nan 1998 S.T. No. 07689 IN THE SUPREME COURT OF NOVA SCOTIA BETWEEN: Fairview Farms Limited and M.S.D. Enterprises Limited -and- A.A. Putnam Sons (l987) Limited nan Heard Before: The Honourable Justice Douglas L. MacLellan Place Heard: Truro, Nova Scotia Date(s) Heard: March 8, 9, 10, 11, 12, 1999 and April 9, 1999 Date of Written Decision: June 16, 1999 Counsel: Peter M. Rogers, Esq., for the plaintiffs William M. Leahey, Esq., for the defendant MACLELLAN, J. The dispute in this case is about how to interpret an agreement signed by three brothers in 1988 by which they reorganized their father’s farming operation. The brothers, Gene, Merle and Lorne Putnam, each formed new company at that time with Gene owning Fairview Farms Limited; Merle owning M.S.D. Enterprises Limited, and Lorne owning A.A. Putnam Sons (l987) Limited. The plaintiffs request rectification of the agreement terms in regard to the sharing by all three of them in the proceeds from any sales of milk quota by Lorne Putnam’s company. For easy reference, intend to refer to the brothers by name instead of by their respective company name. FACTS Prior to l987, the three brothers operated farming operation with their father under the company name of A.A. Putnam Sons Limited. That company was formed in l967. The operation consisted in 1987 of dairy farm with about 250 milking cows, beef operation, trailer park, and gravel pit operation. A.A. Putnam died in 1982, and after their father’s death, the three brothers continued to operate the company. They all worked in different aspects of the company. In 1987 they decided to reorganize the operation so that each brother would have his own business. There was general discussion among them about how this could be achieved, and finally an agreement was arrived at which provided that Lorne would retain the dairy operation; Merle would own and run the trailer park and gravel pit operation, and Gene would take the beef cattle and be set up on new farm in Debert called The Stiles Farm. The first document signed was on June 17th, 1987. It provided for the basic reorganization of the various activities. Each brother was to incorporate new company called “Geneco., Merleco., and Lorneco.”. The agreement provided by Article that there were number of conditions precedent to the new reorganization. It included the following: “Article 4.0l(d) Gene Co., Merle Co., and Lorne Co., reaching satisfactory agreement with respect to the purchase and sale of assets distributed on the reorganization subsequent thereto which agreement would also provide for the distribution of proceeds of the sale of milk quota within period of twenty years after the reorganization.” The evidence is that prior to the signing of this first agreement, Gene Putnam and his wife Ellen had originally wanted to continue to run the dairy operation because they had been doing that for the previous twenty years. However, after discussions with his brothers, Gene agreed that Lorne would take over the dairy operation. At the time of the reorganization of A.A. Putnam Sons Limited, the three brothers engaged an accountant Mr. James Cameron, of Collins Barrow, for advice on possible tax consequences arising from the reorganization. They also engaged Mr. Jim Stanley as the lawyer to do the legal work. There were number of meetings involving the brothers, Mr. Cameron and Mr. Stanley. Throughout these negotiations it was always understood that each brother would receive one-third share of all the assets owned at that time by A.A. Putnam Sons Limited. During the negotiations leading up to final agreement, which was not signed until March 1988, an appraiser Mr. Robert Adams was hired to do an appraisal of the assets of the parent company. His appraisal is before the court. (Exhibit Tab 29). It details the basis upon which he determined the value of the various assets of A.A. Putnam Sons Limited. The final reorganization agreement signed by the brothers provided by subsequent document called “Post Reorganization Agreement” that the Fluid Milk Quota owned by A.A. Putnam Sons Limited would be owned by Lorne Putnam’s company, now to be called A.A. Putnam Sons (1987) Limited, but if that quota was sold, or executed upon by creditor within fifteen years of 1987 the proceeds realized from the quota would be divided equally among the three brothers. This action results from the interpretation of that “Post Reorganization Agreement”, and in particular, Clause 3.00 which provides: (Exhibit Tab 8) “3.00 Sale of Quota by Putnam (87) 3.01 At any time prior to December 31, 2003 should Putnam (87) sell all or any part of its fluid milk quota, or should creditor of Putnam (87) realize on and sell the same, Putnam (87) agrees to pay the following: (a) To M.S.D., one third (l/3) of the gross proceeds received on the sale of the fluid milk quota. (b) To Fairview, one third (l/3) of the gross proceeds received on the sale of the fluid milk quota.” It is the position of the plaintiffs that this agreement