Bacic v. Bacic Estate

Limitation periods in British Columbia are tricky. If you have a legal claim, but do not sue before the limitation period, you are out-of-luck. But there are different limitation periods for different types of claims, meaning that whether you can sue after a certain time may depend on what category of claim you might have. The complexity is compounded by the fact that it is not always clear when the limitation clock begins to tick.

In 1986, Marko Bacic bought a new home. His father, Miljenko Bacic, lent him the money to do so. Marko Bacic agreed to repay his father when Marko sold his own home. As security for the loan, Marko’s parents took the title in their names as joint tenants.

Marko Bacic and his parents all moved into the new home, but his parents spent extended periods in Croatia. Marko Bacic paid all of the expenses such as property taxes for the home.

Marko Bacic sold his old home in 1989. The buyers paid some cash and a mortgage for the balance. Marko Bacic arranged for the mortgage to be put in his parent’s names. The buyers paid out the mortgage in 1991. In this way, Marko repaid the loan from his father.

But Marko Bacic didn’t seek to have the titled transferred to him when he repaid the loan. The title to the new house remained in Marko’s parents names, until his mother died when his father became entitled to the title by right-of-survivorship, and then in his father’s name.

Marko Bacic’s father married Nevenca Tomas in 1995, and died on February 1, 1996, without a will. Because Marko Bacic’s father didn’t have a will, his estate would be distributed in accordance with the Estate Administration Act, under which Ms. Tomas receives over half of the estate in these circumstances.

Sometime in 1997, Ms. Tomas indicated that she might claim an interest in the new home. But nothing was done, and Marko Bacic continued to live in the home, and pay the expenses.

On August 23, 2006, Marko Bacic, filed a lawsuit seeking to have the title of the home transferred to him.

Ms. Tomas’s son, Branco Tomas, was appointed administrator of the Miljenko Bacic’s estate, and took the position that the house is an estate asset.

In Bacic v. Bacic Estate, 2010 BCSC 728, Mr. Justice Butler found Marko Bacic’s parents had taken title to the property as security for the loan, which was repaid. He held that they, and then Marko Bacic’s father, held title as trustees for Marko Bacic.

But Branco Tomas as administrator of the estate argued that Marko Bacic waited to long to sue. He argued that the claim was barred by the Limitation Act, and specifically section 3(3)(d) which says:

(3) After the expiration of 10 years after the date on which the right to do so arose a person may not bring any of the following actions:
…

(d) to recover trust property or property into which trust property can be traced against a trustee or any other person….”

Mr. Tomas argued that the limitation clock began to run either from the date the home was purchased in Marko Bacic’s parent’s name, when the loan was repaid, or at the latest the date Marko Bacic’s father died. In any of those cases, more than ten years passed before Marko Bacic filed his lawsuit on August 23, 2006.

Marko Bacic argued, first, that a different section of the Limitation Period, section 3(4)(j) applies. It says:

(4) The following actions are not governed by a limitation period and may be brought at any time:
…
(j) for the title to property or for a declaration about the title to property by any person in possession of that property.

Second, he argued that if section 3(3)(d) applies, the time didn’t start to run until the existence of the trust was denied.

Mr. Justice Butler held that the limitation period was ten years in accordance with section 3(3)(d). Although section 3(4)(j) appears to apply as well, the claim is in substance a trust claim, and section 3(3)(d) to recover trust property is more specifically related to Marko Bacic’s claim.

But although the limitation period is ten years, Mr. Justice Butler held that it did not begin to run until Ms. Tomas or her son denied the existence of the trust. He applied section 6(1) which postpones the time at which the limitation period begins to run, as follows:

6(1) The running of time with respect to the limitation period set by this Act for an action
(a) based on fraud or fraudulent breach of trust to which a trustee was a party or privy, or
(b) to recover from a trustee trust property, or the proceeds from it, in the possession of the trustee or previously received by the trustee and converted to the trustee's own use,
is postponed and does not begin to run against a beneficiary until that beneficiary becomes fully aware of the fraud, fraudulent breach of trust, conversion or other act of the trustee on which the action is based.

