Unconscionable Procurement: Pinsonneault v. Courtney

 

The doctrine of unconscionable procurement is a helpful tool in challenging gratuitous transfers if the person benefiting has been actively involved in procuring property from the transferor. When it applies, the person who receives the benefit has the burden of demonstrating that the transferor had a sufficient level of understanding of the nature and effect of the transfer for it to be upheld. To succeed in a claim of unconscionable procurement, it is not necessary to show that the transferor did not have the mental capacity to make the transfer, or that she was subject to undue influence. This doctrine is not new, but many of the cases are older, and the concept appears to be enjoying a renaissance in Canada. There is heightened awareness among lawyers, which I suspect is largely due to John Poyser’s insightful discussion of unconscionable procurement in his text, Capacity and Undue Influence (now in its second edition; I reviewed the first edition here). If there were any doubt about whether the doctrine still applies in British Columbia—and there shouldn’t have been—the recent decision in Pinsonneault v.Courtney, 2022 BCSC 120, confirms it is alive and well.

Marie Reine Denise Pinsonneault moved to British Columbia in 2010 following a breakdown of her marriage. She has six children, one of whom she believed would try to take whatever he could from her. She settled in the Kootenays, and had a small business. At the time of trial in 2020 and 2021 she was 87. She had very poor eyesight, no longer had a drivers license and was “not physically robust.” On the other hand, Mr. Justice Williams, who heard the trial, described her as a “feisty, active individual.” It is apparent from the decision that her mental functioning was fine.

She became good friends with a contractor she had hired to do some work, Terry Courtney, and also became friends with his wife, Charlene Courtney, and their daughter. Mr. Courtney was 63 at the time of trial, and he characterized their relationship as like mother and son. She disagreed with his characterization of their relationship.

She purchased a lot (“Lot 3”) with a cabin on Kootenay Lake for $150,000 in 2015.

According to Ms. Pinsonneault, in early 2017, Mr. Courtney told her that he and his wife found a way to protect Lot 3, in reference to her concerns that her family and particularly her youngest son might try to take it from her. This was through a power of attorney. He took her to a notary public, where she signed four documents, including a letter explaining that she wanted to add Mr. and Mrs. Courtney to the title of Lot 3, a “Deed of Gift” of Lot 3 to them, pursuant to which she was gifting the property to them, while she would continue to be responsible for the property expenses, a transfer to title into their names and a power of attorney. In the documents, Mr. Courtney was described as Ms. Pinsonneault’s “step-son,” which was, of course, not accurate.

Ms. Pinsonneault’s evidence of what happened at the Notary’s office is set out in the decision as follows:

[129]     The plaintiff testified that when they arrived, initially Mr. Courtney went and spoke privately with the notary, that is, not in Ms. Pinsonneault’s presence. She said that she then met privately with the notary. There were papers present, evidently already prepared. Her recollection is that the notary asked her if she had read the “paper I sign”; she replied that she “cannot read”. “The notary then asked “do you know what you are signing?” and she answered to the effect yes, that “Terry had explained it to her”. Ms. Pinsonneault said she then signed the papers that were presented to her; she paid the bill and left with Mr. Courtney. When they left the notary’s office, she said she had the papers in her hand. Mr. Courtney told her to give them to him, saying “I will put them in your file at my place”, but she refused to do so. She said she took them home and put them in her desk. She did not examine them at that time or until some considerable time later.

The notary gave evidence, but Mr. Justice Williams found that “her testimony was disappointing and inadequate. Her responses were a litany of claims that she did not remember any details or specifics of the transaction, sometimes falling back on her ‘general practice’.” Her “notes and file are of no value to her in providing clear and reliable answers.”

Ms. Pinsonneault and Mr. Courtney later had a falling out over a dispute about the removal trees from Lot 3. She testified that it was after this disagreement that she read the documents and found out that she had transferred Lot 3 to the Courtneys.

She sued to recover Lot 3.

In finding in favour of Ms. Pinsonneault, and awarding her the property back, Mr. Justice Williams applied the presumption of resulting trust, which is a presumption that applies when one person makes a gratuitous transfer to another, there is a presumption that the transferor did not intend to make a gift. If the presumption is applied, the transferee is said to hold the property transferred on a “resulting trust,” for the transferor.

The presumption of resulting trust is just that: a presumption. It may be rebutted by evidence that the transferor did intend to make a gift. The issue boils down to whether the transferor intended to make a gift when at the time of the transfer. The documents Ms. Pinsonneault signed, particularly the Deed of Gift, would on their face lend support for the view that she intended a gift when she signed the transfer. Mr. and Mrs. Courtney argued that she intended to make a gift at the time she signed the transfer, but she changed her mind later.

Mr. Justice Williams found that the Courtneys had not rebutted the presumption of resulting trust. Ms. Pinsonneault did not intend to make a gift nor did she even know she was transferring her property. He wrote:

[207]     That said, the presumption to which I make reference is rebuttable: it is open to the defendants to adduce evidence to displace the presumption. To do so, they must show on a balance of probabilities that the transferor (the plaintiff) intended to make a gift.

[208]     In the matter at hand, as I have explained in my discussion of the evidence, I find that, at the time of the transfer, there is no viable basis to believe that the plaintiff had the intention to gift title to Lot 3 to the defendants. In fact, the evidence provides a strong reason to conclude that the plaintiff did not know that by signing the documents, she had in fact transferred title.

[209]     This is not a situation where it can be argued that, when the plaintiff executed the documents, she understood the consequences of doing so.

[210]     Furthermore, I am satisfied that the plaintiff was unaware that title had been transferred until many months later and, when she realized, she immediately set up a hue and cry, expressing that. In the time that followed, she steadfastly persisted in that position.

[211]     In short, there is no evidence before this Court that can assist the defendants in rebutting the presumption of resulting trust.

Mr. Justice Williams also considered unconscionable procurement. He provides an excellent summary of the doctrine:

[187]     The doctrine of wrongful (or unconscionable) procurement is derived from the principle that where a donee obtains a benefit from a donor that in turn disadvantages that donor, the donee must prove that the donor had the “necessary level of understanding to make a transaction conscionable”: John E.S. Poyser, Capacity and Undue Influence 2^nd ed (Toronto: Carswell, 2019) at 629 in Gefen v. Gaertner, 2019 ONSC 6015 at para.158. It is an equitable principle: Poyser at 628. A finding of wrongful procurement renders a transfer voidable by the court: Gefen at para. 158.

[188]     The Court in Gefen provided that the onus is on the party attacking the transaction to prove on a balance of probabilities that: (1) a significant benefit was provided; and (2) active involvement by the person obtaining the benefit of the procurement: at para. 159. Once these two elements are established, it is presumed that the donor “did not truly understand what they were doing when they made the transaction.” Gefen at para. 159.

[189]     Once the presumption is established, the transaction is voidable and the Court must determine whether it would be unconscionable to let the transaction stand. As stated in Gefen at para. 161, at this stage,

[161]    …Both parties must adduce evidence about the donor's actual understanding of what she was doing. If the evidence does not come down on either side, the attacker will have failed to meet the onus and the transaction will stand: Poyser, at p. 570.

[162]    The attacker must ensure that there is enough evidence before the court in the final weighing to allow the court to conclude, as a finding of fact, that the donor failed to have a conscionable understanding of what she was doing when completing the transaction. This issue turns on whether the donor appreciated the effect, nature, and consequence of the transaction in a manner sufficient to render it fair, just, and reasonable: Poyser, at p. 574.

[190]     The question the court must ask is whether the donor “fully appreciate[d] [the] effect, nature and, and consequence” of providing gift: Kinsella v. Pask, 28 O.L.R. 393 at 400, 12 D.L.R. 522.

Mr. Justice Williams found (at paragraph 217) that “… the doctrine of wrongful procurement is, to my mind, met by the circumstances at hand.”

