ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-1349-00ES
DATE: 20121031

BETWEEN:

IN THE ESTATE OF LESZEK DRZAZGA, deceased
JOHN MENECOLA (referred to in the Will as John Menacola) as estate trustee of the ESTATE OF LESZEK DRZAZGA, deceased
Applicant

– and –

BARTEK DRZAZGA, WOJTEK DRZAZGA also known as VOYT DRZAZGA, MICHAEL DRZAZGA also known as MIKE DRZAZGA and THE CHILDREN’S LAWYER
Respondents

Lisa Sticht-Maksymec, for the Applicant

Michael C. Bruder, for the Respondent The Children’s Lawyer
Wojtek and Michael Drzazga, self-represented
Bartek Drzazga, not appearing

HEARD: October 1, 2012 in Brampton

DECISION ON APPLICATION

R.D. GORDON J.:

Overview

[1] The Applicant in this matter is the Estate Trustee of the Estate of Leszek Drzazga. He has sought direction from the court with respect to the interpretation of the deceased’s will. At issue are bequests of $150,000 made to each of the deceased’s three sons, and the distribution of the residue of the estate.

Background Facts

[2] Leszek Drzazga died on May 30, 2007 leaving an estate worth $655,488.57. He has three children, Bartek Drzazga, Wojtek Drzazga and Michale Drzazga. When he died, Mr. Drzazga had no grandchildren, but two have been born since.

[3] Mr. Drzazga was a Polish immigrant who did quite well for himself. As indicated by his son during submissions, he started out in Canada delivering pizza and ended up as a real estate agent who amassed not inconsiderable wealth.

[4] On April 17, 2007, Mr. Drzazga signed his Last Will and Testament, which was prepared with the assistance of a solicitor, Derek Ball. The dispositive provisions of the Will in question are not well drafted.

[5] There are four provisions of the Will which require interpretation, namely, paragraphs (e), (f), (g) and (h). Those provisions read as follows:

(e) TO PAY to my son, BARTEK DRZAZGA, the sum of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS; PROVIDED THAT, the amount shall be paid to him only if he purchases real property and the amount is secured by a no-interest second mortgage, with the said Mortgage of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS being payable to my Estate. If the property is sold and not replaced by another Mortgage within TEN (10) years, then the amount is to be paid back to my Estate. If my son owns the property, or a subsequent property, for a total of TEN (10) years, the Mortgage is to be discharged by my Trustee and my son shall be allowed to keep the sum of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS;

(f) TO PAY to my son, WOJTEK (VOYT) DRZAZGA , the sum of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS; PROVIDED THAT, the amount shall be paid to him only if he purchases real property and the amount is secured by a no-interest second Mortgage, with the said Mortgage of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS being payable to my Estate. If the property is sold and not replaced by another Mortgage within TEN (10) years, then the amount is to be paid back to my Estate. If my son owns the property, or a subsequent property, for a total of TEN (10) years, the Mortgage is to be discharged by my Trustee and my son shall be allowed to keep the sum of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS;

(g) TO PAY to my son, MIKE DRZAZGA , 75% of his school expenses if he has an average of at least 77% each semester, but if his grade average is lower than 77%, then my Trustee is to pay only one-half (1/2) of his school expenses. When my son reaches the age of twenty-four (24) years, my Trustee shall pay to my said son the sum of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00). The amount shall be paid to him only if he purchases real property and the amount is secured by a no-interest second mortgage, with the said Mortgage of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) being payable to my Estate. If the property is sold, then the amount is to be paid back to my Estate. If my son owns the property, or a subsequent property, for a total of TEN (10) years, the Mortgage is to be discharged by my Trustee and my son shall be allowed to keep the sum of ONE HUNDRED AND FIFTY THOUSAND ($150,000.00) DOLLARS;

(h) TO HOLD in trust the residue of my Estate, with the net income and such amount from the capital as my Trustee may consider appropriate from time to time to be used for the benefit of any grandchildren I may have, such as paying for the schooling and organized sport fees of my grandchildren and after TEN (10) years from the date of my death, all money remaining held in trust shall be divided equally among my grandchildren; PROVIDED THAT, should I have no grandchildren, or if there shall be no grandchildren living at such date, then the amount remaining shall be divided equally among my three (3) sons.

