REASONS FOR DECISION

CASULLO J.:

OVERVIEW

[1] Richard Froud and Susan Froud are siblings. Richard commenced this action seeking disgorgement of certain proceeds received by Susan following their mother’s death. While the statement of claim advanced various heads of damage, the trial ultimately centered on the precise terms of an agreement entered into between Richard, Susan and their mother, and whether the agreement was breached by Susan.

BACKGROUND

The Family

[2] The Frouds lived on a working farm in Schomberg, Ontario. George, the father, looked after the physical aspects of running the farm. Mollie, the mother, ran the administrative side of the business, and did not shy away from getting her hands dirty, especially in her vegetable gardens. Their children, Susan and Richard, worked the farm after school, weekends, and summers, and were paid for their efforts.

[3] In 1995, George was diagnosed with cancer. Shortly thereafter, he and Mollie purchased a life insurance policy with a face value of $1,000,000 (the “Policy”). Given George’s diagnosis, the Policy insured only Mollie. Susan and Richard were named as equal beneficiaries. George and Mollie understood, through estate planning meetings, that the proceeds of the Policy would pass outside of the estate.

[4] In July of 1996, George and Mollie paid cash for a second home on Highway 9 in Simcoe County (“Highway 9”). In August of 1996, Richard and his first wife, along with their two children, moved into Highway 9. The court heard various rationales behind George and Mollie’s decision to buy Highway 9: it was an investment property; it was purchased to give Richard and his family a head start[^1]; it was purchased as a retirement home for George and Mollie.

[5] Richard was expected to maintain Highway 9, as well as pay utilities and expenses. Richard agreed he did not pay property taxes or rent for the 13 years he lived at Highway 9. His understanding was that maintaining Highway 9, in addition to work he did at the farm, was in lieu of paying the taxes on Highway 9. If Mollie had a ledger that kept track of this quid pro quo, the court was not provided with a copy.

[6] While Richard testified that he made some cash payments to Mollie directly, there was no evidence to support this.

[7] In 1997, George became too ill to operate the farm. He arranged for the fields to be rented out, thereby generating a monthly income. George passed away in 1998.

[8] A couple of years after George’s passing, Mollie began a part-time job at the same company as Susan, where she worked until her retirement in 2007. Susan and Mollie would commute to work together, serving to strengthen their already close bond.

[9] Once she retired, it became increasingly clear to Mollie that she would have to sell the farm. It was too much of a burden to maintain on her own, both physically and financially. Mollie had an annual income of about $30,000, made up of CPP and OAS, as well as draw-downs from her investments. In terms of expenditures, over and above Mollie’s personal expenses of about $14,000 per year, she paid $26,000 annually in Policy premiums, and the taxes and insurance on Highway 9. The parties agreed that Mollie’s annual deficit was in the vicinity of $30,000.

[10] In consultation with Richard and Susan, Mollie sold the farm in 2008. Because George and Mollie owned the farm in partnership with another couple, the Devalds, Mollie received 50% of the sale proceeds, or just under $240,000.

[11] While there was some discussion of Mollie moving into Highway 9 with Richard and his second wife, Michelle Stevenson, this did not come to pass. Mollie bought a home in Beeton, closer to Susan, with the proceeds of sale from the farm.

[12] Susan assisted Mollie both before and after her move to Beeton. She would take Mollie to doctor’s appointments, or meetings with her financial planner, and assist Mollie with her finances (i.e. helped to set up automatic withdrawal of bill payments, monitored her accounts to ensure she was not being taken advantage of financially, etc.). Susan also co-ordinated Mollie’s family visits to the UK in 2010 and 2012, travelling over with her each time, although returning home earlier.

[13] On the other hand, Richard did not get involved with Mollie’s finances. His evidence was that his parents never discussed their finances with him or Susan. It is clear from Richard’s evidence that for much of his time at Highway 9, he did not consider the financial burden he created by living at Highway 9 for 13 years, without making any payments.