Chichak v. Chichak

 

In Chichak v. Chichak, 2021 BCCA 286, the British Columbia Court of Appeal confirmed that a creditor who has registered a judgment against real property held in the name of a debtor cannot enforce the judgement in respect of an interest of another person who has an equitable interest in the property. This is so even when the equable interest is not registered on the title to the land. The creditor may only enforce the judgement to the extent of the debtor’s interest in the land.

Derek Chichak and his wife Jennifer Chichak bought real property together. The title was transferred to Ms. Chichak’s name and then later she transferred the title into Mr. Chichak’s name. Mr. Chichak was sued by two creditors, who registered their judgment against the property. Another creditor had a mortgage against the property and when mortgage went into default, the property was sold in a foreclosure proceeding brought by another creditor. After the amount of the mortgage was paid, there remained surplus funds from the sale of the property, and the two creditors with registered judgements sought to have the funds paid out to them. Ms. Chichak, however, claimed that she had a 50% interest in the equity in the property because of her contribution to the purchase price. When one person pays for or transfers property to another, there is a presumption that the recipient of the property holds the property, or in this case half of it, on a resulting trust for the person who paid the purchase price or transferred the property. Ms. Chichak claimed that because her husband held a half interest in the property in trust for her, his judgment creditors were only entitled to recover one-half of the surplus funds, with Ms. Chichak entitled to the other half.

The Supreme Court of British Columbia did not make any finding as to whether Mr. Chichak held an interest in the property on a resulting trust for Ms. Chichak, but held that even if he did, the judgment creditors were entitled to be paid first. Their judgment on the title took priority to Ms. Chichak’s claim. Ms. Chichak appeal.

Madam Justice Saunders in allowing the appeal held that a judgment creditor who registered the judgment against the title to real property could not enforce the receive a greater interest in the property than that held by the judgment debtor. This principle is referred to in Latin as “nemo dat quod non habet” which loosely translated means “you can’t give what you ain’t got.” If Mr. Chichak was only entitled to a one-half interest in the property, then his creditors can only take his half interest; they are not entitled to the other half interest if he holds it in trust for Ms. Chichak.

This common-law principle that a judgment creditor may only enforce a judgment to the extent of the debtor’s interest in property is supported by the wording of the Court Order Enforcement Act. Section 83 (3) (a) and (7) provides:

(3)   From the time of its registration the judgment forms a lien and charge on the land of the judgment debtor specified in the application referred to in section 88 in the same manner as if charged in writing by the judgment debtor under his or her signature and seal,

(a)     to the extent of his or her beneficial interest in the land,

….

(7)   A judgment creditor is not a bona fide purchaser for value.

 [emphasis in decision]

The creditors pointed to section 23 (2) of the Land Title Act, which provides that subject to certain specific exceptions the title “is conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title….” In other words, people dealing with the registered owner of real property are entitled to rely on the owner’s title. This protects, for example, buyers of property from the owner on title form others later claiming that the seller did not in fact own the property.

However, Madam Justice Saunders, noting the distinction between a judgment creditor and a purchaser, held that section 23 (2) of the Land Title Act does not apply:

[14]         By the registration system, all interests in the property that will affect a prospective purchaser for value are recorded in the register, with the intention that the true state of the title – of all the interests pertaining to the property – will be evident, subject to these few statutory exceptions, and a bona fide purchaser for value will take priority over the holder of an unregistered interest. Section 86(7) of the Court Order Enforcement Act, of course, explicitly provides that a judgment creditor is not a bona fide purchaser for value.

[15]         In my respectful view, the judge misapplied the Land Title Act by effectively equating a judgment creditor, a person who seeks to collect on a judgment in likely unrelated litigation, to the position of a person who has relied on the register in acquiring their indefeasible interest in the land. This would allow a judgment creditor to obtain greater recovery from the land than even the judgment debtor could derive. This result could be legislated, no doubt. However, in my view, it has not; the current legislation does not reach this far. The result, in my view, is contrary to decided authority presented to us but, it appears, not to the judge of first instance.

The Court Appeal ordered that the case be remitted to the Supreme Court of British Columbia to determine whether Ms. Chichak in fact had a beneficial interest in the property.  If she can establish her resulting trust claim, the judgment creditors will not be entitled to the funds representing Ms. Chichak’s share of the surplus proceeds from the sale.

Petrick (Trustee) v. Petrick

 

I have always urged caution in using joint tenancies as an estate-planning tool for the transfer of wealth from a parent to a child. One of my earliest blog posts, from September 17, 2005 is entitled “Six PotentialPitfalls Parents Should Consider Before Transferring Real Estate Into a JointTenancy with Their Children.” Jointures, including joint bank accounts, appear to be deceptively simple. On the death of a joint owner, the title to the asset passes by right-of-survivorship to the other joint co-owner (or owners). But it is not really that simple. In many cases, there is a question about whether the survivor is really entitled to keep the property or whether it is held in trust for the now deceased co-owner. There may also be unintended consequences of owning property in a joint tenancy. The nuances and risks are illustrated in the case I am about to discuss.

Dena Chilton and her son Rock Petrick purchased a condominium in New Westminster, British Columbia. Ms. Chilton contributed the down payment for the purchase and she lived in the condominium. Mr. Petrick did not live with her. They were both on the mortgage. There was conflicting evidence as to whether Mr. Petrick made any mortgage payments, but Ms. Chilton paid the bulk of the mortgage payments and other expenses associated with the condominium. Mr. Petrick later had financial problems, and Ms. Chilton asked him to transfer his interest in the title to her. He did so in July 2014.

Mr. Petrick went bankrupt, and following his bankruptcy, his trustee in bankruptcy applied to court to set aside the transfer of his half interest to his mother. The trustee in bankruptcy argued that the transfer was a fraudulent conveyance intended to defeat Mr. Petrick’s creditors.

Both Ms. Chilton and Mr. Petrick argued that he never had a beneficial interest in the condominium. That is, although he had an interest in the title, he held it in trust for his mother. There is a presumption of law, referred to as a resulting trust, that if someone pays the purchase price for property, but puts it in the name of another, who did not contribute to the purchase, the other person who received the tittle gratuitously, holds in trust for the person who paid the purchase price. This presumption applies to the interest in the title of a joint tenant who has received his interest gratuitously. Ms. Chilton’s evidence was that she had her son’s name on the condominium as a joint tenant so that on her death, the condominium would pass to him, without the requirement that he obtain a grant of probate of her will.

If in fact Mr. Petrick held his interest in the title in trust for his mother, then the transfer of title to his mother was not a fraudulent conveyance. His creditors would not have been entitled to a half-interest in the condominium if he did not have a beneficial interest in it.

Madam Justice Francis, in Petrick (Trustee) v. Petrick, 2019 BCSC 1319, held that Mr. Petrick did have a beneficial interest in the condominium and set aside the transfer to his mother as a fraudulent conveyance.

In her reasons for judgement, Madam Justice Francis nicely summarized three alternative possible ownership interests that joint tenants may have in property. She wrote at paragraph 40:

[40]         Not all jointly owned property is subject to a true joint tenancy. Pursuant to the Supreme Court of Canada’s decision in Pecore v. Pecore, 2007 SCC 17 [Pecore], property that is held in joint tenancy can give rise to three potential scenarios in terms of the beneficial interests of the title holders:

a)    A true joint tenancy, in which the joint tenants are each owner of the whole. Each enjoys the full benefit of property ownership and the ultimate survivor will enjoy the whole title for him or herself.

b)    A resulting trust, wherein only one joint tenant has any beneficial interest in the property and the other joint tenant, usually a gratuitous transferee, holds title in trust for the other and has no beneficial interest in the property.

c)     A scenario which is sometimes referred to as a “gift of the right of survivorship,” wherein a joint tenant is gratuitously placed on title and has no beneficial entitlement to the property during the lifetime of the donor, but if the donee survives the donor, the donee will receive the entire property by right of survivorship.  In Bergen v. Bergen, 2013 BCCA 492 at para. 37 [Bergen], Newbury J.A. described a gift of the right of survivorship in a joint account as “an immediate gift of a joint interest consisting of whatever balance exists in the account on the transferor’s death, assuming he or she dies first.”