Mr. Justice Butler ordered that the title to the home be transferred to Marko Bacic.

Unjust Enrichment: B.C. Court of Appeal Sets Out Analytic Framework in Common Law Relationships

Usually in a common law relationship, each common law spouse provides benefits to the other. The benefits may take many forms including money, use of property, domestic services and other labour.

In British Columbia, on the breakdown of the relationship, one common law spouse may advance a claim against the other for money or an interest in property. The law recognizes such claims if a common law spouse has enriched the other, and suffered a corresponding deprivation unless there is a juristic, or legal basis, for the benefits. This is called unjust enrichment.

A common law spouse may also advance an unjust enrichment claim against their deceased common law spouse’s estate.

Unjust enrichment claims are not confined to common law relationships, but probably arise more frequently in the breakdown of common law relationships than in other types of relationships.

Because common law spouses usually confer benefits on each other, it may often be difficult for the courts to assess unjust enrichment claims. On the breakdown of the relationship, one common law spouse, the plaintiff, sues the other for money or an interest in property. The plaintiff says he enriched the defendant common law spouse. The defendant says, “yes, but I gave you equal or greater benefits. Therefore, I should not have to pay you or give you anything.” The defendant might counter claim, asking the court to award the defendant something from the plaintiff.

How should the court consider the reciprocating sacrifices and benefits made by common law spouses to each other?

In the recent decision in Wilson v. Fotsch, 2010 BCCA 226, Madam Justice Huddart, writing for the majority, has set out an analytic framework for assessing unjust enrichment claims in common law relationships. She wrote:

[11] The basic outline for that analysis can be summarized this way:

1. Benefit/Enrichment

2. Detriment

3. Absence of a juristic reason for the enrichment
a. Established categories
i. Contract
ii. Disposition of law
iii. Donative intent
iv. Other valid common law, equitable, or statutory obligations
b. Reason to deny recovery
i. Public policy considerations
ii. Legitimate expectations
iii. Potential new category

Defences
Change of position; estoppel; statutory defences; laches and acquiescence; limitation periods; counter-restitution not possible

Choice of Remedy
a. Is a monetary remedy sufficient?
b. Is a constructive trust required (or equitable damages for the value of the trust interest)?

Quantification of the Remedy
a. Value received (quantum meruit basis)
b. Value survived (proportionate share basis)

Set-Off (equitable and legal)

Pre-judgment interest

Madam Justice Huddart considered each stage, and set out how reciprocating benefits affect the analysis.

She held that considering whether the plaintiff has enriched the defendant, to the plaintiff’s detriment, the court ought not to consider benefits conferred by the defendant on the plaintiff.

She also said that consideration of reciprocating benefits should have a very limited role in assessing whether there is a juristic reason for the enrichment. She wrote at paragraphs 30 through 33:

[30] Whether seen as a proposed new category of juristic reason or as flowing from legitimate expectations of the parties, too narrow a focus on reciprocal benefits in the juristic reason analysis has the potential to blend the existence of enrichment with the question of its extent. While a court should be justifiably concerned with protecting a defendant from an excessive award where he or she has provided the plaintiff with benefits over the course of the relationship, that is not the question being asked at the juristic reason stage. The juristic reason analysis is intended to establish whether there is a reason for the defendant to retain a proven enrichment, not to determine its value or off-set reciprocal enrichment by the plaintiff. The issues of quantum and set-off are for the quantification of the award following a finding of unjust enrichment. By interposing the issue of extent into the juristic reason stage, the full unjust enrichment analysis is short-circuited.

[31] The result of finding that the defendant had a juristic reason for the enrichment is a declaration that any enrichment was not unjust. To permit such a result at the second step of the juristic reason analysis where the other preconditions are present is to deny the existence of an unjust transfer of wealth which, from the perspective of the plaintiff, is patently unfair because it does not recognize his or her contributions. The receipt of benefits by a plaintiff from a defendant does not mean ipso facto that the defendant has not been unjustly enriched. That is the point the Supreme Court made in Peter.