[14] By all accounts Mollie was organized, thorough, bright and kind. She understood both business and personal finances, and was proudly self-sufficient. She prepared personal income tax returns for family and friends. Lacking computer skills, Mollie would do the bookkeeping by hand, and Susan would input the numbers into the computer. Clearly a “numbers” person, Mollie was also treasurer of her church.

[15] On at least two occasions (2004 and 2006), Mollie had considered reducing the face value of the Policy, and had insurance work-ups done to assist in considering her options. However, she always chose to maintain the Policy at $1,000,000.

[16] For reasons unknown, the Policy lapsed in 2006. Without involving Susan or Richard, Mollie retained a lawyer to take whatever steps were necessary to bring the Policy back into good standing.

[17] Frank Mullen of IPC Investment Corporation was Mollie’s financial advisor. In an agreed Statement of Facts (submitted verbally), the court was advised that Mr. Mullen met with Mollie semi-annually to review her investments. Mr. Mullen advised the primary issue that occupied his time with Mollie was the lapsed Policy. As a side issue, he and Mollie did discuss the prospect of reducing the face value of the Policy, and he agreed with her that it made financial sense to maintain it at $1,000,000.

[18] In 2009, Mollie was diagnosed with colon cancer and required surgery. She stayed with Susan and Susan’s husband, Alain Corbeil, during her lengthy recovery, and returned to her Beeton home as soon as was practicable.

[19] While there were submissions from Richard accusing Susan of exercising control over Mollie and her finances, I find this was not borne out by the evidence. Mollie very clearly maintained control of her finances and life choices. She participated in meetings with her financial planner, and on more than one occasion, considered her options with respect to the Policy on her own initiative.

Estate Planning Documents

Wills

[20] Mollie’s 1998 will named Susan and Richard as estate trustees (“1998 Will”). Richard was to receive Highway 9 and Susan was to receive the Schomberg farm, with the balance of the residue of the estate being divided equally between them.

[21] In 2009, Mollie retained Roy Gordon (“Gordon”), who was Mrs. Devald’s real estate lawyer. Mollie provided Gordon with instructions to draft a new will (“2009 Will”). Susan was to be the sole estate trustee. By this time, Richard had already acquired Highway 9, and the Beeton home was left to Susan. As with the 1998 Will, the bulk of Mollie’s assets were to be distributed outside of her estate.

[22] While Mollie provided instructions in 2009, the 2009 Will was not signed until March 6, 2012. It is unclear why three years passed before Mollie signed the 2009 Will. Gordon, who was a witness at the trial, was unable to shed light on the time lag.

Powers of Attorney

[23] In 1998, Susan was given a general power of attorney to assist Mollie with banking at CIBC. This power of attorney was only used to pay Mollie’s bills while she was visiting family in England.

[24] In 2009, Mollie instructed Gordon to draft powers of attorney for both property and personal care, naming Susan as her attorney. Susan did not begin acting on the power of attorney for property until 2012, at Mollie’s request. There is no evidence that Susan ever exercised the power of attorney for personal care.

[25] Richard’s evidence was that he thought he and Susan were joint powers of attorney for both personal care and property, although he was never provided documentation confirming this.

Family Discussions Concerning Mollie’s Financial Future

[26] Even after selling the farm, Mollie faced a deficit. She could not accomplish her estate planning goals, or perhaps even provide for her own future, without changing her financial plan. Mollie was only in her mid-seventies, and everyone anticipated she would live into her nineties, as her mother did before her.

[27] Discussions began between Susan and Mollie in 2008, and Richard was brought into the loop in 2009. It is fair to say Mollie had competing goals. She wanted Richard to remain in Highway 9, but she also wanted to ensure she could continue to pay the premiums on the Policy. Something had to give.

[28] Three seminal documents provide context to the discussions regarding Mollie’s financial future: Susan’s January 4, 2009 email to Richard; Susan’s April 2, 2009 email to Richard; and a document entitled “Preliminary ‘Inheritance’”. Each document is examined below.