Madam Justice Francis found that Ms. Chilton and Mr. Petrick were true joint tenants. She found that he did not receive his interest gratuitously. Because he was a co-borrower under the mortgage, he took a financial risk if the mortgage went into default. The presumption of resulting trust only applies when someone on title has acquired his interest gratuitously. The contributions of the co-owners for property do not have to be equal to avoid the presumption of resulting trust. Pledging credit is a contribution, even if Ms. Chilton could have qualified for a mortgage without Mr. Petrick being a co-borrower. As set out in Madam Justice Francis' reasons:

[65]         Ms. Chilton deposed that Mr. Petrick was not required to pledge his credit in order for her to obtain mortgage financing on the Property and that “he was added on the mortgage simply because he was going to be registered on title.”

[66]         I am not persuaded that simply because Ms. Chilton may have been able to purchase the property without Mr. Petrick pledging his credit, Mr. Petrick did not give up something of value when he became a co-borrower. The pledging of credit exposed Mr. Petrick to risk. Irrespective of Ms. Chilton’s means, Mr. Petrick remained jointly and severally liable on the mortgage debt. Further, it appears that from 2006 to 2011, Mr. Petrick may have been in better financial circumstances than his mother. In his affidavit evidence, he deposed that during that period he made cash gifts in the range of $2,000 to $5,000 to his mother, not exceeding $10,000 a year. Therefore, while it may not have been necessary for Mr. Petrick to have been named on the mortgage, he certainly had the means to service the mortgage and indeed, I find it more likely than not that he did make some payments on the mortgage over the years.

[67]         Therefore, I find that Mr. Petrick gave value for his interest in the Property and Ms. Chilton did not gratuitously make Mr. Petrick a joint tenant. As this was not a gratuitous transfer, the presumption of resulting trust does not apply.

Madam Justice Francis also found that Ms. Chilton did intend for her son to have a beneficial interest in the condominium. Ms. Chilton’s argument that she intended for Mr. Petrick to hold his interest in trust for her, and following her death, for her estate, was inconsistent with her evidence that she did not want the condominium to be subject to probate on her death.

Madam Justice Francis did provide some relief to Ms. Chilton from the potential hardship of having the condominium sold while she resides in it. Madam justice Francis ordered that Ms. Chilton could continue to reside in the condominium for her life, but if she ceased to occupy the condominium, or on her death, the condominium would be sold, and the trustee in bankruptcy would be entitled to half of the net sale proceeds.   

Sharma v. Sharma

Prem Lata Sharma is suing her sisters Raj Rani Sharma and Simmi Sharma. She is seeking to vary their mother Rama Rani Sharma’s will, pursuant to which she was disinherited, and she is also asking the court to declare that they hold title to their mother’s house in trust for the estate. Raj Rani Sharma is both a beneficiary and also the executor of the will. Their mother had gratuitously transferred the house into a joint tenancy with them, and their position is that they received the house by right-of-survivorship. The house is worth about $1.5 million, and the other assets are worth only about $100,000. The plaintiff’s claim that her sister’s hold the house in trust for their mother’s estate is important, because if they are entitled to it by right-of-survivorship, it will not be subject to the plaintiff’s wills variation claim.

The defendant sisters applied to court to dismiss the claim that they hold the house in trust for their mother’s estate. They argued that the plaintiff was attempting to make a claim on behalf of their mother’s estate, and that she could not do so without first applying under section 151 of the Wills, Estates and Succession Act for leave from the court to make a claim on behalf of the estate. She had not done so in this case.

Section 151 (1 provides that

… a beneficiary or an intestate successor may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of the deceased person

(a)        to recover property or to enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or

(b)        to obtain damages for breach of a right, duty or obligation owed to the deceased person.

The plaintiff argued that she did not have to bring an application under section 151 for two reasons. First, she argued that she was not making a claim on behalf of the estate, but in her personal capacity for a declaration. Secondly, because she is not a beneficiary of the will nor an intestate successor (she would be only if there was not a will disposing of all of the estate), she does not have standing to apply under section 151.

In Sharma v. Sharma, 2018 BCSC 1262, Mr. Justice Punnett agreed with the plaintiff that she did not need to apply under section 151, and that she had standing to ask the court to declare that her sisters held the house in trust for their mother’s estate.

Mr. Justice Punnett noted that section 151 was enacted to overcome a gap in the law to allow beneficiaries to bring or defend a claim when the personal representative declined to do so.

Mr. Justice Punnett agreed that in this case the plaintiff could not apply under section 151. She is not a beneficiary of the will. Nor is she an intestate successor. Mr. Justice Punnett noted that the wording of section 151 refers to “intestate successor” in contrast to the notice provisions of the Supreme Court Civil Rules which refer to a person who “would have been an intestate successor if the deceased did not leave a will.” Accordingly, the language in section 151 is not broad enough to allow the plaintiff to apply pursuant to section 151.

Mr. Justice Punnett also held that the plaintiff as a person making a claim to vary the will had a sufficient interest to ask the court to declare that assets are estate assets. He cited several cases decided prior to section 151 coming into effect in which the courts had considered trust claims concurrently with will variation claims. He wrote:

[36]        In Doucette [v. McInnes 2007 BCSC 289] the court found a non-executor had standing to seek a declaration of trust alongside a will variation claim. The court noted that in Mordo v.Nitting, 2006 BCSC 1761, a Wills Variation Act action, the plaintiff was not a beneficiary and was completely excluded by the will and all of the estate passed by jointure to the deceased’s daughter. Justice Wedge permitted the plaintiff’s arguments respecting the jointures to go forward. There was no challenge to the plaintiff’s standing to advance that argument. A person then with an interest in an estate is entitled to inquire about assets that may form part of the estate. See also: Drummond v. Moore, 2012 BCSC 496 at paras. 29 to 35, Kuo v. Kuo, 2014 BCSC 519 at paras. 202-208, and Kurmis v. Zilinski, 2011 BCSC 1433 at paras. 22-24.

[37]        As a result, the plaintiff, who has an interest in the estate and its potential assets is entitled to seek declaratory relief. Were that not the case and given her lack of ability to apply under s. 151 of WESA, the plaintiff and the court would be denied access to a consideration of the assets that may properly form part of the estate.

[38]        As a result, the plaintiff is not required to obtain leave from the court pursuant to s. 151 of WESA before commencing her action.

Would the plaintiff have been required to seek leave of the court under section 151 to ask for a declaration that her sisters held title to the house in a joint tenancy if she were a beneficiary of the will? I would argue that it should not be necessary to apply under section 151 even if she were a beneficiary with standing to apply under that section. The same reasoning should apply that she would have a personal claim for declaratory relief against the personal representative and another beneficiary, in contrast to a claim against a third party. Section 151 should be applied in accordance with its remedial intent to facilitate claims on behalf of estates when the conditions of section 151 are met, and not to prohibit claims that could have been brought before section 151 came into effect. To require a beneficiary to apply under section 151 before making a claim that the personal representative holds assets in trust for the estate would be to needlessly add expense. It also results in the absurdity that the personal representative’s name will appear as both plaintiff and defendant in view of the fact that the beneficiary may “commence proceedings in the name of and on behalf of the personal representative of the deceased person….”

Court of Appeal Overturns Trial Decision in McKendry v. McKendry

The presumption of resulting trust is a presumption of law that applies when one person gratuitously transfers property to another. The presumption is that the person transferring the property did not intend to make a gift, and that the recipient holds the property in trust for the person who made the transfer. It is a presumption only, and may be rebutted if the recipient proves that the person making the transfer intended to make a gift. The court attempts to determine what the person who made the transfer actually intended, but in many cases this is difficult because the claim is often made after the person who transferred the property died.

