Promissory Notes and Settlement Agreements – Commit Agreements to Writing
Often times parties will turn to friends, family, acquaintances or business relations to seek funds to borrow rather than a bank or other lending institution. The debts that arise from such borrowing are frequently supported by a promissory note to confirm the debt in writing. Issues can arise when there is a failure to commit all the agreements made between the parties to writing or there is otherwise a disagreement about what was or was not included in a promissory note.
Such disagreements can arise during the performance or part-performance of the promissory note as was the case in Turpin v Constantinescu, 2018 BCSC 1326 (CanLII).
In Turpin, the defendants had borrowed $457,540.16 from the plaintiffs and executed a promissory note for $500,000. The court found that, while there may have been an intention to advance funds beyond the $457,540.16, there was insufficient proof that ever happened. In other words, the court found that the principal debt represented by the note was $457,540.16. The promissory note was backed by a security interest registered on the defendants’ home.
The primary issue in dispute was whether a lump sum payment of $375,000 made by the defendants to the plaintiffs when the defendants sold their home was a settlement of the debt represented by the promissory note as was alleged by defendants or was a partial payment as the plaintiffs alleged. In particular, the defendants said that the plaintiffs were experiencing financial hardship and accepted the $375,000 as a final settlement.
The court found that the burden of proof lay with the plaintiffs to show that after the payment of the $375,000, that money was still owed under the promissory note. The court held against the plaintiffs. It found that the plaintiffs were not reliable or credible witnesses; giving inconsistent and implausible evidence. There was no evidence that there would be repayment beyond the $375,000 and the discharging of the supporting security and the lack of replacement of that security with any form of security for the balance of the funds allegedly owing under the note were consistent with the $375,000 being a full and final settlement.
Turpin v Constantinescu is a sharp reminder of the importance of ensuring that no agreement reached with another party is left to interpretation or guesswork at a later date. It may have been that the plaintiffs intended for the defendants’ debt to survive the payment of the $375,000, but they failed to commit that intention or agreement to writing or to ensure that there was evidence to support such a position. The case is important to consider when parties are accepting partial payments on debts and to ensure that nothing about such partial payments might be construed as a settlement of a debt unless intended as a such. When in doubt, commit agreements and the intended legal effects of certain actions to writing.
Jeremy Burgess is a litigation associate at Pushor Mitchell. If you have any questions about a legal dispute, especially as it relates to contractual disputes or promissory notes, we’d be happy to assist you. Feel free to contact Jeremy in a confidential manner toll free at 1-800-558-1155 or at firstname.lastname@example.org. You may also contact our litigation group.
The foregoing is for informational purposes only and is not legal advice, nor should be construed as such.