January 4, 2009 Email

[29] In 2008, Susan assisted Mollie in preparing financial worksheets summarizing Mollie’s financial situation. The worksheets provided a synopsis of Mollie’s 2008 Income (monthly and annually) and a synopsis of Mollie’s 2008 Expenses (monthly and annually). Susan emailed the worksheets to Richard on January 4, 2009, along with a cover letter, and a document entitled “Estate Planning.”

[30] Richard took no issue with the accuracy of the worksheets – indeed, by 2009, Richard agreed his mother’s financial situation was of concern.

[31] Susan’s cover letter demonstrates that the road to Mollie’s fiscal security would have to be a family affair. Mollie’s increasing inability to maintain her three assets (her Beeton home, Highway 9, and the Policy) needed to be addressed head on, and collectively.

[32] Highway 9 was a valuable asset, and selling it would allow Mollie to pay off the Policy and eliminate monthly premiums. By 2009, Mollie had paid close to $350,000 in premiums, and she was committed to doing all that she could to hold on to the Policy.

[33] Susan’s cover letter described how Mollie was spending proceeds from the farm sale, and liquidating other investments, to cover the costs of the insurance premiums, as well as the taxes and insurance on Highway 9. Susan estimated that at the rate Mollie was spending, her investments would be depleted in two to three years, leaving no funds available to cover future expenses.

[34] The “Estate Planning” sheet presented the following five options (paraphrased) to assist with re-structuring Mollie’s finances:

Option 1: Maintain status quo;

Option 2: Sell Beeton home and move in with Richard after significant renovations to Highway 9;

Option 3: Highway 9 sold on the open market;

Option 4: Highway 9 sold to Richard for $330,000 to cover the cost of paying up the life insurance to $1,000,000; or

Option 5: Highway 9 sold to Richard for $150,000 to cover the cost of paying up the life insurance to $500,000 only, and making Susan the sole beneficiary.

[35] Of the five options, Susan suggested the most sensible choice would be selling Highway 9. In an effort to assist Richard, it was suggested that Mollie could loan Richard the net sale proceeds over and above what was required to cover the insurance costs, so Richard would have the money to make a down payment on a home.

[36] Mollie was diagnosed with colon cancer shortly after this email was sent, so no action was taken immediately. Mollie was in and out of Hospital over the next two months. However, once Mollie was well enough, the financial discussions recommenced, and a family meeting was held at Susan’s home on March 29, 2009.

April 2, 2009 Email

[37] Based on their discussions at the March 29, 2009 meeting, Susan sent Richard a follow-up email, the opening paragraph of which reads:

I am writing to provide a brief summary of our discussions on Sunday, March 29, 2009 and to confirm the verbal commitment you made to the proposed go-forward plan as summarized below. If you are agreeable, I will make necessary arrangements for a mortgage/line of credit (LOC) at the bank and for preparation of a formal contract of this agreement to be signed by all parties (you, Mom and I).

[38] According to the email, Mollie, Richard and Susan all agreed Highway 9 should be sold. While Susan remained of the view it should be sold immediately, Mollie did not want to put Richard and his family out on the street. Thus, a compromise ensued, whereby Mollie would take out a mortgage/LOC against Highway 9, and borrow from that to pay the Policy premiums. The expectation at this point was that the Policy would remain at $1,000,000.

[39] In return, Richard would continue to live at Highway 9 over the next four years, carrying out renovations according to a schedule which would see the property listed for sale in March 2013.

[40] Richard was to advise whether he agreed with the conditions set out in the email by April 8, 2009. If no reply was forthcoming, Susan threatened that eviction would be the only option.

[41] Susan’s email concludes with the following sentiment:

Mom’s welfare should be our first and foremost priority at this point, even if she thinks yours is. You will be in no position to support her later if she requires it, so it is up to me to make sure she is financially secure for the rest of her life.