The relevant time for determining whether the person who transferred the property intended to make a gift is the time of the transfer.

But what happens if at the time of the transfer, the person who gave an interest in the property did not intend to make a gift, but then later changes her mind, and decides she wishes to make a gift?

I wrote about this in a previous post about the trial decision in McKendry v. McKendry, 2015 BCSC 2433. Because the trial judge’s decision in that case has now been overturned by the British Columbia Court of Appeal in McKendry v. McKendry, 2017 BCCA 48, this issue is worth revisiting.

Mary McKendry transferred title to her home on W 48^th Avenue in Vancouver into a joint tenancy with her son, John McKendry, in 2008. The home was worth over $1.9 million when she died on February 23, 2012. There were mortgages registered against the home, which her son had used to finance the purchase of an investment property. Apart from the home, her estate was worth about $465,000.

In addition to her son, she had four daughters who survived her.

Following the transfer, she twice instructed lawyers to draft trust agreements in respect of the home for her son to sign. The first stated that John McKendry held his interest in the title to the home in trust, and on her death he would receive a one-third interest, one of her daughters would receive a one-third interest, and her other three daughters would share a one-third interest. The second trust declaration made in February 2010 provided that on Mary McKendry’s death, each child would be entitled to an equal interest in the home. She signed both trust declarations, but her son did not.

But when she signed her last will, on December 16, 2010, her will contained the following paragraph:

7.         I wish to advise my Trustee/s that I have registered my home civically known as [W. 48th] (hereinafter called the “Home”) in Joint Tenancy with my son, John Alexander McKendry.  My son shall receive the Home subject to the Mortgages registered against [the] Home and shall be responsible for payment of the Mortgages as he was the recipient of the mortgage proceeds.In her will, she left the residue of her estate to her four daughters.

She also signed a letter at the time of her will, stating

I, Mary Alice McKendry, confirm that I wish to cancel any trust agreements or other documents imposing an obligation on my son to share the property I own at [W. 48th] with my other children.  I want my home to be my son’s property on my death absolutely – no strings attached.  I have made this decision after much consideration and I fully understand that this gives my son the majority of my assets.  My house constitutes the majority of my assets.

The issue before the court following her death was whether John McKendry as the surviving joint tenant was entitled to the home, or whether he held it in trust. The trial judge held that he held it in trust. When she transferred title into a joint tenancy with her son, Mary McKendry did not intend to make a gift to him, but rather intended for him to hold title to the home in trust. Accordingly, she had not made a gift. Although she later changed her mind, deciding she wanted John McKendry to have the house as an outright gift, the trial judge held that she needed to do something more to make a gift, such as signing a deed of gift.

John McKendry appealed to the British Columbia Court of Appeal. The Court of Appeal held that he was entitled to the home. Although initially Mary McKendry did not intend to confer a gift when she transferred the home into a joint tenancy with him, when she later decided to make a gift, she did not need to sign a deed of gift, or take any further steps to perfect the gift. It was sufficient for her to make her intention to make a gift clear.

Madam Justice Dickson wrote:

[40]         In January 2008, when Mary gratuitously transferred legal title to the property to John in joint tenancy, she did so with the intent that he hold the property in trust.  The judge found that she intended to retain the entire beneficial interest, including the right of survivorship, for herself and her estate: paras. 124-133. Although John did not sign the trust declaration prepared by counsel, Mary’s intentions were clear and unambiguous.  In consequence, while John held legal title with Mary jointly from January 2008 onward, he held all of the beneficial interest, including survivorship rights, in trust.

[41]         Unless something changed, upon Mary’s death John would have continued to hold legal title to the property only and to hold the beneficial interest in trust.  However, in December 2010 something did change.  As evidenced by the November note and the two-page document prepared by her lawyer, Mary unambiguously renounced her beneficial interest in the right of survivorship in John’s favour should he survive her.  In doing so, she clearly intended to make an immediate inter vivos gift of that incident of the joint tenancy to John.  As explained in Simcoff [v. Simcoff, 2009 MBCA 80] the gift was to whatever remained when Mary died.

.... 

 [43]         Given that she had previously transferred legal title to the property to John in joint tenancy, Mary did everything necessary in December 2010 to give her beneficial interest to John, bearing in mind the nature of that interest.  Her intention was made manifest in the signed two-page document her lawyer prepared and no further act of delivery was required because of the existing joint tenancy.  In particular, nothing more would have been gained had Mary executed a deed of gift under seal, given her clear and formally expressed intention. The immediate inter vivos gift was complete and binding.  In my view, Mary’s intention should prevail.

Wong v. Chong Estate

The law with respect to joint tenancy in British Columbia is nuanced. The basic idea is that if property is held in a joint tenancy between two people, on the death of one, the title passes to the survivor. But if one of the joint tenants gratuitously transferred the property into a joint tenancy or paid the purchase price to buy the property but puts title in a joint tenancy, then there is a presumption that the other joint tenant holds his or her interest in trust for the person who transferred the property or paid for it. This presumption, called a presumption or resulting trust, is a presumption only, which may be rebutted by evidence that the person who paid for the property intended a gift. When the parties are married spouses, there is a different presumption that the person who paid for the property intended a gift. But it really comes down to what the court finds what the intention was of the person who paid for the property at the time her or she purchased it, or in the case of a transfer, the time of the transfer.

But here’s where it gets more nuanced. Supposing one person buys property and puts title into a joint tenancy with another person, intending to retain control of the property during his or her lifetime, but that on death, the survivor will be entitled to the benefit of the property. In such a case, what if the joint tenancy is severed? This can be done in a number of ways, including either of the joint tenants transferring a half interest to himself or herself. In this case, is the person who did not pay for the party able to retain a half interest, and leave it to someone else in his or her will?

Rick Wong and Julia Chong were married on March 23, 2002. She had a daughter from a previous marriage, Janine Yuen, and he had no children.

Mr. Wong arranged to purchase a duplex in 2005. He contributed a little over $11,000 toward the purchase of the duplex, and borrowed a further $550,000. He mortgaged the new property, and Mr. Wong’s mother also assisted by providing security for the loan. When he signed the contract to purchase the duplex, he told 

Ms. Chong that he wanted to buy the property as a source of rental income for their retirement. He had some health problems and neither Mr. Wong nor Ms. Chong had any private pensions.

Mr. Wong and Ms. Chong took title to the duplex as joint tenants.

After they purchased the duplex, Mr. Wong used the rental income for mortgage payments. He also contributed additional funds to pay down the mortgage and pay other expenses for the duplex. He did work repairing the building, and hired contractors for other work. Ms Chong had little involvement. Most of the funds came from rental income, from Mr. Wong’s accounts or from joint accounts held by Mr. Wong and Ms. Chong during times when Mr. Wong was contributing all of the funds to the joint accounts. Some of the funds also came from joint accounts into which both Mr. Wong and Ms. Chong were contributing.

Ms. Wong died of cancer on May 26, 2013.

Shortly before she died, at a time when she knew she was terminally ill, she made her last will, dated March 21, 2013, in which she left her estate to her daughter. On April 5, she severed the joint tenancy on the duplex, without telling her husband.  Because she severed the joint tenancy, the title to the duplex did not pass to Mr. Wong by right of survivorship.

It should be noted that on the death of Ms. Chong, her daughter received other assets outside of the estate with a value of approximately $400,000 including life insurance and an investment account. Mr. Wong, on the other hand received about $32,000 outside of the estate on his wife’s death.

Ms. Chong’s daughter, Ms. Yuen, maintained that she was entitled to the half-interest in the duplex as the beneficiary of her mother’s will, the joint tenancy having been severed, and her mother having title to a half interest as a tenant in common.

Ms. Wong sued. He alleged among other things that there was a contract between his wife and him that the survivor would receive the duplex by right of survivorship. He also claimed that because he paid the purchase price, and as between his wife and him, he contributed most of the funds, that Ms. Chong’s estate held title to the half interest in trust for him.