[32] A defendant can be preserved from any unfair effect of an unjust enrichment award by careful consideration of the value of the enrichment at the assessment phase, with appropriate deductions made for the benefits the defendant provided to the plaintiff. The finding of unjust enrichment itself does not need to be disturbed.

[33] This reasoning also applies to the consideration of reciprocal benefits within the inquiry into the parties’ “reasonable” or “legitimate” expectations. This inquiry is noted in Sorochan (at 46, 52-53), Pettkus (at 848-49), Peter (at 990-91), and Garland (at paras. 55-56). It is not to be confused with the search for “phantom intent” necessary for a resulting trust that Dickson J. decried in Rathwell (at 442-44). This inquiry at the second step of the juristic reason analysis risks a focus on the defendant’s expectations which all too easily may avoid the Supreme Court’s instruction in Garland to look at the legitimate expectations of both parties. If the value of reciprocal benefits is considered in that inquiry, that risk is amplified.

Rather, Madam Justice Huddart held that reciprocal benefits should be considered near the end of the analysis at the set-off stage. The plaintiff’s claim may be quantified on the basis of the value of the goods or services the plaintiff provided when the plaintiff provided them, which is called the value-received approach. Or it may be quantified on the basis of the value created in an asset through the plaintiff’s contributions, which is called the value-survived approach. In common-law marriage claims the courts usually favour a value-survived approach.

According to Madam Justice Huddart, after the value of the plaintiffs contributions are assessed, the court should then assess the value of the defendant’s contributions. If the court applies a value-received approach, then the court will set off the value of the defendant’s contributions to the plaintiff from any award. In the case of a value-survived approach, the court will set off a percentage of the value of the asset that reflects the defendant’s contributions.

Madam Justice Huddart describes the process of equitable set-off at paragraphs 80-89:

[80] Whether mutual claims of unjust enrichment are pleaded, equitable set-off is pleaded as a defence, or evidence of a reciprocal enrichment is led but not pleaded, they should all be treated in the same fashion. In principle, the amount of the set-off should be determined by the same analysis that would be applied to a counterclaim for unjust enrichment.

[81] In examining the contributions to property, only those contributions that allowed the other party to acquire, increase, or maintain the value of an asset will be considered. For example, with a vehicle, payment by the defendant to the plaintiff to buy the car in the first place would be a set-off. Payment by the defendant of the costs of maintenance (brake re-alignment) or new parts (carburetor; tires) that preserve or enhance the value of the vehicle would be set-off. Payment of the ordinary operating expenses (gas; AirCare; insurance) would not be set-off, because they do not enhance or maintain any value that is capable of surviving the end of the relationship. This will be a question to be determined on the evidence.

[82] The property must be assessed using its value at the end of the relationship. In this way, any decline or increase in value will be properly taken into account.

[83] Only if the property survives the relationship will set-off be permissible. If a plaintiff’s car is written off, for example, contributions to its preservation or maintenance by the defendant will not be set-off because the property no longer exists in the hands of the plaintiff. Where property has been sold prior to the end of the relationship, contributions to that property may properly be set-off to the extent the residual value existed as liquidity at the end of the relationship. Thus, where the proceeds of sale were spent during the relationship on living expenses, a deduction would not be appropriate. Where they were spent after the end of the relationship, a deduction would be appropriate.

[84] Relieving the other party of a liability (such as the payment of a debt to a third party) should also be set-off.

[85] To give a global example, if a plaintiff (Mr. “Y”) entered the relationship with a speedboat, a truck, a small cottage, and nothing else, and he contributed to the relationship by renovating the defendant partner’s (Ms. “X”) house (to which she held sole title), the court could well find that Ms. X was unjustly enriched. However, when it comes time to quantify the value of the enrichment, the court must account for the fact that Ms. X paid for maintenance, a new motor and winter storage costs for the boat, new tires and a carburetor for his truck, and a roof for the cottage. All of those contributions to the improvement and preservation of the plaintiff’s assets must be off-set against the defendant’s unjust enrichment to determine the final award.

[86] In determining what, if any, equitable set-off against an award is appropriate, care must be taken not to set-off contributions that have already been included at the quantification stage. This will be particularly important where a set-off is claimed for the other party’s reciprocal contribution of domestic services or payment for the ordinary incidents of family life not specifically referable to property.

[87] This does not mean the provision of food and shelter or domestic services are not to be considered in an unjust enrichment analysis. Where the contributions of one have enabled the other to acquire property, that contribution will have been measured at the valuation stage on both the value received and the value survived approach. On the value received approach, the provision of food and accommodation or uncompensated domestic services will be included in the determination of the monetary value of unremunerated domestic services. On the value survived approach, they will be included in the determination of the parties’ contributions and thus the appropriate apportionment.

[88] Once the value to be set-off has been quantified, on the value received approach, that amount will be deducted from the plaintiff’s award as a dollar figure. On the value survived approach, the set-off amount may be deducted as a percentage from the plaintiff’s proportionate share. While it would be possible to allow for the set-off amount when initially determining the proportionate share that calculation unnecessarily combines two distinct steps in the analysis – the determination of proportionate share based on contribution, and set-off based on a reciprocal benefit to property. Transparency values support an independent analysis.

[89] In circumstances where the plaintiff’s benefits outweigh the defendant’s, a plaintiff might well have established unjust enrichment, but would not receive an award: Harrison at para. 15.

Jefferson County Courthouse, Port Townsend, Washington

My friend and colleague, Gerry Laarakker, who has offices in Lake Country and Vernon, B.C., sent me this photograph of the Jefferson County Courthouse, in Port Townsend, Washington. According to this pamphlet outlining the history of the courthouse:

Approved for construction in 1890 by the Jefferson County Commissioners, the Romanesque style courthouse, brainchild of Seattle architect W. A. Ritchie, was let out to contractors at an estimated cost of $150,000.00. Reportedly $117,600.00 was designated for the building and $17,287.00 for the jail in 1892, which was located in the South half of the basement. John Rigby, Bldg. Contractor, and C.P. Wakeman, Supt. of Construction, were the contractors.

Kelowna Seniors Safety Fair, June 14th, 2010

The Senior Outreach and Resource Centre, is presenting its 6th Annual Seniors Safety Fair in Kelowna, British Columbia, on Monday, June 14th; from 9:00 am – Noon at Trinity Baptist Church, at the corner of Spall and Springfield.

The fair features a presentation by Linda Myers, Hon. BSW, RSW, on "The Emerging Landscape of Adult Protection in British Columbia” from 9:00 am to 10:30 am.

For more information call 250-861-6180.

B.C. Law Institute Consultation Paper on Section 29(2) of the Land Title Act

In November 2009, the British Columbia Law Institute published its “Consultation Paper on Section 29(2) of the Land Title Act and Notice of Unregistered Interests.”

The purpose of section 29(2) of the Land Title Act is to protect purchasers of land, or others taking an interest in land such as lenders taking a mortgage, from claims that are not registered on the title. The idea is that if you buy land, you should be able to search the title to determine whether the seller can give you clear title. If there is nothing registered against the title, you don’t have to do historical searches to make sure that the seller has good title.

Section 29(2) is worded as follows:

(2) Except in the case of fraud in which he or she has participated, a person contracting or dealing with or taking or proposing to take from a registered owner
(a) a transfer of land, or
(b) a charge on land, or a transfer or assignment or subcharge of the charge,
is not, despite a rule of law or equity to the contrary, affected by a notice, express, implied, or constructive, of an unregistered interest affecting the land or charge other than
(c) an interest, the registration of which is pending,
(d) a lease or agreement for lease for a period not exceeding 3 years if there is actual occupation under the lease or agreement, or
(e) the title of a person against which the indefeasible title is void under section 23 (4).

The benefit of this section is that it makes it relatively easy and inexpensive to buy and sell or otherwise deal with land, and protects purchasers from claims they might not know about.