[42] Richard did not reply in writing to the email. His evidence is that he told Susan over the phone he would rather buy Highway 9 than accept any of her options. Susan does recall a telephone conversation to this effect.

Preliminary “Inheritance”

[43] Susan testified that this document represented the agreement she, Mollie and Richard had arrived at in 2009. She created the document in May 2009, giving a copy to Mollie, Richard and Gordon[^2]. Richard’s lawyer argued that this document was never produced to Richard. During cross-examination, Richard was unable to say whether he had received and reviewed the document during these financial discussions.

[44] The Preliminary “Inheritance” document is undated. The first page details the following inheritance Richard and Susan would be entitled to prior to Mollie’s death:

For Richard:

Hwy 9 property
Currently valued at approximately $455,000
Property to be “sold” to Richard. He pays $155,000. Balance considered a “gift” along with forgiveness of past related costs (free rent, taxes, insurance paid since purchase in 1996).

For Susan:

TransAmerica life insurance policy
Currently has $1,000,000 death benefit with Richard and Susan as beneficiaries (50% each) but outstanding premiums (approximately $2,600 per month) not affordable
Change beneficiary to Susan (100% irrevocable)
Investigate and undertake most appropriate action to reduce life insurance costs.
Options to do this may include but are not limited to:
- Reduce death benefit to $500,000 and pay-up premiums using approximately $150,000 of proceeds from Hwy 9 house sale
- Sell policy or portion thereof to third party

[45] The second page provides a breakdown of Richard’s obligations: pay Mollie $150,000; pay any outstanding bills relating to Highway 9; pay all fees relating to the transfer of title to Highway 9; and pay any capital gains Mollie incurred in respect of the sale of Highway 9.

[46] There was a further condition, to the effect that if Richard were to sell Highway 9 within 5 years of purchasing it, 50% of any profits over $500,000 would be payable to Mollie. However, based on discussions with Gordon, this condition did not form part of the agreement.

[47] Richard disagreed that this reflected the agreement he, Susan and Mollie had arrived at. Instead, he verbally advised Susan he chose Option #5 contained in her January 4, 2009 email. Option #5 is reproduced in its entirety below:

Sell/gift Richard his house at discounted rate and change life insurance.

Sell/gift Richard his house for $150,000 to cover costs for Mollie to pay-up life insurance to $500K
Change beneficiary on life insurance ($500K only) to Susan

IMPLICATIONS:

Richard keeps his house but incurs reduced mortgage costs (essentially pay back of “free rent/expenses” for past 15 years) and this becomes his inheritance

Pay penalty for changing insurance policy but Susan gets “similar” inheritance later

Investment savings available to cover future living or unforeseen expenses

June 2009 and Following

[54] Mollie remained in her Beeton home, by all appearances happy and functioning independently. As noted earlier, she travelled to the UK in both 2010 and 2012. As the years progressed, Mollie started to show of forgetfulness. However, she compensated for this by keeping a detailed calendar, in which both she and Susan made entries. Mollie’s lack of capacity was plead in the statement of claim, but Richard wisely chose not to advance this argument at trial.

[55] In 2011, after making a $13,000 payment towards the Policy, Mollie made a lump-sum payment of $140,000, from which future monthly premiums (for the next five years or so) would be drawn. Susan advised the court that once this amount was depleted, she would take on the responsibility of paying the premiums on Mollie’s behalf.

[56] Mollie was hospitalized following a fall in October 2012. The medical records indicate that when Mollie was discharged home on November 28, 2012, she was palliative: her colon cancer had returned and metastasized. Mollie passed away on December 16, 2012, less than three weeks later.

[57] Administration of Mollie’s estate ensued over the next one-and-a-half years. Given that the bulk of Mollie’s assets passed outside of her estate (Richard and Susan received about $120,000 each from Mollie’s investments), Richard and Susan’s share of the residue was $7,767.71.

[58] It was not until 2014, after meeting with another of Mollie’s financial advisors at IPC, that Richard learned the Policy had not been reduced to $500,000, and that Susan had received $1,168,480.52 when the Policy paid out.