In her decision in Wong v. Chong Estate, 2016 BCSC 953, Madam Justice Burke found that there was insufficient evidence that Mr. Wong and Ms. Chong had a contractually binding agreement that Ms. Chong could not sever the joint tenancy.  She held that the presumption of resulting trust did apply. She found that when Mr. Wong bought the duplex and put the title into a joint tenancy with his wife, he intended to confer the right of survivorship only. Unless he died first, and until his death, she had no other beneficial interest in the duplex.

Madam Justice Burke wrote:

[85]         Considering all of the details as set out in the agreed statement of facts and the evidence before the Court, I am of the opinion that a resulting trust should be found in this case and that all the beneficial interest in the Ewart Property [the duplex] remains with Mr. Wong.

[86]         Mr. Wong testified that he purchased the property with the intention that it serve as a source of retirement income for both him and Ms. Chong. He said that if he pre-deceased Ms. Chong, she would receive the interest in the property, but not before then. This testimony was corroborated by the plaintiff’s two sisters, who discussed this plan with the plaintiff at the time of purchase, and by the plaintiff’s friend Len Collard. None of the testimony in this regard was challenged on cross-examination.

[87]         Importantly, Mr. Wong’s testimony is also corroborated in several ways:

(a)            Mr. Wong does not receive a pension through his employment; it therefore makes sense that he would make efforts to secure retirement income through other means, such as acquiring the Ewart Property;

(b)            Mr. Wong had serious health concerns and had reason to believe he would predecease Ms. Chong;

(c)            Mr. Wong paid the vast majority of money (and all of the effort) toward the Ewart Property, including several large lump-sum payments, despite the fact that Ms. Chong had an income;

(d)            Ms. Chong severed the joint tenancy secretly and continued to keep that information from Mr. Wong even when questioned about her retirement planning in the later stages of her life; and

(e)            As the defendants stated, Mr. Wong was a real estate agent who would likely have been familiar with the concepts of joint tenancy and beneficial interest.

[88]         All of the above, whether arising at the time of the transfer or years later, indicate or are consistent with the evidence that Mr. Wong had no intention at the time of the transfer of gifting Ms. Chong the beneficial interest in the property.

[89]         Clearly, it was Mr. Wong’s intention that, should he predecease Ms. Chong, she would take the benefit of the property. It is clear from the evidence, though, that Mr. Wong did not intend to make an inter vivos gift of the beneficial interest in the Ewart Property for Ms. Chong to make use of as she pleased. On a balance of probabilities, Mr. Wong has proved that there was no donative intent. Ms. Chong’s deliberate concealment of the severance, as noted, shows she was very much aware of that. She held the beneficial interest for Mr. Wong.

[90]         In my opinion, Mr. Wong has rebutted the presumptions of advancement and indefeasible title. His testimony, consistent with the available evidence, indicates an intention at the time of transfer that Ms. Chong would take a beneficial interest only on the death of Mr. Wong. Ms. Chong, and subsequently Ms. Yuen, held her interest subject to a resulting trust in favour of the plaintiff; the beneficial title to the Ewart Property remains with him.

In the result, Mr. Wong owns the full interest in the duplex. 

Should the Presumption of Resulting Trust Apply to Beneficiary Designations in Benefit Plans?

The presumption of resulting trust is a rebuttable presumption of law and general rule that applies to gratuitous transfers.  When a transfer is challenged, the presumption allocates the legal burden of proof.  Thus, where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended....

This quote is taken from the Supreme Court of Canada decision in Pecore v. Pecore, 2007 SCC 17 at paragraph 24.

The presumption of resulting trust is most often applied to transfers of wealth that occur during the lifetime of the transferor. For example, a mother might gratuitously transfer the title to real estate to her daughter or perhaps into a joint tenancy with her daughter. In such circumstances, there is a presumption that the daughter holds the real estate in trust for her mother, and after her mother’s death, for her mother’s estate.  But the court may find that the mother intended to make a gift of the real estate or an interest in it to her daughter, in which case the presumption is rebutted and the daughter is entitled to keep her interest in the real estate.

As I have written before, the Supreme Court of British Columbia has held that the presumption of resulting trust also applies to the proceeds of a Registered Retirement Income Fund following the death of the annuitant. In Neufeld v. Neufeld, 2004 BCSC 25, the Supreme Court of British Columbia applied the presumption of resulting trust to hold that the annuitant’s brother held the proceeds in trust for her estate.

In a decision of the Alberta Court of Queen’s Bench released last month, Mr. Justice Graesser questioned, without deciding, whether the presumption should properly be applied to designated beneficiaries of Registered Retirement Income Funds and other plans under which the annuitant or owner may appoint a beneficiary on death. The case is Morrison Estate, 2015 ABQB 769 (Canlii).

John Robert Morrison died on November 10, 2011 leaving four children surviving him. In his will, he divided his estate equally among his four children, except that $11,000 was to be deducted from his son Robert Morrison’s share and distributed equally among John Morrison’s grandchildren. John Morrison designated his son Douglas Morrison as the beneficiary of his Registered Retirement Income Fund. As I will discuss in another post on this case, the usual rule is that the taxes on the Registered Retirement Income Fund on death comes out of the estate, which in this case would significantly deplete the estate.

One of John Morrison’s other children, Cameron Morrison, asked the Court to apply the presumption of resulting trust to the beneficiary designation, and declare that Douglas Morrison holds the proceeds of the Registered Retirement Income Fund in trust for their father’s estate to be distributed in accordance with the will.

In considering whether the presumption of resulting trust applies to a beneficiary designation in Alberta, Mr. Justice Graesser set out the problem as follows:

[18]           The results of this application could have significant impact on the investment and brokerage industry. There are undoubtedly millions of RRSPs, RRIFs and life insurance policies that have designated beneficiaries instead of the proceeds going to the owner’s estate.

[19]           I suspect that many owners, as well as many investment advisors and brokers, are unaware of the potential consequences of the Supreme Court’s decision in Pecore as it relates to beneficiary designations, as well as the income tax consequences of an RRIF or RRSP beneficiary being someone other than the owner’s spouse.

[20]           There has always been the potential issue of a resulting trust being imposed in the event of a gratuitous and unexplained beneficiary designation. Until Pecore, the presumption of advancement in favour of children generally prevented the potential application of resulting trusts in most family situations.

[21]           Since the decision in Pecore, however, there is the potential that any non-spousal designated beneficiary (whether under an RRSP, RRIF or life insurance policy) will be deemed to hold proceeds in trust for the donor’s estate unless he or she can prove that a gift was intended.

[22]           It is frequently said that hard cases make bad law, and there is certainly the potential for a hard case such as this to impact many other plan or policy owners and their designated beneficiaries.

Mr. Justice Graesser expressed doubt as to whether the presumption should be applied to designations of beneficiaries of benefit plans, reasoning that designating a beneficiary is more like a will, taking effect on death, and designations can usually be changed before death. This stands in contrast to gratuitous transfers that may confer an immediate property right on the transferee.

He wrote as follows:

[44]           Like designations of beneficiaries under insurance policies, there is a benefit to the owner of an RRSP or RRIF to be able to designate a beneficiary rather than have the plan go to his or her estate. That may be tax roll-over provisions relating to spousal beneficiaries and there may be an element of creditor-proofing if there is designated beneficiary rather than having the plan go to the owner’s estate.

[45]           I can frankly think of no sound policy reason why beneficiary designations under RRSPs, RRIFs and insurance policies should not be treated in a similar fashion to beneficiary designations under a will. None of these “gifts” take effect until the death of the owner of the plan or policy. With the exception of irrevocable beneficiaries under some life insurance policies, the owner is free to change beneficiaries during his or her lifetime, so long as he or she is of sound mind.

[46]           I recognize the historical concerns surrounding the formalities required of testamentary dispositions. The intent of formality was undoubtedly to attempt to add a level of assurance that the donor intended the consequences of his actions and was in fact the author of the testamentary disposition.