[6] The parties have identified the following seven issues:

1. When will the gift to each son vest?
2. Must a son own real property for a continuous or a cumulative period of 10 years?
3. When does the 10-year period begin to run (from the date of their father’s death? From the date the son first acquires property?)?
4. If a son sells the mortgaged real property must the money be immediately paid to the estate if a new property is not immediately acquired?
5. Must the estate advance $150,000 even if there is less than $150,000 of equity available in the property?
6. Who ought to pay for the costs of preparation, registration and discharge of each mortgage?
7. If a gift fails, who will be the residual beneficiaries?

Applicable Legal Principles

[7] The interpretation of a Will involves an effort to determine the intention of the Testator when the Will was made, having regard to the Will as a whole [see National Trust Ltd. v. Fleury 1965 18 (SCC) , [1965] S.C.R. 817, and Dice v. Dice Estate 2012 Carswell 8608, 2012 (Ont. C.A.)].

[8] In the event a Testator’s intention cannot be ascertained from the plain meaning of the language that was used in the Will, the Court may consider extrinsic evidence of the surrounding circumstances known to the Testator when the Will was made. The idea is to put the Court, to the extent possible, in the same position of the Testator when the Will was made [see Dice v. Dice Estate , supra].

[9] Only when, after considering the wording of the Will as a whole and available extrinsic evidence of the surrounding circumstances, there remains more than one reasonable interpretation of a Will is it appropriate to consider extrinsic evidence of the Testator’s actual intention, in an effort to resolve the issue [see Rudaczyk Estate v. Ukrainian Evangelical Baptists Assc. Of Eastern Canada 9 1989 4129 (ON SC) , 1989 , 34 E.T.R. 231 (Ont. H.C.J.), T.G. Feeny, The Canadian Law of Wills , 3d ed. (Markham, Butterworths, 1987)].

[10] If, after a consideration of all of these factors, the intention of the Testator cannot be determined, the gift fails for uncertainty.

Analysis

[11] Paragraphs (e), (f) and (g) of the Will provide for conditional gifts to Mr. Drzazga’s three children. By themselves, these provisions are somewhat unclear and when read together with the residue clause in paragraph (h) they seem to be inconsistent and confusing. In particular, the timing of the division of the residue of the Estate is inconsistent with the timing of these conditional gifts. That is, paragraph (h) anticipates that ten years after the death of the testator, the residue of the estate is to be divided equally among his grandchildren. However, paragraphs (e), (f) and (g) anticipate conditional gifts that on a practical basis cannot vest within that ten year period.

[12] In my view, the intention of the deceased cannot be discerned with any confidence from a review of the Will alone. It is therefore necessary that I consider extrinsic evidence of the circumstances surrounding the making of the Will. In that respect, I accept that Mr. Drzazga had been a full time real estate agent who believed strongly in real estate as a sound investment. I also accept that he had a close relationship with all three of his children. It would seem that he had an appreciation of the value of his estate, given that he made several drafts of the final Will in which he steadily increased the amount to be given to each child. I also accept the submission of the children that their father was a somewhat frugal man. Although these factors lead to a better understanding of the rationale behind the bequests, they do not assist much with the interpretation issues which have been identified.

[13] Accordingly, it is necessary that I look for direct extrinsic evidence of Mr. Drzazga’s intentions when the Will was made.

[14] Although the children of the deceased accept that their father intended to require them to invest in real estate as a condition of their inheritance, they were of the view their father did not intend to subject the estate to lengthy and potentially expensive administration. In their submission, the division of the residue ten years following his death reflected his desire to have a set date for conclusion of the estate and is in keeping with the manner in which he conducted his affairs. In their submission they were to have their bequest at the end of ten years either by way of forgiveness of the mortgage debt (if they had purchased and retained real property and given the estate a mortgage) or by payment to them of $150,000 if they had purchased but then disposed of real property prior to the ten year anniversary. Whatever then remained in the estate would constitute the residue and be divided among the grandchildren then alive.