should be interpreted to mean that if the defendant sold any of the milk quota which it held in November of 1987, prior to December 3lst, 2003, it was obligated to divide the proceeds three ways. The defendant alleges that the agreement only refers to Fluid Milk Quota, and therefore, it was obligated to only share proceeds from the sale of Fluid Milk Quota and not all quota sold. The court has heard lot of evidence on the subject of milk quotas. Generally, the evidence was to the effect that prior to 1987 farmer’s normal quota was made-up of Fluid Milk Quota (FMQ) and Market Share Quota, or MSQ. In 1987 A.A. Putnam Sons Limited had Fluid Milk Quota of 2,291 litres per day and Market Share Quota of 378,339 litres per year. In the years since 1987 the evidence establishes that these two quotas separated in that it became possible to sell only MSQ. In fact, an exchange for the sale of MSQ was set up by the Nova Scotia Dairy Commission in November of 1987 to do just that. In the years following 1988, the defendant sold MSQ and took the position that it was not obligated to share the proceeds with the plaintiffs. Ellen Putnam testified that she is the wife of Gene Putnam and that they looked after the dairy farm for A.A. Putnam Sons Limited during the period 1967 to 1987. She said that when the agreement was signed in 1988, she understood that the reference therein to Fluid Milk Quota meant both the Fluid Milk Quota owned by the company and the Market Share Quota. Her words were “you can’t have one without the other”. She indicated that the dairy operation started with only 35 milking cows and by 1987 had increased that to 250 with total herd of over 400 cattle. She testified that Gene’s father was sick for about three or four years prior to his death in l982 and that her husband Gene basically ran the dairy operation. She said she did the books for the farm from 1973 to 1987. She testified that in 1987 when the brothers started discussing reorganization, it was her idea that there be special arrangement concerning the milk quota. She said she did that because she felt that she and her husband had worked on the farm for about twenty years, and that therefore there should be twenty year period following the reorganization during which time all three brothers would share if the milk quota was sold. She said that her husband Gene was very much disappointed that he did not end up with the dairy operation, and that he reluctantly deferred to his brother Lorne. She said that she was aware that the term of twenty years was reduced to fifteen years prior to the signing of the final document. She said that she discussed the wording of this clause with Jim Cameron and during all of these discussions she intended that the clause would apply to all milk quotas and not just Fluid Milk Quota. Ellen Putnam indicated that she did not read the final agreement signed in March of 1988, but she and her husband received copy from Mr. Stanley after the signing. She testified that after she found out about some sales of quota by Scott Putnam, Lorne’s son, she made it clear that she and her husband were entitled to share the proceeds. She said that after one sale, she was approached numerous times by Lorne Putnam requesting that they give the money back to Scott so that he could buy the quota back. She said she disagreed and it was never explained to her why he sold quota if he then turned around and wanted to buy it back. Mrs. Putnam indicated that her brother Mr. John Ackerman is lawyer and worked with Mr. Stanley in his firm. She said that at one point she heard that Scott Putnam was leasing quota to other farmers and that she asked advice from her brother whether this was permitted. She said that in 1987 she had basic idea of what milk quota was worth, and therefore, was not surprised when Mr. Adams valued it at close to one million dollars. She said at that time she felt that MSQ was not worth whole lot and that you could not really buy or sell MSQ. She was not aware that milk quota exchange had been set up at that time. After 1987, she and her husband ran beef operation and were not concerned about milk quotas. On cross-examination Mrs. Putnam indicated that she was aware that there were two different types of quotas, but her understanding was that one went with the other. She said her husband never sold any quota during the time he ran the dairy operation. James Cameron is Chartered Accountant. He did the accounting work for A.A. Putnam Sons Limited. He was very involved in the negotiations leading up to the reorganization of that company. He testified that the clear intent of the three brothers was that the assets of the parent company were to be divided equally among them. He said it also was the intent of all the parties that the dairy operation continue as family farm in order to continue the tradition established by their parents. Mr. Cameron said he requested and got some tax advice from gentleman in his firm because all the parties were naturally concerned about possible tax consequences flowing from the reorganization of the parent company. He said at first they considered what is called “butterfly transaction”. This necessitated that each brother receive an exactly equal amount of assets from the parent company. That arrangement was discounted because it became evident that to do that the milk quota would have to be retained by the parent company. That was not possible under the Dairy Commission Rules because the quota had to be held by the actual milk producer who in this case was going to be Lorne Putnam’s company. Mr. Cameron said it was decided that the appropriate arrangement for tax purposes would be called freeze where each brother would incorporate separate company and the shares of that company would be held by the parent company of which the three brothers were equal shareholders. This arrangement was agreed to by all parties involved and the documentation for doing so was signed on March 11th, 1988. The agreements, however, indicated that the effective date of the new arrangement was in fact November 1st, 1987. Mr. Cameron said that it was clear to him that it was the intent that the milk quota would be transferred to Lorne Putnam’s company (A.A. Putnam Sons (l987) Limited), but that if the quota was disposed of prior to 2003 the proceeds from the quota sale would be shared equally among the three brothers. He said that agreement was to reflect the fact that the value of the quota was significantly higher if it was sold separately from the other farm assets or simply left with the farm operation as part of going concern. Mr. Cameron said that he was never asked to distinguish between Fluid Milk Quota and Market Share Quota. He understood they were one and the same. Gabriel Comeau testified. He became Manager of the Nova Scotia Dairy Commission in 1989. He explained how the Commission dealt with milk quota and the changes in the quota schemes during the years since 1989. He also was able to testify based on his knowledge of the Commission record about what had happened in 1987 to 1989. He explained that Fluid Milk Quota was normally used within the province, while Market Share Quota or Industrial Milk used in non-fluid products was traded between provinces, and therefore, there was involvement from the Canadian Diary Commission. It also had subsidy program for producers of MSQ. Mr. Comeau indicated that prior to 1987 the Nova Scotia Dairy Commission had an exchange program for the purchase and sale of MSQ. The price was pre-determined and the exchange normally operated towards the end of each year when it became significant to farmer whether he had met his quota obligations or not. In 1987 the Commission developed new exchange program based on supply and demand. It started in November of 1987, but was quickly met with court challenge. As result of the court decision in December of 1987, the Commission revised the program and the new exchange dealt only with MSQ and not Fluid Milk Quota. The new exchange permitted farmer to buy and sell MSQ as needed based on the going price at the time. Mr. Comeau also explained how in August 1990 MSQ was converted from litres per year into kilograms of butterfat per year and also how in August of 1994 Fluid Milk Quota and Market Share Quota were converted into Total Production Quota. Robert Adams was asked by Mr. James Cameron to prepare an appraisal of the assets of A.A. Putnam Sons Limited. His appraisal report (Exhibit Tab 29) sets out the value of the assets in two manners; namely, as going concern, and secondly, if the assets were sold off separately. Mr. Adams indicated that he worked as Director for the Nova Scotia Farm Loan Board until 1997. He was familiar with farm assets including milk quota and how the Board secured any loans advanced to farmers. He explained that in 1987 -88 the Board would obtain an assignment of farmer’s milk quota. This would protect it against the sale of such quota apart from the normal farm assets. He indicated that the form of the assignment used by the Nova Scotia Farm Loan Board at that time referred only to the Fluid Milk Quota because he said it was felt that that was the quota that had value. He said that around 1990 the wording of the assignment was changed and that both Fluid Milk Quota and Market Share Quota was to be assigned to the Board. He said this reflected the fact that in the late 1980's quota exchange was set up which permitted the sale of Market Share Quota separate from Fluid Milk Quota. Mr. Adams indicated that at the time he prepared his report he valued the Fluid Milk Quota, if it was sold as separate item, at $916,400.00. There was no valuation placed on the MSQ quota despite the fact that his report indicated that the farm had an MSQ of 47,000 litres per year. He indicated that the value of the farm on going concern basis was about $400,000.00 less than if the assets were sold piecemeal. James Stanley is lawyer and he drafted the agreements signed by