[59] Richard sold Highway 9 in 2014 for $678,000.

Extraneous Evidence

[60] There was much evidence that I have left out of this decision, as the narrative was irrelevant to the terms of the agreement. Letters from Susan’s husband to both Richard and Mollie, a letter from Richard to Susan written in 2014, and even the cover letter to Susan’s January 4, 2009 email, all provide insight to the dynamics in the family, and the tensions simmering underneath, particularly when Mollie was recuperating from surgery and her financial future was in jeopardy. Susan was clearly bitter about the preferential treatment Richard received over the years. However, this does not lead me to believe she in any way took advantage of Mollie.

[61] Michelle Stevenson and Alain Corbeil testified at the trial, as did Roy Gordon. Neither Michelle nor Alain were present during the 2009 discussions between Mollie, Susan and Richard, so they could only speak to their observations of the family over the years. As for Gordon, who is retired, he had no independent memory of the work he did for Mollie.

DISCUSSION

[62] Richard’s position at trial is best captured by paragraph 28 of the statement of claim:

In spite of an agreement to the contrary, the Defendant, Susan Mary Froud, failed to reduce the life insurance premium payments on the TransAmerica Canada life insurance and thereby wrongfully, and without knowledge of the Plaintiff, received the whole of the $1,000,000.00 life insurance policy.

[63] Thus, the key question for the court is whether there was an agreement between Richard, Susan and Mollie to reduce the face value of the Policy from $1,000,000 to $500,000.

[64] Richard believes the terms of the agreement were clear. In exchange for paying $155,000 for Highway 9, Mollie would gift him $300,000, and Susan would be the sole beneficiary of the Policy, reduced to $500,000. In other words, Richard chose Option #5, the terms of which were contained in Susan’s January 4, 2009 correspondence.

[65] Susan concurs with Richard’s version of the agreement, with the exception of reducing the face value of the Policy. She testified that reducing the Policy was an option early on in the discussions, but ultimately that did not make good financial sense to Mollie. By this time (2009) Mollie had already paid about $350,000 in premiums on the Policy. Paying another $150,000 to cap the Policy at $500,000 simply did not make sense. Given the evidence of Mollie’s financial acumen, which I accept, she would not have believed this was a fiscally responsible choice.

[66] Richard contends that Mollie always treated her children equally, and the terms of the agreement as advanced by Susan contradicts this objective. While it is true that Mollie’s 1998 Will reflects this intention, I find that by 2009, the dynamics had changed. Richard had been living at Highway 9 without paying rent, taxes or insurance for 13 years, and Mollie was in financial difficulty.

[67] Further, there was evidence before the court that equal treatment was no longer a priority for Mollie. For example, after she was diagnosed with cancer in early 2009, Mollie wrote out her estate planning wishes on a notepad from Southlake Hospital. After describing the funeral arrangements, Mollie notes, “After all expenses paid – remainder to be divided – Susan 2/3 of the whole in consideration that she has taken me to Med appointments, etc., 1/3 to Richard.”

[68] A second example of the shift in equal treatment is reflected in the handwritten notes Gordon made when taking instructions from Mollie concerning the 2009 Will. According to Gordon’s notes, Mollie told him that Susan looked after all her needs, whereas Richard had been a burden, particularly financially.

CONCLUSION

[69] Based on the evidence before me, I find that the terms of the agreement reached between Mollie, Richard and Susan were the terms delineated in the Preliminary “Inheritance.” Susan is not in breach of the agreement. There was no requirement that the Policy was to be reduced to $500,000 in exchange for Richard receiving $300,000 as a gift.

[70] Despite the conflicting evidence, I find that Richard was provided with a copy of the Preliminary “Inheritance” document, and he had an opportunity to review prior to signing the APS and Acknowledgment.