[15] Mr. Ball, the solicitor who prepared the Will, was examined prior to the hearing and the transcript provided to me. Although his recollection is questionable on many aspects of his interaction with Mr. Drzazga, he indicated a clear recollection that the deceased wanted his sons to own real property for ten years before their bequest would become final. He also indicated that he was setting up the Will in this fashion because in ten years his sons would be older and presumably more responsible.

[16] Having reviewed the Will as a whole, the evidence of the extrinsic circumstances surrounding the making of the Will and the direct evidence of Mr. Drzazga’s intentions, I find his intention to have been to require his sons to own real estate for ten years as a condition of their bequests. I base this finding on the following:

1. The wording of each of the provisions specifically refers to each son owning property for a total of ten years, the clear inference being that a full ten years ownership was intended.

2. Mr. Drzazga amassed his wealth through real estate and viewed real estate investment as an important long term investment tool for his children.

3. Mr. Ball’s clear recollection was that the deceased intended to have his children hold real estate for ten years before their gift was final.

[17] That determination having been made, I will examine each of the questions posed by counsel.

When Will the Gift to Each Son Vest?

[18] The gift to each son will vest when he has held title to real property for a period of ten years.

Must A Son Own Real Property for a Continuous or a Cumulative Period of Ten Years?

[19] In order for a son’s gift to vest, he must own real property for a cumulative, not continuous, period of ten years. This is evident by the wording of the will which provides for owning “the property, or a subsequent property, for a total of ten years.”

Does the Ten Year Period of Ownership Begin to Run on Acquisition of Property or on the Death of the Deceased?

[20] The residue clause of the Will contemplates a determination of the beneficiaries of the residue of the estate on the ten year anniversary of Mr. Drzazga’ death. Because it refers to “money” remaining in trust at that time, one could interpret that it also contemplates that all of the estate will have been converted into money by that date and then be divided. However, given that each son must hold property for ten years before his gift vests and the virtual impossibility that they could do so by that ten year anniversary of their father’s death, it makes more sense that the word “money” be interpreted to mean “assets”, so that in the event the estate is the holder of a mortgage for any of the sons on that date, that mortgage, and the proceeds thereof in the event a gift does not vest, is to be included in the residue of the estate. By interpreting the Will in this fashion, it is apparent that the ten year period begins upon acquisition of real property by a son. A related issue is whether each son is restricted to a single replacement property. In my view, he is not. There is nothing in the Will which specifically addresses that issue. Given the length of the required ownership of property, the Deceased’s experience in real estate as an investment, and his anticipation that his sons may have children (which may have the effect of triggering a requirement for a different type of home) it is more likely that he intended not to restrict the number of properties that each son could hold in arriving at the cumulative total of ten years ownership.

If A Son Sells the Mortgaged Real Property, Must the Money be Paid to the Estate if a New Property is Not Immediately Acquired?

[21] Mr. Drzazga was specific in providing that payment of the money to each son be secured by a mortgage on the property acquired. In the event the property is owned by the son for less than ten years and is sold, the mortgage would have to be discharged. The gift to the son would not yet have vested and the estate would require payment of the full amount in order to render a discharge of the mortgage. The practical effect is that if a son sells a mortgaged property before the gift has vested, the money must immediately be paid to the estate unless it is used immediately for the purchase of another property.

Must the Estate Advance $150,000 even if there is Less than $150,000 in Equity in the Property?

[22] The bequest to each son requires that the amount advanced be “secured” by a second mortgage until it vests. I have little doubt that Mr. Drzazga, having been a real estate agent, appreciated the meaning of that word and intended that if the property sold before the gift had vested, there be sufficient equity in the property to ensure repayment to the estate of the $150,000. Accordingly, the Estate is not obliged to advance the entire $150,000 unless it is satisfied that there is at least $150,000 equity in the property.

[23] A related issue is whether an amount less than $150,000 can be advanced to each son, on security of a second mortgage. I would say no. The Will quite clearly contemplates the advance of the entire $150,000 and a second mortgage for that entire amount. There is nothing to indicate an intention to advance anything less.