[47]           While such designations have been treated as inter vivos transactions and not testamentary transactions, they are certainly much closer to testamentary transactions than to inter vivos gifts such as transferring bank accounts, investment accounts or property into joint names. Such transactions cannot be unilaterally undone, unlike beneficiary designations. I note that RRSP beneficiary designations appear to be “testamentary dispositions” in Ontario as a result of Ontario’s Succession Law Reform Act, RSO 1990, c S.26 (see Amherst Crane Rentals v Perring, 2004 CanLII 18104 (ON CA), 2004 CanLII 18104 (ONCA)).

[48]           It may well be arguable that Alberta’s Wills and Succession Act accomplishes the same thing in s 71. I need not make that finding because of my ultimate conclusion.

[49]           Beneficiary designations are unlike joint ownership of bank accounts or investment accounts, which confer a present property interest. Beneficiary designations do not. Beneficiary designations are essentially powers of appointment conferred on the owner by the terms of the contract.

[50]           If there was some expectation that requiring formalities would ensure that the testator obtained appropriate advice before completing a will or codicil, that is entirely undone by the law respecting holograph wills.

[51]           I ask rhetorically, if a few handwritten notes on the back of a cigarette package signed by the testator is a valid testamentary instrument and not subject to the law relating to resulting trusts, why should a beneficiary designation signed and witnessed (presumably by a knowledgeable investment advisor) be treated differently?

[52]           This may be one of the unintended consequences of Pecore v Pecore and the abolition of the presumption of advancement in favour of able, adult children. I suspect, without knowing, that the vast majority of beneficiary designations under RRSPs, RRIFs and life insurance policies are spouses or adult interdependent partners or children.

[53]           In my view, Pecore and Kerr v Baranow should not be applied to beneficiary designations for RRIFs (and by inference RRSPs and life insurance policies). To apply Kerr v Baranow and Pecore v Pecore to RRSP, RRIF or life insurance beneficiary designations would, in my view, create untold uncertainties in what are likely hundreds of thousands if not millions of beneficiary designations in Canada.

Mr. Justice Graesser did not ultimate decide whether the presumption of resulting trust applies to the designation of a beneficiary designation in Alberta. He found sufficient evidence that John Morrison intended that Douglas Morrison keep the proceeds of the Registered Retirement Income Fund to rule in Douglas Morrison’s favour on this issue. He wrote:

[73]           On the evidence before me, I find that Douglas has established on a balance of probabilities that his father intended to give him the RRIF. I make that finding on the basis of several factors:

1)         The close relationship between Douglas and his father that existed at the time of the beneficiary designation;
2)         The assistance rendered to Mr. Morrison by Douglas in the time surrounding and immediately following Mrs. Morrison’s death; and
3)         The close temporal connection between the making of the will appointing Douglas and Heather joint alternate executors and the signing of the beneficiary designation in favour of Douglas only.

[74]           I recognize that this is a very thin finding. However, the balance of probabilities tips at 50.01%. In this case, there is slightly more evidence of an intention to favour Douglas than to have Douglas hold the RRIF as a resulting trust for the estate or his siblings.

[75]           Thus, Douglas is entitled to the RRIF.

Even if Justice Graesser had held that the presumption of resulting trust does not apply to a beneficiary designation, a decision of the Alberta Court of Queen’s Bench is not binding on British Columbia courts. In British Columbia, the only case I am aware of on point is the Neufeld decision which does apply the presumption of resulting trust to a beneficiary designation. But if this issue comes before the British Columbia Court of Appeal in the future, the Court could find Mr. Justice Graesser’s analysis persuasive. 

McKendry v. McKendry

[Since I posted this post, the B.C. Court of Appeal has overturned the trial judge's decision. You may read the reasons for judgment in the Court of Appeal here.]


The presumption of resulting trust is a presumption that arises when someone gratuitously transfers property to another. The presumption is that the person making the transfer did not intend a gift, and the person receiving the property holds it in trust for the transferor. This presumption applies both to a transfer into the sole name of another or into a joint tenancy with another. Because it is a presumption, it is open to the person receiving the assets to prove that the transferor did intend a gift, in which case the presumption is rebutted.

The court will generally attempt to determine what the transferor’s actual intention was at the time of the transfer. If it cannot be determined then the presumption applies to most relationships, including a transfer from a parent to her adult child. Although the court may consider things that either the transferor or the recipient say or do after the date of the transfer in determining the transferor’s intent, the court will need to be satisfied that the evidence is sufficient to determine the transferor’s intention at the time of the transfer.

There are cases where the court finds that a parent has transferred property to a child intending to make a gift to the child, but the parent later changes her mind. In such a case the gift still stands, because it was completed at the time of the transfer.

But what if a parent transfers land into a joint tenancy with one of her children without intending to make a gift (or more precisely the court does not find that sufficient evidence of an intention to make a gift), and the parent later decides that she wishes the child to receive the land as a gift on her death by right of survivorship?

This is what occurred in McKendry v. McKendry, 2015 BCSC 2433.

When Mary Alice McKendry died on February 23, 2012, she left surviving her five children, a son and four daughters.  

Mary McKendry had transferred title to her home on W 48^th Avenue in Vancouver into a joint tenancy with her son, John McKendry in 2008. At her death, the home was worth over $1.9 million. There were mortgages registered against the home, which John McKendry had used to finance the purchase of an investment property. Apart from the home, her estate was worth about $465,000.

Her last will, made on December 16. 2010 contained the following paragraph:

7.         I wish to advise my Trustee/s that I have registered my home civically known as [W. 48th] (hereinafter called the “Home”) in Joint Tenancy with my son, John Alexander McKendry.  My son shall receive the Home subject to the Mortgages registered against [the] Home and shall be responsible for payment of the Mortgages as he was the recipient of the mortgage proceeds.

In her will, she left the residue of her estate to her four daughters.

She also signed a letter at the time of her will, stating

I, Mary Alice McKendry, confirm that I wish to cancel any trust agreements or other documents imposing an obligation on my son to share the property I own at [W. 48th] with my other children.  I want my home to be my son’s property on my death absolutely – no strings attached.  I have made this decision after much consideration and I fully understand that this gives my son the majority of my assets.  My house constitutes the majority of my assets.

Following Mary McKendry’s death three her daughters claimed that their brother held his interest in the home in trust for their mother’s estate. He made a counterclaim, seeking to vary the will under the Wills Variation Act in the event that the court found that he held the home in trust for the estate.

At first glance, it might appear that John McKendry had a pretty strong case that he should be entitled to keep the home, and that he did not hold it in trust for his mother’s estate. She had transferred title, and she very clearly expressed in her will and her letter that it was her intention that he receive the home to the exclusion of her daughters.

But there is more to the facts (otherwise, this would be a rather dull post). On two occasions before making her last will, Mary McKendry had instructed lawyers to draw up trust declarations in respect of the home. The first declaration stated that her son held title in trust, and on her death he would receive a third, one of her daughters would receive a third, and the other three daughters would share a one third interest. She signed the declaration, but John McKendry did not. The second trust declaration made in February 2010 provided that on Mary McKendry’s death, each child would be entitled to an equal interest in the home. Again, Mary McKendry signed the trust declaration, but her son did not.

Madam Justice Adair, who heard the trial, found that John McKendry had not rebutted the presumption of resulting trust arising at the time of the transfer of title. In instructing lawyers to prepare, and in signing the trust declarations, Mary McKendry was dealing with the home on the basis that she was able to determine who would be entitled to the home on her death. This was evidence that she considered that she had not made a gift of an interest in the home when she transferred it into a joint tenancy with her son. Madam Justice Adair also found that John McKendry’s testimony did not rebut the presumption.

Madam Justice Adair found that Mary McKendry’s last will and the letter of December 16, 2010 did not reflect her intentions at the time of the transfer, but rather reflected a change in intentions after the transfer.