[71] However, even if this document was not provided to Richard, the APS, the Acknowledgment, and the beneficiary designation form speak for themselves. As set out in the APS, Richard received Highway 9, valued at $455,000, for $155,000. He was gifted the balance of $300,000. In exchange, as set out in the Acknowledgement, Susan would become the sole beneficiary of the Policy. The Acknowledgement is not conditional on the Policy being reduced to $500,000.

[72] Mollie signed the Change in Beneficiary Designation form on June 26, 2009. If she was of the view that reducing the Policy was a condition of the agreement, she would have ensured the face value was reduced at that time.

[73] Richard submitted that Susan was in breach of her fiduciary duties when negotiating the agreement. I disagree. The hallmarks of relationships in which a fiduciary duty has been found to exist are outlined in International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. (S.C.C.) at p.136. Such relationships tend to possess three general characteristics:

The fiduciary has scope for the exercise of some discretion of power;
The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[74] In 2009, no one was acting as a fiduciary to another party. Each of Mollie, Susan and Richard were acting in their own best interests, as they were entitled to do.

[75] There is a general organizing principle of good faith that underlies many facets of contract law: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 93. There were no bad faith negotiations in this case. Richard was not misled by Susan. He was not prevented from obtaining independent legal advice. Indeed, around the same time as he signed the Acknowledgment, he had retained counsel to represent him in the purchase of Highway 9.

[76] Richard was given the opportunity to remain an equal beneficiary with Susan on the Policy. However, doing so required sacrifice on his part: either buying Highway 9 for close to its fair market value, or moving out and allowing Highway 9 to be sold on the open market. He chose neither of these options, and instead paid $155,000 to receive his inheritance before Mollie’s death. As Susan’s lawyer described it, Richard had his “bird in the hand.” On the other hand, Susan would await her inheritance. She bore the risk, should Mollie live more than five years, of being solely responsible for the monthly premiums on the Policy once the $150,000 was depleted.

[77] In 2009, Richard received Highway 9, valued at $455,000, for $155,000. He sold Highway 9 for $678,000, realizing a profit of $523,000. He lived at Highway 9 free of charge for 13 years before he purchased it, conservatively estimated to be valued at $300,000 (rent at $1600 per month, plus taxes and insurance), which does not account for the present value of money. All told, Richard received in the vicinity of $823,000.

[78] In 2014, Susan received close to $1,170,000 in payouts on the Policy, as well as the Beeton home (valued at approximately $300,000), for an estimated total of $1,470,000.

[79] Susan is not in breach of the agreement reached between she, Richard and Mollie in 2009. Accordingly, Richard’s claim is dismissed in its entirety, and Susan is entitled to the entire value of the Policy.

[80] I invite the parties to come to an agreement on costs. If this is not possible, the parties are to make arrangements with the trial co-ordinator to schedule a two-hour costs hearing on a regular motions day in Barrie.

[81] If written submissions are going to be relied upon, they should be filed by the defendants at least fifteen days in advance of the hearing, and by the plaintiff at least ten days in advance of the hearing. No reply without leave of the court.

[82] In order to assess costs that are fair and reasonable, the reasonable expectations of the unsuccessful party are an important factor in the court’s determination. Accordingly, both parties are to provide a bill of costs.

CASULLO J.

[83] Released: February 3, 2020

[^1]: Richard was having trouble paying the rent elsewhere.

[^2]: The second page of the Preliminary “Inheritance” document was included in Gordon’s file, although the first page was missing.

Froud v. Froud, 2020 ONSC 726

Case Summary

REASONS FOR DECISION

OVERVIEW

BACKGROUND

The Family

Estate Planning Documents

Wills

Powers of Attorney

Family Discussions Concerning Mollie’s Financial Future

January 4, 2009 Email

April 2, 2009 Email

Preliminary “Inheritance”

Other Documentation

Acknowledgment

Agreement of Purchase and Sale

Change of Beneficiary Designation

June 2009 and Following

Extraneous Evidence

DISCUSSION

CONCLUSION

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues