Sunday, December 16, 2007

Does the Presumption of Resulting Trust Apply to Land in British Columbia?

If A transfers an asset to B, or purchases an asset in B’s name, there is a presumption that B holds the title to the asset for the benefit of A. Lawyers call this the presumption of resulting trust. This presumption applies where one person transfers funds into a joint bank or investment accounts with another.

But, section 23(2) of the Land Title Act, RSBC 1996, c. 250, says (to simplify the language somewhat) that the title to land is “conclusive evidence at law and in equity” of ownership. There are a few exceptions listed in this section, but none deal with trusts.

The British Columbia courts have said that section 23(2) of the Land Title Act creates a presumption that the title reflects the interests of the title holders. But, this presumption can be rebutted.

Accordingly, where one person pays for the land, but puts title in the name of another, there appear to be two conflicting presumptions. There is the presumption of resulting trust, that the title holder holds the land for the benefit of the person who paid the purchase price. There is the presumption under the Land Title Act, that the registered owner has an absolute interest in the land.

In a recent case, Sidhu v. Adams-Amaya, 2007 BCSC 1698, Mr. Justice Halfyard discussed both of these presumptions.

The plaintiff, Mr. Mohinder Sidhu, and the defendant, Ms. Daiza Judhit Adams-Amaya, held title to a house together as joint tenants. The plaintiff had the funds for the down payment, but did not qualify for a mortgage on his own. He contributed $34,700 directly to the down payment, and transferred another $34,700 to the defendant, which she contributed to the down payment. The defendant also contributed a further $1375 from her own funds toward the down payment. They borrowed a further $190,000 together to complete the purchase.

When they purchased the house, the plaintiff had hoped that the defendant would marry him. His hope was not reciprocated, and ultimately they ended up in a court dispute about who was entitled to the house. By then, the house increased in value to about $380,000.

Mr. Justice Halfyard held that the defendant was entitled to a beneficial interest in the house. In addition to her modest contribution of $1375 to the down payment, she assumed responsibility as a co-signer on the mortgage. She also contributed to improvements on the property and other expenses. Mr. Justice Halyard held that the plaintiff had not rebutted the presumption created by section 23(2).

On the other hand, Mr. Justice Halfyard found that the plaintiff did not intend to make a gift of the $34,700 he transferred to the defendant. He applied a presumption of resulting trust to the transfer of funds. The defendant failed to rebut the presumption. Mr. Justice Halfyard found that the reason for the transfer was that she needed to make a contribution to qualify for the financing.

Mr. Justice Halfyard ordered that the plaintiff would be paid first $64,445, and the defendant the first $8,490, out of the net sale proceeds of the house. (I am not clear on how the court arrived at these amounts, but they appear to represent the funds each of the parties put into the house.) The court ordered that the balance of the net sale proceeds be divided equally.

It is not clear from this decision whether one presumption trumps the other. The court applied both presumptions. The court applied the presumption in section 23(2) of the Land Title Act to the question of whether the defendant was entitled to a beneficial interest in the house. But, court then applied the presumption of resulting trust when determining the extent of the defendant’s entitlement.

The decision may rest on principles of unjust enrichment. Each of the parties contributed to the purchase of the house. Although the plaintiff contributed more financially than the defendant, the plaintiff could not have purchased the property without the defendant co-signing the mortgage. The plaintiff would be unjustly enriched if the defendant were not given an interest in the house and in the increase in value of the house. On the other hand, the defendant would be unjustly enriched by the plaintiff’s significantly greater financial contributions if she were given an equal share of the sale proceeds.

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