The next question is whether Mary McKendry gave her son the beneficial interest in the home by right of survivorship in December 2010 when she made her will and signed the letter. Madam Justice Adair held that the will and letter were insufficient to make a gift of the home to John McKendry. She reasoned as follows:

[137]     I will assume that, as of December 16, 2010, Mary intended to make a gift to John of the survivorship interest in W. 48th.  This is what she communicated to Ms. Richter [Mary McKendry’s lawyer who drafted the will] and it is reflected in the December 2010 Will and the December 16 Letter.  However, even if this assumption was correct, I do not agree with Ms. Ducey [John McKendry’s lawyer] that, in the circumstances, nothing more needed to be done to perfect the gift.  Rather, I agree with the submissions of Mr. Lee (for the plaintiffs) on this point.

[138]     Transfers of real property are governed by the Law and Equity Act, R.S.B.C. 1996, c. 253, and the Land Title Act, R.S.B.C. 1996, c. 250, Part 12.  Section 59(3) of the Law and Equity Act requires contracts respecting land to be in writing to be enforceable.

[139]     In order to make a valid gift, the donor must have done everything that (according to the nature of the property) was necessary to be done to transfer the property and make the transfer binding on the donor.  The court will not act to complete an incomplete gift, and a mere promise to make a gift is unenforceable.  See Kooner v. Kooner(1979), 100 D.L.R. (3d) 76 (B.C.S.C.), at pp. 79-80. 

[140]     In my opinion, the Form A transfer, signed by Mary on January 28, 2008, is not sufficient to perfect a gift of the survivorship interest in W. 48th to John, because (as I have found) Mary did not intend at that time to make such a gift to John.  Assuming that, as of December 2010, Mary did intend to make such a gift to John, she did not take the necessary steps to perfect the gift.  The statements in the December 2010 Will and the December 16 Letter are insufficient to create any legal obligation; they are (at best) mere promises to make a gift to John.  I agree with Mr.  Lee [the lawyer for the Plaintiff daughters] that, in order for Mary to make a valid gift to John of the survivorship interest in W. 48th, Mary would have been required to execute a written deed of gift under seal (obviating the need for consideration), confirming an immediate gift of the survivorship interest in W. 48th.  Short of this, there was no legally binding gift, and I so find.

[141]     In summary, I find that John has failed to discharge the burden on him to show that, on January 28, 2008, Mary intended to make an immediate gift to him of the survivorship interest in W. 48th.  If, on December 16, 2010, Mary intended to make such a gift, she failed to take the steps necessary to make a valid, legally binding gift.

[142]     The result is the plaintiffs are, accordingly, entitled to a declaration that John holds W. 48th in trust for Mary’s estate.

Madam Justice Adair then considered John McKindry’s claim to vary the will. She did vary the will, and awarded him a one-fifth share of the estate, from which the amount of the mortgage taken out for his benefit will be set off.

Supreme Court of Canada Reaffirms Purchase Money Resulting Trust

As set out by Mr. Justice Rothstein in Nishi v. RascalTrucking Ltd., 2013 SCC 33:

[1]                              A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property. Where the person advancing the funds is unrelated to the person taking title, the law presumes that the parties intended for the person who advanced the funds to hold a beneficial interest in the property in proportion to that person’s contribution. This is called the presumption of resulting trust. 

 [2]                              The presumption can be rebutted by evidence that at the time of the contribution, the person making the contribution intended to make a gift to the person taking title. While rebutting the presumption requires evidence of the intention of the person who advanced the funds at the time of the advance, after the fact evidence can be admitted so long as the trier of fact is careful to consider the possibility of self-serving changes in intention over time

I should add that the presumption often applies to transfers among related persons as well, such as a parent to an adult child.

In Nishi, the transfer of funds was from a company, Rascal Trucking Ltd. which I will refer to as “Rascal” to Edward Nishi to assist Mr. Nishi in purchasing lands in Nanaimo, British Columbia, that Rascal were sold in a foreclosure proceeding.

Rascal had leased the lands from Kismet Enterprises Ltd. (“Kismet”), and operated a topsoil processing facility. After complaints, the City of Nanaimo removed the topsoil and added it to the tax account. The amount was $110,679.74. Although under the lease, Rascal was required to indemnify Kismet for the costs of removal but did not.

Kismet stopped paying its mortgage, and the lender started foreclosure proceedings. Mr. Nishi bought the land in those proceedings in 2001.

It is noteworthy that the principal of Rascal, Hans Heringa, and the principal of Kismet, Cidalia Plavetic, were friends. Mr. Nishi and Ms. Plavetic were in a common law relationship.

Before Rascal contributed funds to the purchase, Mr. Heringa sent a fax to Mr. Nishi offering $85,000 cash and payment on a mortgage of $25,000, and requesting a second mortgage on the lands, and that Rascal would have the use and eventual ownership of a portion of the lands. When that proposal was not accepted, Mr. Heringa sent another fax stating that he would provide $85,000 unconditionally. Ultimately, Rascal contributed $110,679.74 (the exact amount of the liability). Mr. Nishi purchased the lands for $237,500.

Years later, in 2008, Rascal sued Mr. Nishi claiming that Rascal was entitled to a half interest in the property. One of the arguments Rascal made was that there was an agreement that Rascal would receive an interest in the lands. Another argument was that it was entitled to an interest on the basis of its financial contributions, and that the doctrine of resulting trust applied. Finally, Rascal argued that Mr. Nishi would be unjustly enriched if he were entitled to retain Rascal’s contributions and the whole interest in the lands.

In the Supreme Court of British Columbia, the trial found that there was no contract, nor a resulting trust. Rascal did not intend to have a beneficial interest in the land when it advanced the funds. The trial judge also rejected the claim in unjust enrichment. Rascal had paid the same amount that it would have been required to pay to indemnify Kismet under the lease for the cost of removal of the top soil

The Court of Appeal reversed, and found that the resulting trust applied, and that Mr. Nishi had not met the burden of proving that the funds were a gift. This was based in part on the trial judge’s statement in his reasons for judgment that “there was no issue of a gift.”

In the Supreme Court of Canada, one of the arguments made on behalf of Mr. Nishi was that the purchase money resulting trust should be abandoned in favour of an unjust enrichment analysis. The argument is essentially that the purchase money resulting trust may be subsumed under unjust enrichment, but unjust enrichment is a more flexible doctrine. Mr. Justice Rothstein rejected Mr. Nishi’s argument that purchase money resulting trust should be abandoned. He wrote:

[28]                          Mr. Nishi’s third and fourth arguments can be considered together. In essence, Mr. Nishi argues that the doctrine of unjust enrichment is preferable because of its flexibility in terms of factors to be considered, overall focus on justice between the parties and broader remedial options. However, desire for flexibility does not constitute a compelling reason for departing from the unanimous decision of this Court in Kerr [v. Baranow, 2011 SCC 10] which was issued just two years ago. While flexibility is no doubt desirable in certain areas of the law, the purchase money resulting trust provides certainty and predictability because it relies on a clear rule for determining who holds the beneficial interest in a property. Absent strong dissenting opinions in this Court, contrary decisions in provincial appellate courts or significant negative academic commentary that would justify disturbing such a settled area of the law, there is no reason to abandon the purchase money resulting trust.

But the Supreme Court of Canada did agree with Mr. Nishi’s position that the trial judge was right in finding that the presumption of resulting trust had been rebutted. The trial judge found that when Rascal contributed the funds, Mr. Heringa did not intend for Rascal to have a beneficial interest in the lands. This is reflected in the second fax. In law, “the absence of intention to create a beneficial interest for the transferor” is the same thing as a gift.