the three Putnam brothers. He testified that he was asked by James Cameron to draft the agreements. He considered himself acting for all of the parties to the agreement, and in fact discussed with them the issue of possible conflict of interest. He obtained from each of them confirmation that they were aware of his role in preparing the legal documents. (Exhibit Tab 2). There is no suggestion here that Mr. Stanley was in conflict position. Mr. Stanley indicated that he understood his role to be simply to draft document reflecting the agreements arrived at among the parties. He did not negotiate the agreement for any of the parties. He indicated that the reorganization of A.A. Putnam Sons Limited came about because each of the brothers wanted to go their own way and that they were having difficulty working together. He also understood that there was agreement that all of them wanted the dairy operation to continue as family dairy operation and that Lorne and his son Scott would be doing that. The other major concern was to ensure that the method of reorganization attracted the least amount of taxes possible. Mr. Stanley indicated that he understood the quota issue arose because Gene and Ellen Putnam felt that since they had worked on the farm for about twenty years, basically running the operation, that they did not want the dairy operation sold off piecemeal because to do so would generate more revenue than was being assigned as value to the farm as going concern. He said that he understood from Mr. Cameron that the brothers had agreed that the special arrangement in regard to the sharing of quota revenue would continue for fifteen years. He said the fifteen year period was compromise because at first Gene and Ellen wanted twenty year period to reflect the same time they had worked on the dairy operation. Mr. Stanley was referred to the first reorganization agreement signed by the brothers on June l7th, 1987 (Exhibit Tab 7), which included by Article 4(a) number of conditions, precedents to the final agreement. In that document reference is made to “milk quota” while in the subsequent reorganization agreement signed by the parties in March 1988 the reference is to “Fluid Milk Quota” (Exhibit Tab Article 3). Mr. Stanley testified that as the drafter of the two documents he did not intend the change in words to mean anything. As far as he was concerned at the time he drafted the documents, the words “milk quota” and “Fluid Milk Quota” were interchangeable. He said that on behalf of the parties, he notified Scotsburn Dairy about the change in the quota ownership from A.A. Putnam Sons Limited to A.A. Putnam Sons (1987) Limited (Exhibit Tab and 2), and also the Nova Scotia Dairy Commission (Exhibit Tab and 4). He used the words “Fluid Milk Quota” and indicated it to be 2,29l litres per day without reference to the MSQ which he considered was also conveyed. He understood that by making reference to the Fluid Milk Quota he was automatically including the MSQ. That was because in his mind the MSQ had no value. On cross-examination Mr. Stanley said that he was not aware in March 1988 when the documents were signed that the Dairy Commission had set up an exchange for MSQ. He said that the documents he prepared were an attempt to reflect the agreement arrived at among the parties and that he was not involved in the forming of the terms of the agreement. He said that he was not aware at that time that MSQ could be sold. He said that when you transfer Fluid Milk Quota you got everything, including the MSQ. Claudia Putnam is the widow of Merle Putnam who died in 1996. She testified about her involvement and that of her husband in the reorganization of the family operation in l987-88. She said that her husband Merle did not get along with his brother Lorne and wanted to operate his business on his own. She said she and Merle discussed the reorganization of the company with Gene and Ellen. She said it was Ellen’s idea to put restriction on the sale of milk quota if it occurred within twenty years. The agreement would provide for each brother to get one-third of the funds realized from any such sale. She said that during these discussions and later discussions, involving Lorne, that there was no mention of MSQ, just milk quota. She said that she had not been involved in the dairy part of the operation. She said that after she and Merle heard that Lorne had sold quota, she said her husband wrote to the Dairy Commission indicating that he did not want his share of the funds realized. She said they talked about it at the time and had decided that if there were any future sales they would be claiming share. She said that after her husband’s death, she did write to the Farm Loan Board to confirm that on behalf of his Estate. She said that as result of that correspondence, she received $33,800.00 which represented one-third of sale made by Scott Putnam. She said that after getting that cheque she was approached number of time by Lorne Putnam requesting that she give the money back. She said he came to see her twenty or thirty times about that. She said she was upset by that and she felt he was harassing her. Claudia Putnam said that on March 11th, 1988, when the documents were signed, there was no discussion among the parties present about the quota issue and that neither she nor Merle read the documents before signing them. She said that later they were sent package of documents from Mr. Stanley which contained all the documents signed by the parties. She said she read the agreement and probably saw the clause about the Fluid Milk Quota but that it did not register as problem to her at that time. She testified that she and her husband first became aware of quota sales by Scott Putnam in 1995 and were not aware of any earlier sales. Gene Putnam testified. He indicated that there were number of meetings involving the three brothers along with James Cameron and Jim Stanley and John Ackerman, his wife’s brother. The first meetings were about how to divide up the assets of A.A. Putnam Sons Limited. He said that at the third meeting there was discussion about the quota issue. He said he understood that sharing would be of all the milk quota. He said he ran the dairy operation and was familiar with MSQ. He considered that to be industrial milk, and he did not know that MSQ could be sold separate from Fluid Milk Quota. He said during the twenty years he ran the dairy operation that he was always looking for new milk quota not wanting to sell quota. He did not know about the quota exchange set up around 1987. He said that when he discussed the length of the term of the quota agreement that his brother had said that it could be for l00 years because he (Lorne) did not care about how long it would run, because he had no intentions of selling quota. He said there was never any mention about the possible sale of MSQ by Lorne which would not trigger an obligation to share the proceeds. He said he first heard about quota sales by Scott Putnam in 1995. He said that when he heard about the quota sale, he contacted Lorne and was told that Scott was running the operation and that he (Lorne) would check with him about any quota sales. He said that Lorne later got back to him and confirmed there was in fact quota sale and that it was done because Scott needed the money to keep the farm going. He said Lorne did not want to pay out the two-third share as per the agreement. He said that after period of time, he finally got his share of the money. James Stonehouse is lawyer who acted for the Nova Scotia Farm Loan Board in 1987-88. He was called by the defendant and indicated that he was asked to prepare security documents for loan being advanced by the Farm Loan Board to Lorne and Scott Putnam as result of their take over of the operation of A.A. Putnam Sons Limited. Part of the security agreement was an assignment of the milk quota owned by the Putnams. He said he arranged for that assignment to be executed. (Exhibit Tab 11). He explained that the form of the assignment was prepared by the Farm Loan Board and at that time made reference only to milk quota. This was despite the fact that the letter of instructions from the Board to him said that the assignment should be of the Fluid Milk Quota. He said that later the form of these assignments was changed to include both Fluid Milk Quota and MSQ. He was shown an assignment (Exhibit 10) made in 1992 which referred to both quotas. Mr. Stonehouse said that in 1987 the word “milk quota” and Fluid Milk Quota were used interchangeably and as far as he was concerned producers felt that quota was quota. Scott Putnam is the son of Lorne Putnam. He took over the operation of the dairy farm after 1987 when A.A. Putnam Sons Limited was reorganized. He had worked on the farm since 1983 with Gene Putnam, his uncle, who was in charge of the dairy operation. Scott testified that he was at the Nova Scotia Agricultural College for three years. He did not complete the four year program and came home to work on the farm. He said he was familiar with milk quota from his training at the Agricultural College. He said that in the Spring of 1987 he took over as herdsman of the dairy farm after Gene left to set up his beef operation in Debert. He said he had conversation with his father about the MSQ and how it should not be involved in the sharing agreement because he wanted the flexibility to buy and sell MSQ depending on how the farm was doing in any particular year. He said he told his father that it would be impossible to run the farm operation if the MSQ could not be purchased and sold as needed. He said he was not involved in any of the discussions with his uncles about the agreements covering the division of assets. He said he is half owner of the new company A.A. Putnam Sons (1987) Limited with his father. He was present on March 11th, 1988 when the documents were signed. He said he did not read the documents signed on that day at that time or prior to the