[24] Another related issue is whether a son can secure the advance by way of a first mortgage or by way of a third mortgage. Again, Mr. Drzazga was a real estate agent and is taken to have a reasonable knowledge of mortgages. His specific direction that it be secured by a second mortgage is sufficient indication that the funds not be advanced based on the security of a third mortgage. However, a first mortgage can be expected to provide even better security than a second mortgage, and it is safe to assume that this too would have satisfied his desire to adequately secure repayment. This interpretation also avoids a son having to place a perfunctory first mortgage for a nominal sum to meet the requirement of a second mortgage.

Who Ought to Pay for the Costs of Preparation, Registration and Discharge of Each Mortgage?

[25] The parties were in general agreement that such costs should be paid by the Estate. I agree.

If a Gift Fails, Who Will be the Residual Beneficiaries?

[26] If a gift fails, it falls into the residue of the estate. When Mr. Drzazga signed his Will, he had no grandchildren. That being the case, the only reasonable interpretation of his Will is that the residue was to be divided among such grandchildren as he may have ten years after the date of his death.

[27] There are further issues set out in the Application that must also be addressed.

[28] The first is whether the term of the trust established for each child is indefinite. That is, must the money be held in trust to be advanced as provided in the Will indefinitely or is there a time at which if the condition of the gift has not been met, the gift fails. The dispositive provisions of the Will provide that “If the property is sold and not replaced by another Mortgage within TEN (10) years, then the amount is to be paid back to my Estate. If my son owns the property, or a subsequent property, for a total of TEN (10) years, the Mortgage is to be discharged...” This provision indicates the Testator’s recognition that investing in real estate sometimes involves purchases and sales over time. It reflects his intention that to be eligible for the gift a son must own real property for a cumulative period of ten years. It also reflects his intention that if, after his death, there is any continuous period of ten years when the devise is not advanced by way of second mortgage, the gift would fail. Accordingly, the $150,000 must be held in trust for each son until one of three things happens: (1) He purchases real estate and is the owner of real estate for a period of ten years in which case the gift vests; (2) He fails to purchase real estate within ten years, or having purchased and sold real estate, fails to purchase further real estate for ten consecutive years, in which case the gift fails; or (3) He dies prior to having held real estate for a cumulative period of ten years, in which case the gift fails. For the son Mike Drzazga, the ten year period during which he must first acquire real property begins when he reaches age 24.

[29] As a result of this, there may potentially be several lengthy periods of time during which the monies are held in trust by the estate, earning income. The bequest to each child must be maintained until one of these events is complete. Given the estate will be paying the costs associated with placing the mortgages, it is appropriate that income earned from each son’s $150,000 prior to the vesting of the gift accumulate and be used to pay those expenses. If, when the gift eventually vests, there is unspent income related to the gift, it should fall into the residue to be divided among the grandchildren alive on the ten year anniversary of the deceased’s death.

[30] I trust that the rulings provided for herein answer the various questions raised by counsel in the facta and argument.

[31] With respect to costs, this is the type of case in which it is appropriate to order costs payable from the estate. I have reviewed the costs outlines provided by the Applicant ($26,949.66) and the Office of the Children’s Lawyer ($22,808.64). The issues confronting the parties were reasonably complex. The issues are important to those involved, as there are substantial sums of money at play. Although at first glance the costs may seem high, the time and effort involved to move this matter to a hearing and to thoroughly canvass the issues was considerable. In all of the circumstances, it is appropriate that costs be awarded as claimed, payable from the estate. The sum awarded in favour of the Office of the Children’s Lawyer shall be payable directly to Lazier Hickey LLP.

R.D. Gordon J.

Released: October 31, 2012

COURT FILE NO.: CV-11-1349-00ES

DATE: 20121031

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: IN THE ESTATE OF LESZEK DRZAZGA, deceased JOHN MENECOLA (referred to in the Will as John Menacola) as estate trustee of the ESTATE OF LESZEK DRZAZGA, deceased Applicant – and – BARTEK DRZAZGA, WOJTEK DRZAZGA also known as VOYT DRZAZGA, MICHAEL DRZAZGA also known as MIKE DRZAZGA and THE CHILDREN’S LAWYER Respondents DECISION ON APPLICATION R.D. Gordon J.

Released: October 31, 2012