But if applied literally, this section can also operate unfairly. For example, suppose you have a small business in a mall. You have a lease for five years, with a five year renewal option, but you have not registered it in the Land Title Office. (Although it is a good idea to register a lease longer than three years, many tenants do not, and landlords may discourage registration.)

Your landlord sells the mall to a purchaser. The purchaser reviews all of the leases before signing the contract to buy the mall. Then, after the sale is completed, the purchaser realizing that it can get a higher rent from someone else refuses to recognize your lease. The purchaser did not sign it, and it was not registered against the title to the mall property. Section 29(2) would appear to allow the purchaser to rent the space to someone else, even though you may have spent years building your business in the mall.

In these kinds of circumstances, British Columbia courts have sometimes interpreted the word “fraud” in section 29(2) broadly to include transactions in which purchasers take title knowing of the unregistered interest (in our example, with knowledge of the lease.) This is quite different from criminal fraud, and is sometimes referred to as equitable fraud.

The British Columbia Law Institute consultation paper recommends changes to the Land Title Act to remedy uncertainty created by sometimes conflicting judicial interpretations of section 29(2), while maintaining fairness and honest dealing.

The Consultation Paper has a recommendation that a purchaser who knows of an unregistered interest before contracting to buy land, would take the land subject to the unregistered interest. But if the purchaser only finds out about the unregistered interest after the purchaser is contractually committed to buying the land, he will take title to the land on completion free from any unregistered interest.

Under the Consultation Paper recommendations, if instead of selling land, the owner makes a gift of the land to someone, then the beneficiary of the land will receive title subject to any unregistered interests of which the beneficiary was aware before the transfer of title.

The reason for distinguishing between purchasers for value and beneficiaries of gifts is that once the purchaser has contracted to buy land, the seller could sue the purchaser if the purchaser refused to complete the purchase. Therefore, it would be unfair if the purchaser took the title subject to unregistered interests of which he was not aware before making the contract. But the beneficiary of a gift of land can refuse to take the land at any time before the title is registered in the beneficiary's name.

See the Consultation Report for a more in depth analysis of this issue, and the detailed recommendations.

Evolution of the Legal Criteria of Capacity to Make a Will

I have previously written about the criteria applied by British Columbia courts to determine if someone had capacity to make a will. British Columbia law is based on the 1870 English decision in Banks v. Goodfellow (1870), L.R. 5 Q.B. 549. To make a valid will you must:

1. understand the nature and effect of making a will;
2. understand the extent of his or her assets;
3. know close family and friends so that the testator can consider their claims to his or her bounty ; and
4. not be under any insane delusions that affect what the testator decides to do in his or her will.

What if someone meets those criteria, but his decision making ability is impaired to a point where his will ought not be given effect? Should the courts consider other criteria, in light of the advances in psychiatry since 1870, when Banks v. Goodfellow was decided?

In England, Mr. Justice Briggs in the High Court of Justice, Chancery Division considered this issue in Key & Anor v. Key, [2010] EWHC 408.

When George Douglas Key died on July 20th, 2008, he left four children. He had two sons, namely, Richard George Frederick Dey, and John Douglas, Key, and two daughters, namely, Jane Frances Key and Mary Ellen Boykin.

The case was a dispute over a will George Key signed on December 6, 2006, in which he left most of his estate to his two daughters. He had previously given his two sons land. So the effect of the 2006 will would have been to treat his four children fairly equally taking into account the gifts of land to his sons.

But if his 2006 will were declared invalid, his sons would receive most of his estate under a will he made on December 18, 2001.

When he signed his 2006 will, George Key was 89 years old. His wife Sybil Key had died a week before he instructed his lawyer to prepare the new will, and 9 days before he signed it. Before his wife died he had been having some short term memory problems. He still drove his car, but would on arriving at a store forget what he was there to buy.

Shortly after his wife died, his daughter Mary Boyken returned from the United States to look after him. She arranged for the lawyer to attend to get instructions from her father for a new will, and was present during the meeting.

The lawyer who drew the will gave evidence indicating that George Key met the criteria in Banks v. Goodfellow, but he did not consult with Mr. Key's doctors, nor make extensive notes of their meeting.