signing. He said he read the documents some time later when he received copy from Mr. Stanley’s office. He said that he understood the agreement to mean that he and his father had to share proceeds from the sale of only Fluid Milk Quota and had no obligation to share the proceeds from the sale of MSQ. He confirmed that in the years following 1987 he sold and purchased some MSQ. list of the transactions is produced at Exhibit 1, Tab 16, page 2. The sales were as follows: (1) March 1st, 1989 the sale of 48,677 litres for $35,923.38. (2) April 1st, 1989 the sale of 29,893 litres for $22,330.32. (2) March 1st, 1990 the sale of 80,000 litres for $43,200.00. (3) June 1st,1993 the sale of l,300 kilograms for $40,950.00. (4) December 1995 the sale of l2.5 kilograms of Total Production Quota (TPQ) for $l82,5l2.50 (5) July 1996 the sale of 0.9 kilograms of TPQ for $l3,500.00 (6) June 1997 the sale of 6.5 kilograms of TPQ for $l0l,400.00 (7) February 1998 the sale of 63.7 kilograms of TPQ for $l,042,l32.00. It is to be noted that in August 1994, the Nova Scotia Dairy Commission changed over to single quota system known as Total Production Quota (TPQ). Therefore, any sales after that date were under the new quota scheme. Scott Putnam testified that he did not tell his uncles about any of these sales because he did not believe it was any of their concern. He said that from 1988 to 1993 no Fluid Milk Quota was sold, only MSQ. In August 1994, TPQ came into existence. In December 1995 he sold as indicated 12.5 kilograms of TPQ and at that point was told by his father that Gene wanted his share from this sale which would amount to approximately $60,000.00. He said that at that time he owed the Nova Scotia Farm Loan Board about $500,000.00 and that they had an assignment on the milk quota, therefore, the cheque for the sale was made payable to them. He said at that point Merle Putnam agreed not to claim his share, therefore, he and his father received $l20,000.00 from that sale after Gene was paid. He said the sale that he made in July 1996 for which he received $l3,500.00 all went to the Farm Loan Board against his loan. In June 1997 he sold quota worth $l01,400.00 which was divided among the three parties. The last of the quota was sold on February 19th, 1998 for $l,042,000.00. That money is being held in trust subject to ruling on this case. On cross-examination Scott Putnam was asked if he indicated to his father prior to signing the agreements that he should discuss the quota issue with his brothers. He indicated that he did not. He also said that he told his father about the quota sales in 1989 to 1993 at the time they happened, or at least within month of the sale. He said he sold MSQ because he felt they were not making money on the sale of that milk, therefore, were better off without that quota. He was asked why he did not notify his uncles after the 1995 sale when he sold TPQ. He said he figured they would find out themselves. Lorne Putnam testified. He said that in 1987 when the brothers first discussed reorganizing the parent company that Gene was running the dairy operation. He said he wanted to take over that operation because of his son Scott who was working on the dairy farm with Gene. He said Gene agreed to take the beef operation and that he would be set up on the Stiles property which they intended to purchase as part of the package. He said the brothers sat down with James Cameron and Jim Stanley and discussed during number of meetings how the matter would be handled. He said he signed the first document in June 1997. (Exhibit 2, Tab 7). He said he had discussions with Scott about quota prior to signing the agreement and that Scott wanted to have the right to sell MSQ. He said the arrangement was that Scott would be running the operation of the dairy farm. He said that as result of the meeting held with his brothers and Mr. Cameron and Mr. Stanley that only the Fluid Milk Quota would be shared. He said he discussed with his wife the length of the time that the sharing agreement would be in place. She favoured ten year term instead of twenty. He said they later agreed on fifteen years as compromise. He said he felt the number of years did not mean anything, because he had no intention of selling quota, therefore, he had made the comment to Gene that the term could be for 100 years as far as he was concerned. He said that when Gene approached him about the sale of the quota he was not aware of it. He said he discussed it with Scott and explained to Gene why it was done. He said it was because Scott needed capital to finance manure project he was involved in at the time. He said he was surprised that Scott had sold quota and that the sales actually upset him. He said that quota was important to farm operation because it is the basis upon which the farm generates revenue. ISSUE The plaintiffs claim that the court should rectify the signed agreements here to match the intention of the parties. It would involve changing the words used in the final agreement from Fluid Milk Quota to simply milk quota and would mean that all sales of quota would have to be shared. The defendant takes the position that the agreement reflected the intention of the parties at the time of signing and that there should be no rectification because it was not justified in the circumstances. They say that the MSQ sales were allowed under the agreement and that the defendant has no responsibility to share the proceeds realized from the sales of MSQ. They also ask that in light of the changes in quota description since 1988, the court determine how much of the quota sales made after 1994 consisted of Fluid Milk Quota, and therefore, what percentage needs to be shared. It is suggested that the TPQ quota sales should be assessed as having MSQ component of 62 percent and that therefore only 38 percent needs to be shared. THE LAW RECTIFICATION OF CONTRACT There is general agreement between counsel that rectification of contract is possible given certain circumstances. Fridman’s, Law of Contract in Canada, Third Edition, describes it as follows: (p. 82l-822) “The essence of rectification is to bring the document which was expressed or intended to be in pursuance of prior agreement into harmony with that prior agreement. It deals with the situation where, contracting parties having reduced into writing the agreement reached by their negotiations, some mistake was made in the wording of the final, written contract, altering the effect, in whole or in part, of the contract. What the court does is to alter the document, in accordance with the evidence, and then enforce the document as changed. Rectification is not used to vary the intentions of the parties, but to correct the situation where the parties have settled upon certain terms but have written them down incorrectly. But the court will not give remedy for party who is displeased with what the contract has brought him.” Rectification is remedy which is only to be used if the court is satisfied based on convincing evidence that it is appropriate to do so. (See Federal Business Development Bank v. Elcon Petroleum Maintenance Limited (1983), 58 N.S.R. (2d) 246). FINDINGS find that in this case that am convinced that when Gene, Merle and Lorne Putnam sat down in 1987 to discuss how they would divide up the family operation they intended the following. (1) That each of them would end up essentially with the same value in assets. (2) That the dairy farm would continue to operate as it had for many years as family operation and that therefore it would be valued on the basis of going concern instead of simply the total of its individual parts. (3) That in light of the agreement to value the farm as going concern, it was agreed that there would be an arrangement to protect against the sale of the milk quota prior to the year 2003. (4) That at the time the brothers were not aware that Market Share Quota could be sold separate from Fluid Milk Quota and when they discussed milk quota they meant the entire milk quota. The evidence here is that in 1987 Gene and Ellen Putnam basically had run the dairy operation since 1967 while Merle and Lorne looked after other company activities. It is clear to me that when there was talk of each brother going his separate way, Gene Putnam expected that he would be left with the dairy operation, however, when confronted with request from his older brother Lorne that he be granted the dairy operation as his share of the assets, Gene agreed for the sake of family harmony. The first agreement (Exhibit Tab 7) had as condition precedent that any agreement about distribution of assets would contain an agreement that if the milk quota was sold each of the brothers would receive one-third share. find at that time; namely, June 1987 all the parties understood milk quota to be one entity, that is, Fluid Milk Quota and that Market Share Quota or Industrial Milk was simply an extension of the Fluid Milk Quota. The people most involved in the dairy operation were Gene Putnam and Ellen Putnam. believe them when they testified that they assumed that “you can’t have one without the other”. believe that Lorne Putnam who really was not much involved in the dairy operation did know that there were different quotas, but did not understand how each related to the other. Scott Putnam testified that prior to his father signing the final agreement in 1988 he discussed with his father the issue of milk quota, and specifically MSQ, and the importance of it not being covered by the sharing agreement. reject Scott Putnam’s evidence on that point. do so because of the following: (1) do not believe that Scott Putnam knew at that point that MSQ could be sold separately from Fluid Milk Quota. (2) believe that if Scott discussed this with his father, Lorne would have brought it up with his brothers and James Cameron. All of them, including Lorne, agreed it was never discussed in that context. (3) There is no evidence before me that would make