in the value of such assets, shall not be subject to a division or an equalization of net family property should death of either party or a breakdown of the marriage or relationship occur. (b) Neither party will be entitled to a division of property owned by the other. (c) Neither party will be entitled to the equalization of their net family properties. (d) Neither party will be entitled to a share of any property or the value of any property owned by the other, unless otherwise provided for in this Agreement. (e) All personal property acquired in the future that is held in the names of both parties, or that has been acquired during the marriage of the parties and for which neither party can show proof of ownership, shall belong to the parties jointly and equally and shall be divided equally in the event of a separation or after death of one of the parties during the marriage.

30Further, the agreement specifically contemplated that the one party could transfer property to the other, and that property would be deemed to be owned by the party to whom the property was transferred. To this extent, the 2016 discussion of transfer of some part of title to the matrimonial home was entirely consistent with the cohabitation agreement. If the cohabitation agreement was not in force, the respondent would have a right to equalization of net family property, calculated on the basis that the value of the home was included in the appellant’s net family property. If the appellant was considering giving the respondent an interest in the home and the agreement were in force, either a transfer, as discussed, or an amendment to the agreement would be necessary.

31The waivers in ss. 11, 12 and 13 of the agreement are broad, and there is no hint of any limitation to their application:

11. WAIVER AND RELEASE

Except as is otherwise provided in this Agreement, each party releases all rights to and interests in property of the other, whether real or personal, which rights or interests he or she may have now or in the future, and more particularly each releases:

(1) Rights and interests respecting ownership, division or possession of the property; (2) Rights and interests arising out of any part of the Family Law Act or any similar statute in any jurisdiction, or any successor or amending statute, should the parties marry; (3) Claims to compensation or a share of property because of any contribution by way of money or money’s worth to the property of the other, whether the parties marry or not; (4) Any other right or interest resulting from the relationship of the parties through marriage or cohabitation; (5) Rights and interest in any deferred profit sharing plan or plans, pension or retirement plan or plans or benefits, savings or investments of any nature to which the other may be entitled.

12. RELEASE AGAINST THE ESTATE OF THE OTHER

Except as provided in this Contract, and subject to any gifts or designations of insurance or pensions from one of the parties to the other validly made either before or after the date of this Agreement or rights contained in the Last Will and Testament of either party, each of Krebs and Cote releases all rights which he or she has, had or may acquire under the laws of any jurisdiction in the estate of the other, and in particular:

(3) under the Succession Law Reform Act, or any other statute of any applicable jurisdiction:

(a) to share in the estate of the other upon the other dying intestate; (b) to an allowance or payment as a dependent from the estate of the other; (c) to elect against the provision of a party’s Last Will and Testament; and

(2) under the Family Law Act, or any other statute of any applicable jurisdiction, to elect to take under the will of the deceased party or to receive the entitlement pursuant to Part 1 of the Family Law Act, or any such similar statute or any such other jurisdiction, should the parties marry.

13. RIGHTS ON DEATH

In the event of the death of one of the parties hereto, nothing in this Agreement shall be deemed to constitute a waiver of rights to:

(i) Any property devised or bequeathed by the deceased to the other under the terms of the deceased’s will; (ii) Proceeds of any insurance or health insurance, pension registered retirement savings plan or other plan to which the survivor may be entitled as a designated beneficiary or otherwise pursuant to the terms of the said plans on the death of the deceased; and (iii) Any property held by the deceased and the survivor as joint tenants which passes to the survivor by right of survivorship.

32Section 17 of the agreement reflects s. 53(2) of the Family Law Act and provides “If the parties marry at any time in the future, this Agreement shall become a Marriage Contract.”

33Reading the contract as a whole, in the context of the relationship of the parties at the time it was signed, I conclude that it was intended to apply despite a separation and subsequent reconciliation, preceding the final separation.

Were the terms of the agreement exhausted by a triggering event?

34The motion judge relied on Sandrelli v. Sandrelli, 2015 ONSC 7913, 72 R.F.L. (7th) 135, observing that case held, at para. 32, that “[d]ischarge of a contract by performance describes the situation where the contract comes to an end when both parties perform their contractual obligations in the manner prescribed by the contract”. The motion judge noted that case suggested “if the parties intend the agreement to continue after they reconcile the agreement needs to state that,” citing Sandrelli, at para. 41.

35Sandrelli was a case about a cohabitation agreement that explicitly contained a clause providing for disposition of property upon the happening of certain “triggering events” including “where the parties ceased to cohabit for a period of greater than 90 days.” Again, the motion judge in that case approached the matter from the stance that the common law rule applicable to separation agreements applied. She noted that the cohabitation agreement did not provide for reinstatement upon reconciliation following a triggering event and that there was no presumption in law that a reconciliation revives a cohabitation agreement.

36The respondent relies on Sandrelli to argue that the payment by the appellant to the respondent of $5,000 was a similar triggering event which brought the agreement to an end. Counsel for the respondent analogizes this to an employment contract calling for payment to an employee on termination. Once the payment is made, the terms are fulfilled and there is no scope for further operation of the contract. If the employee returns to work, in this analogy, the parties cannot rely on the old contract; they must enter a new agreement.

37I would respond that the question of the scope of the contract and its application depends on the language of the contract and the interpretation given to that language. Adopting the respondent’s analogy, if the same employment contract called for releases, there is no doubt that those releases would be enforced despite payment as envisaged by the contract. If there was a non-competition promise contained in the agreement, that too would likely be enforceable. In some sense, the approach advocated by the respondent is tautological. The agreement comes to an end when there is nothing left to bind the parties, i.e., when it comes to an end. In any event, the analogy is not perfectly apt, as employment is a contractual relationship, while cohabitation is not necessarily so.

38For the same reasons as expressed earlier, I would conclude that the broad language of the cohabitation agreement evinces an objective intention to have the agreement apply in general to cohabitation, including that which follows a separation and reconciliation. One could reasonably conclude that the $5,000 payment was intended to assist the respondent with a move to her own accommodation.

39As noted in Hartshorne v. Hartshorne, 2004 SCC 22, [2004] 1 S.C.R. 550, at para. 67, courts should respect private arrangements that spouses make for the division of their property on the breakdown on their relationship particularly where the agreement was negotiated with independent legal advice.

40As I stated earlier, there is no presumption that reconciliation brings an end to cohabitation agreements. Each particular cohabitation agreement must be interpreted in accordance with contractual principles to ascertain the objective intentions of the parties. Unquestionably, it would have been better if the cohabitation agreement had contained specific provisos dealing with the possibility of separation and reconciliation, making unnecessary this interpretive process.

D. Disposition

41For these reasons, I would allow the appeal, set aside the declaration below that the cohabitation agreement is no longer of any force and effect, and substitute a declaration that the rights and obligations of the parties are governed by the cohabitation agreement they executed.

42Costs of the appeal are awarded to the appellant in the agreed sum of $2,500.00, all inclusive. The award of costs for the motion below in favour of the respondent is reversed in favor of the appellant, in the same amount as awarded below.