Mr. Justice Briggs found that George Key was devastated by the death of his wife when he made the will. She had died unexpectedly, and George Key was dependent on her. The judge considered medical evidence that bereavement may affect a person’s ability to make decisions.

Mr. Justice Briggs considered that the legal criteria for capacity to make a will should reflect advances in psychiatry. He wrote at paragraphs 95 and 96:

95. Without in any way detracting from the continuing authority of Banks v. Goodfellow, it must be recognised that psychiatric medicine has come a long way since 1870 in recognising an ever widening range of circumstances now regarded as sufficient at least to give rise to a risk of mental disorder, sufficient to deprive a patient of the power of rational decision making, quite distinctly from old age and infirmity. The mental shock of witnessing an injury to a loved one is an example recognised by the law, and the affective disorder which may be caused by bereavement is an example recognised by psychiatrists, as both Dr Hughes and Professor Jacoby acknowledged. The latter described the symptomatic effect of bereavement as capable of being almost identical to that associated with severe depression. Accordingly, although neither I nor counsel has found any reported case dealing with the effect of bereavement on testamentary capacity, the Banks v. Goodfellow test must be applied so as to accommodate this, among other factors capable of impairing testamentary capacity, in a way in which, perhaps, the court would have found difficult to recognise in the 19th century.

96. Banks v Goodfellow was itself mainly a case about alleged insane delusions. Many of the cases which have followed it are about cognitive impairment brought on by old age and dementia. The test which has emerged is primarily about the mental capacity to understand or comprehend. The evidence of the experts in the present case shows, as I shall later describe, that affective disorder such as depression, including that caused by bereavement, is more likely to affect powers of decision-making than comprehension. A person in that condition may have the capacity to understand what his property is, and even who his relatives and dependants are, without having the mental energy to make any decisions of his own about whom to benefit.

Mr. Justice Briggs held that George Key did not have the capacity to make the will 2006 in view of the effect of his wife’s death on him. Mr. Justice Briggs wrote at paragraphs 114 and 115:

114. In summary therefore the combination of Dr Hughes' expert evidence, coupled with my inability to accept the detail of the evidence of Mr Cadge upon which both Professor Jacoby's opinion and more generally the defendants' whole case was heavily dependent, together with the preponderant weight of the evidence suggesting that Mr Key was devastated, rather than merely upset, by his wife's death, leads me to the conclusion that, in the words of Erskine J in Harwood v. Baker (supra) at page 297, Mr Key was "incompetent to the exertion required" for the purpose of making an important decision as to the disposition of his property upon his death.

115. This is not one of those cases in which it is possible to point simply to a conspicuous inability of the deceased to satisfy one of the distinct limbs of the Banks v. Goodfellow test. Rather it is a case in which I have been persuaded, taking the evidence as a whole, that Mr Key was simply unable during the week following his wife's death to exercise the decision-making powers required of a testator. In any event, the defendants have not discharged the burden of proving that he was. To the extent that such a conclusion involves a slight development of the Banks v Goodfellow test, taking into account decision-making powers rather than just comprehension, I consider that it is necessitated by the greater understanding of the mind now available from modern psychiatric medicine, in particular in relation to affective disorder.

Accordingly, the 2006 will is invalid, and George Key’s estate will be distributed in accordance with his 2001 will.

Key v. Key is an English case, and is not binding on British Columbia courts. But the courts in B.C. may follow it if judges here consider the reasoning persuasive.

As a lawyer who draws wills, I like the Banks v. Goodfellow criteria, because I can structure my interview with clients to elicit the information required to support a will through routine questions about their assets, family and reasons for making the gifts they wish to make in their wills.

On the other hand, it does seem reasonable for the courts to take into consideration the last 140 years of psychiatry. We have all met people who are quite intelligent, understand their circumstances, but whose judgment may be severely impaired.

Perhaps the greatest feature of common law is its adaptability on a case-by-case basis. I don’t expect Canadian courts to articulate a whole new set of criteria to replace the Banks v. Goodfellow test in the foreseeable future. But over time, new criteria may emerge.