D’Andrade v Schrage: Marriage Contracts and “Good Faith” Negotiations
The matter of D’Andrade v Schrage was an interesting case out of the Ontario Superior Court of Justice. The judgment of Justice Sachs, released February 28, 2011, dealt with a fairly novel issue: namely, whether a marriage contract should be set aside because, unbeknownst to the husband, on the day the wife signed the contract she was having an affair and, more importantly, was contemplating separation.
The Respondent, Mr. Schrage, and Applicant, Ms. D’Andrade, began cohabitating in 1998 and married in 2001. Mr. Schrage, who was considerably older and wealthier than the applicant, had been married three times before, while the marriage was Ms. D’Andrade’s first. Throughout the course of their relationship, the parties entered into a number of domestic contracts, the last of which was entered into in December 2007.
Under the December 2007 agreement, Ms. D’Andrade released her rights to spousal support and to an equalization of net family property. The agreement also set out Ms. D’Andrades’ entitlements to certain jointly-owned properties. Finally, the agreement provided for lump sum payments to Ms. D’Andrade, the amount of which varied depending on the number of years of cohabitation.
Shortly after the December 2007 agreement was signed, Mr. Schrage precipitated the separation from the applicant after discovering she was having an affair. Ms. D’Andrade admitted that this affair was ongoing at the time that she executed the agreement; there was also evidence to suggest that she was thinking of separating from Mr. Schrage when she signed the contract.
Given the number of years that the parties had cohabitated, the December 2007 agreement entitled Ms. D’Andrade to a lump sum payment of $300,000.00 and to have Mr. Schrage purchase her a home with a value of not less than $250,000. At the date of trial, Ms. D’Andrade had received all of her entitlement under the agreement, save for the home.
At trial, Mr. Schrage asserted that his marriage contract of December 2007 with Ms. D’Andrade should be set aside on the two grounds:
- that a clause that was included in all other domestic contracts between the parties was omitted from the December 2007 agreement in circumstances that warrant the court’s intervention through rectification, as inclusion of that clause would have removed his legal obligation to pay the applicant any lump sum payments; and
- that because marriage contracts are contracts requiring the parties to act towards each other with the utmost good faith, the applicant breached her obligation of good faith towards him when she signed the contract without disclosing that she was thinking of separating from him.
The Court’s Analysis
The court looked closely at the spouses’ prior agreements. Clause 10 of their agreement of September 8, 2000 reads:
[Mr. Schrage’s] agreement to provide the aforesaid financial payment to [Ms. D’Andrade] does not constitute in any manner a support payment or maintenance payment for Merleen and it is expressly agreed by [Ms. D’Andrade] that this payment is a gratuitous benefit from [Mr. Schrage to Ms. D’Andrade] and is not to be interpreted as a legal obligation whatsoever.
It was on this clause that Mr. Schrage based his argument that any lump sum payments he was required to make to Ms. D’Andrade were at his option.
On this issue, Justice Sachs held that Ms. D’Andrade’s right in the event of separation were substantially the same under the December 2007 agreement as they were under the previous domestic contracts, subject only to a few changes. Most importantly, the court recognized that the debatable clause was never intended to make lump sum payments at the discretion of Mr. Schrage.
The most compelling issue at trial was whether the December 2007 agreement should be set aside pursuant to section 56(4) of the Family Law Act which provides that:
A court may, on application, set aside a domestic contract or a provision in it,
(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;
(b) if a party did not understand the nature or consequences of the domestic contract; or
(c) otherwise in accordance with the law of contract
Justice Sachs applied the two-part test set out in LeVan v Levan: first, the court must consider whether the party seeking to set aside the agreement can demonstrate that one or more of the circumstances set out within the provision have been engaged; and second, the court must then consider whether it is appropriate to exercise its discretion in favour of setting aside the agreement.
According to Mr. Schrage, under the law of contract, marriage contracts require uberrima fides or “the most abundant faith; absolute and perfect candour or openness and honesty”. As the court notes, marriage contracts, unlike separation agreements, are contracts uberrimae fides; this is because of the special relationship between the parties as intended spouses, who are not entirely at arm’s length and thus owe one another duties of good faith and fair dealing.
In the end, however, Justice Sachs rejected Mr. Schrage’s submission that the December 2007 agreement should be set aside because the applicant failed to tell Mr. Schrage about her affair or that she was contemplating separation. The evidence simply did not support the conclusion that Ms. D’Andrade had decided to separate from her husband; the affair did not, in and of itself, mean that the Applicant would leave the Respondent.
Looking at the policy implications of his decision, Justice Sachs reasoned,
“To require spouses to disclose their thoughts about the likelihood of separation or their involvements in extra-marital sexual activity before signing a marriage contract could have serious implications for the survival of marital relationships…In this case, the public policy implications of requiring married couples to disclose their thoughts of separation or their involvement in extra-marital relationships before executing a marriage contract are negative rather than positive. In recognition of the fact that marriage is a complicated institution, whose failure can rarely be attributed to one party or the other, the law has evolved in a fashion that by and large eliminates conduct from analysis of financial entitlement. In essence, Mr. Schrage is seeking to reintroduce conduct into the consideration of whether a marriage contract should be set aside. This is a road the law has been down before and, based on that experience, it is a road to be avoided unless justice demands it.”
In this instance, Justice Sachs held that the purpose of the contact was not to enforce personal obligations; rather, the marriage contract was a financial contract demanding the utmost good faith and fair dealing in disclosing each parties’ financial positions. That obligation did not, however, extend to disclosing the existence of an extra-marital affair or intention to separate.