Scott Putnam believe that the final documents would refer to Fluid Milk Quota not simply milk quota. The document signed in June l987 referred only to milk quota. The question is why would Scott think that the final document would have different wording unless change was discussed. (4) When Scott Putnam testified about the sales of MSQ during 1989 to 1990, he said that he told his father about these sales within month of each sale. His father testified that he was not told and did not know about the sales until he was questioned by Gene in 1995 and then asked Scott for particulars. believe Lorne’s evidence on that point over that of his son Scott about whether he was told about the sales. (5) believe Scott wanted to hide the sales of quota from his uncles because he knew that if they became aware of sales, he would be forced to share the proceeds. Lorne Putnam testified that he discussed quotas with Scott prior to the signing of the final documents in March 1988. His evidence is that Scott wanted to have the right to sell MSQ. reject that evidence of Lorne Putnam. do not believe him when he testified that he discussed the issue with Scott. do so because believe if there was such discussion, he would, naturally, have discussed the issue with James Cameron and his brothers and this was not done. At that point there would appear to be no reason why such discussion would not take place if it was reasonable and fair to exclude MSQ from the sharing agreement. There appears to be no reason why that could not have been negotiated. believe that Lorne Putnam never discussed it with his brothers and Mr. Cameron because there was no such discussion with his son about the importance of having that flexibility. believe that in 1987 Lorne Putnam was not aware that MSQ could be sold separate from Fluid Milk Quota. Finally, in light of the fact that Lorne Putnam signed an agreement in June l987 in which reference was made to simply milk quota there was no reason for him to expect that the wording would change prior to March of 1988 since he did not bring up with Mr. Stanley the issue of the particular wording of the clause. He also did not even read the documents to determine what the wording was in March 1988. The only reasonable conclusion would be that based on the 1987 documents, he expected the 1988 documents to contain the words milk quota, not Fluid Milk Quota. conclude in this case that all the requirements necessary to allow rectification have been proven. I find that all the parties to the agreement signed in March 1988 intended that the milk quota owned by A.A. Putnam & Sons Limited would be shared by all three if sold within fifteen years of that date. believe that the document signed by the parties in June of 1988 did not reflect this intention when it referred to only Fluid Milk Quota. I would therefore rectify that agreement to read milk quota, which I find includes Fluid Milk Quota and Market Share Quota. Based on that rectification I find that the plaintiffs are entitled to their respective shares of all the sales of quota made after March 1988. This, of course, is subject to the fact that Merle Putnam agreed to forego his share of the sale made in December of 1995. Based on Exhibit Tab 22, it would appear that the amount claimed by each plaintiff is the sum of $399,345.23. However, this does not account for the fact that on May 1st, 1990, Scott Putnam purchased 7,500 litres of MSQ for $5,250.00. He has no obligation to share quota purchased after 1988, therefore, each plaintiff will be entitled to judgment in the amount of $397,595.23. understand counsel will work out the issue of pre-judgment interest between themselves and would award costs to the plaintiffs. would indicate that if had not found that the agreement should be rectified, would have found that when the Fluid Milk Quota and the Market Share Quota were combined to form Total Production Quota in August 1994, that Fluid Milk Quota made up 84.2 percent of the new quota formula. Therefore, the plaintiffs would have been entitled to 84.2 percent of any sales made by the defendant of Total Production Quota. reject the suggestion by counsel for the defendant that the percentage should be as low as 35 percent because of combining of quota figures in number of provinces. This issue is of no consequences in light of my decision in regard to rectification of the contract itself.
The plaintiffs sued based on a contract between the parties that required the defendant to share the proceeds of milk quota sales. The defendant took the position that the contract only required the sharing of fluid milk quota sales, and not all milk quota sales. The plaintiff sought rectification of the contract to change the wording of the contract to milk quota sales from fluid milk quota sales. Finding for the plaintiff and granting rectification, that the parties clearly intended to have the contract cover all milk quota sales. The proceeds from all sales are to be divided between the parties.