The trial judge’s statement that “there was no issue of a gift,” was made in a different context. As explained by Mr. Justice Rothstein:

[39]                          The trial judge’s comment that the there was “no issue of a gift” was made in the context of reviewing Mr. Nishi and Ms. Plavetic’s perspective on the purpose of the payment:
 

In this case, there is no issue of a gift. Neither Mr. Nishi nor Ms. Plavetic considered the plaintiff’s contribution to be a gift. [para. 42]

 Mr. Nishi and Ms. Plavetic did not see the payment as a gift, because as the trial judge went on to describe, Rascal acknowledged its responsibility for a debt to Kismet related to the tax arrears arising from Rascal’s topsoil operation. However, it made no sense for Rascal to make that payment directly to Kismet since Kismet was subject to other liabilities and was essentially defunct. If Rascal had made the payment to Kismet, it would not have assisted Mr. Heringa’s friends to obtain title to the property. Making the contribution to the purchase price, therefore, enabled Rascal to live up to its moral commitment in a way that practically benefited Mr. Heringa’s friends. It also left open the possibility that in the future they might agree to a second mortgage or a transfer of a portion of the property to Rascal. 

 [40]                          Indeed, Mr. Heringa’s instructions to his staff on payment of his contribution towards the mortgage on the property refer to the amount of the tax arrears ($110,679.74) down to the penny. The necessary implication is that Mr. Heringa viewed the payments as connected with that moral obligation. If Mr. Heringa’s intention at that time was for Rascal to take a beneficial interest in the property, the moral obligation would not have been fulfilled since Rascal would have used the payment to obtain a corresponding interest in the land and not to make good on its moral obligation. In other words, for these parties, one payment cannot be used both to discharge the moral obligation and to obtain a beneficial interest in the land. The two intentions are incompatible.

In the result, Rascal is not entitled to a beneficial interest in the lands.

Oord v. Oord

In British Columbia, when real estate or other assets are held in a joint tenancy by two or more people, when one dies, his or her interest is extinguished and the surviving joint owner or owners receive the deceased’s interest by right of survivorship. It is more common for two people to own property in a joint tenancy, for example two spouses, than for there to be three or four joint owners, but the principle applies whatever the number. If four own property as joint tenants, and one dies, then the remaining three will each have a one-third interest in the property.

Careful thought should be given to the implications of several people owning property as joint tenants. Too often little thought is given to what can go wrong when the decision is made to hold property in a joint tenancy among family.

Wiebe and Tina Oord purchased bare land with their son, William Oord, and his wife Jacqueline Oord in 2003 in Rosedale, British Columbia. The title went into all four names as joint tenants. Wiebe and Tina Oord contributed the whole of the purchase price of $98,000 for the land. All four then took out a mortgage, originally in an amount just shy of $236,000 to construct a house on the land. When the house was completed, all four as well as William and Jacqueline Oord’s two children moved into the house. Wiebe, Tina, William and Jacqueline Oord all contributed to the mortgage as well as other household expenses and improvements.

Wiebe Oord died on February 7, 2010. In November, 2010, William and Jacqueline Oord separated, and Jacqueline and their two children moved out of the house.

Tina Oord applied to the Supreme Court of British Columbia, in Oord v. Oord, 2012 BCSC 1857, seeking an order that she be entitled to the first $98,000 in the equity in the property, reflecting the initial purchase price she and her husband paid, as well as half of the rest of the equity. She wanted the opportunity to buy out her son and daughter in law.

The property was worth in the neighbourhood of $450,000 to $480,000. The mortgage was just under $208,000, which reflected some additional funds taken out after the house was built for William and Jacqueline Oord to pay off some debts. All parties agreed that William and Jacqueline Oord were responsible for repaying the additional funds they borrowed. 

Jacqueline Oord maintained that she was entitled to one-third of the equity, and sought an order that the property be sold.

The first question was whether William and Jacqueline Oord held their interests in the property on a resulting trust for Tina Oord. When one person pays the entire purchase price of the property and puts it in the names of others, there is a presumption that the others hold their interest in trust for the person who paid the purchase price. In this case, because the original purchase price was paid by Wiebe and Tina Oord, the presumption applies.

But the presumption of resulting trust is just a presumption, which may be rebutted if it is shown that the person who paid the purchase price intended to make a gift.

Mr. Justice Joyce, who heard the case, considered the purchase in the context of the family relationships. Although there was no clear arrangement, the family was very close, and Tina Oord’s own evidence is that when they decided to buy the land, she considered it to be of benefit to all four of them. Mr. Justice Joyce found that Tina Oord and Wiebe Oord did intend to make a gift of a half interest in the land to their son and daughter-in-law.

The next question was whether Tina Oord was entitled to a half-interest in the property or a one-third interest. After her husband’s death Tina Oord paid half of the mortgage and property taxes.

Mr. Justice Joyce held that each of the three surviving co-owners was entitled to a one-third interest, essentially because that is how joint tenancies work. He wrote:

[50]         Apart from the issue of whether Bill and Jackie hold their interests upon a resulting trust in favour of her on account of the initial payment, as to which I have found against Tina, she further suggests that the beneficial interest in the Property should be divided one-half in her favour and one-half, collectively, in favour of Bill and Jackie, even though title is currently registered in the three parties’ names as tenants in common. In my view, that position cannot be sustained. Probably one of the most important characteristics of joint tenancy is the right of survivorship. When a joint tenant dies his or her interest is extinguished, increasing the holding of the surviving joint tenants. When Wiebe died, his interest was extinguished and those of the surviving joint tenants, including Tina, were increased, by operation of law. 

 [51]         Tina suggests that Wiebe’s interest was transferred gratuitously to Bill and Jackie with his death and that the principle of resulting trust can be invoked to say that Bill and Jackie hold their increased interest in trust. In my view, there are at least two problems with this proposition. Firstly, the increase in interest of Bill and Jackie (and Tina) did not result from a transfer from Wiebe, in the true sense. It resulted by operation of law in which Wiebe’s interest was extinguished. Secondly, in a resulting trust, the transferee holds in trust for the transferor. Here there is no transferor. 

 [52]         Tina suggests, in the alternative, that Bill and Wiebe were unjustly enriched not only by the benefit received when Wiebe and Tina paid the initial purchase price, but also when they received Wiebe’s interest upon his death. As for the initial payment of the purchase price, I have already held that to be a gift, so there can be no unjust enrichment from a perfected gift, which constitutes a juristic reason for the enrichment. As for the transmission of Wiebe’s interest on death, there can be no unjust enrichment by any of the three surviving joint tenants because the principle of survivorship provides a juristic reason for the increase in their interests. 

 [53]         I conclude therefore that, subject to the agreement regarding the increase in the mortgage in 2006, each of the remaining survivors is entitled to an equal one-third interest in the Property unless they can establish unjust enrichment on some other basis. I am satisfied that up until the death of Wiebe, all of the co-owners contributed equally to the arrangement and I can see no basis for a claim for unjust enrichment prior to that time. 

 [54]         However, after Wiebe died, Tina paid one-half of the mortgage payments and other expenses associated with the Property, when she was only obliged to pay one-third. Bill and Jackie collectively were responsible for two-thirds of the expenses. To this extent, Bill and Jackie were unjustly enriched at the expense of Tina and she is entitled to receive from Bill and Jackie the difference between one-half and one-third of the expenses. I assume that counsel will be able to agree on the precise figure. If they cannot, they may apply for further decision on that point.

He ordered that the property be sold.

Although I can’t fault the reasoning in this case, I can’t help but thinking that when they bought the property had the Oords had put their minds to the possibility that Wiebe would pass away, and then William and Jacqueline separate, they would not have contemplated that Tina Oord would end up with only a one-third interest in the property. Ideally, the Oords would have entered into a co-ownership agreement setting out their respective rights and obligations in case of a separation or death. Short of that, it might have made sense for Tina and Wiebe Oord to have held a half interest together as joint tenants, and William and Jacqueline to own the other half interest as joint tenants, but with the two half interests held as tenant’s in common. Then if Wiebe or Tina died, the survivor would still have a half interest, which he or she could leave by will.