Tuesday, September 25, 2012

Bradshaw v. Stenner

Lori Bradshaw transferred the title to a home in Peachland to Kimberley Stenner. On the surface, this appeared to be an ordinary sale of real estate. There was a contract of purchase and sale, which indicated that Ms. Stenner was buying the property for $395,000. Ms. Stenner obtained a mortgage, the proceeds of which were used in part to pay off Ms. Bradshaw’s mortgage on the property, with the balance going to Ms. Bradshaw.

This apparently ordinary sale in 2004 was the subject matter of a 48 day trial in 2010, and a three day appeal in 2012.

The main question in Bradshaw v. Stenner, 2012 BCCA 296, whether this was in fact a sale of the property by Ms. Bradshaw to Ms. Stenner, or was this part of a financial arrangement made to allow Ms. Bradshaw to keep the property .

According to Lori Bradshaw and her husband, John Bradshaw, they were good friends with Kimberley Stenner and her husband, Justyn Stenner. Mr. Stenner also gave them financial advice. When the Bradshaws were in default on mortgages of three properties, and the creditors began foreclosure proceedings, Mr. Stenner advised them. He advised them to list the home in Peachland for sale, which they initially did, and then later suggested that a family member could purchase the home “on paper” to retain the home for them. He brought the idea of a sale to a family member up at a family meeting. Later, he and Mrs. Stenner agreed that Mrs. Stenner would purchase the home on paper. The plan was for Mrs. Bradshaw to transfer title to Mrs. Stenner who would sign for a new mortgage which would be used to pay out the mortgage that was in default. She would also receive some extra funds. Mr. and Mrs. Bradshaw would keep possession of the home, and would make payments to Mr. and Mrs. Stenner to cover the mortgage, insurance and property taxes.

Mr. and Mrs. Stenner, on the other hand, denied that the sale was anything other than an ordinary sale of real estate, with the Bradshaws remaining in the home as tenants. They denied much of what Mr. and Mrs. Bradshaw said about the arrangement.

The Stenners argued that by the terms of the contract for the sale of the home it was not open for the Bradshaws to say that there was an agreement that they would retain the beneficial ownership of the home. The contract provided:

There are no representations, warranties, guarantees, promises or agreements other than those set out in this Contract and the representations contained in the Property Disclosure Statement incorporated into and forming part of this Contract, all of which will survive the completion of the sale.

They argued that the law did not permit oral evidence contradicting the terms of the written contract. This is known as the “parol evidence rule.”

Although at first glance if one reads the contract, this appears to be a straightforward purchase and sale of real estate, there were a number of unusual features of the deal that supported the Bradshaw’s evidence. In British Columbia, when real estate is sold, conventionally the buyer’s lawyer prepares statements of adjustments for both the buyer and the seller, showing the purchase price, the real estate commissions, adjustments for property taxes, and the flow of funds. In this case, there was no adjustment made in favour of the Mrs. Bradshaw for the prepaid property taxes, and the balance of the purchase price to complete the purchase, after the new mortgage, was shown as coming from the seller. In other words, the Mrs. Bradshaw was responsible for part of the purchase price to herself. Although the statement of adjustments indicated that Mrs. Stenner had paid a $5000 deposit directly to Mrs. Bradshaw, she did not make the deposit.

Mrs. Stenner testified that Mrs. Bradshaw had agreed to drop the purchase price from $395,000 to $295,000, and that this is the reason she paid less for the real estate than the amount specified in the original contract price. She said that Mrs. Bradshaw had agreed to the reduction after Mrs. Stenner advised her in a telephone call that she, Mrs. Stenner, had been deceived that the property was zoned for condominiums when it was not.

Both the trial judge, Madam Justice Dillon, in the Supreme Court of British Columbia, and the Court of Appeal rejected Mrs. Stenner’s evidence about a price reduction as improbable. The listing for the property accurately set out the zoning. Mrs. Bradshaw had rejected an offer of $345,000 from another person. The price reduction was never documented, nor was there evidence that the lawyers involved in the transaction or the lender were advised of a price reduction. Mr. Justice Low in the Court of Appeal wrote:

 [102]     The price-reduction story advanced by the appellant [Mrs. Stenner] was manifestly weak.  To accept it, the court would have to believe: (1) that the appellant, who had several years experience as a realtor, thought herself misled about the zoning of the property in light of the truthful description of the development potential of the property in the listing as set out above, which the appellant admitted to having seen; (2) that in a short telephone conversation the respondent gave up $100,000 of her equity with only a nominal concession in return, and that she did so after having turned down an offer from a stranger to pay $345,000 for the property; (3) that Bell Spagnuolo [the law firm acting for Mrs. Stenner in the transfer of title] received instructions from the Stenners that the price had been reduced to $295,000 but did not put down that figure as the sale price in the statements of adjustments and did not seek or obtain confirmation of the price reduction from Mr. Hordal [Mrs. Bradshaw’s lawyer in the transfer]; (4) that having received the instruction alleged, the law firm prepared the transfer document and the property sales tax form showing the higher sale price, with the result being that more registry fees and taxes were paid than was necessary; (5) that the law firm did not inform its other client, the credit union, of a significant change in the transaction as the firm ethically would have been required to do. 

The way the deal was structured was consistent with Mrs. Bradshaw’s testimony that this was a change of ownership on paper only, done to refinance the property to allow Mrs. Bradshaw to keep the property. Mrs. Stenner received title, but held it as trustee for the benefit of Mrs. Bradshaw.

What about the argument that the Bradshaw’s could not in law claim that there was an oral agreement that was inconsistent with the written contract? There are a number of exceptions to the parol evidence rule. There are precedents where the courts have allowed oral evidence of a trust not set out in writing. The Court considered by analogy leading cases in which English and Canadian courts have held that legislation requiring contracts dealing with land be in writing, historically called the Statute of Frauds (in British Columbia, see section 59 of the Law and Equity Act), cannot be used as “an instrument of fraud” to defeat a trust. Mr. Justice Low wrote:

[153]     In my opinion, the parol evidence rule and the entire agreement clause cannot be invoked by the appellant to exclude the oral evidence of the trust because, as in [In re Duke of] Marlborough [1894 2 Ch 133] with respect to the Statute of Frauds, to do so would permit the parol evidence rule to be used as an instrument of fraud.  In cases in which a trust is alleged and proven, I consider that the correct approach is to conclude that the parol evidence rule has no application.  If the trust is proven, the court must consider any impact its terms may have on title and must also consider any accounting that arises between the parties. 
 [154]     In the present case, the impact the proven trust had on title was an obligation on the appellant to re-convey, this being an express term of the trust.  On the authorities, it would be a fraud on the part of the appellant to refuse to discharge her obligation under the trust.  The court had to hold her to that obligation and did just that.

[155]     I do not agree with the submission of the appellant that there was merely a representation by the appellant’s agent (her husband), or that what he said to the respondent and the respondent’s husband was nothing more than a non-binding statement of future intention.  The issue was not whether the appellant promised to do something in the future.  The issue was whether a trust was created upon specific terms: namely, that the transfer of the property would be “on paper” only; that the appellant would take title; that mortgage monies would be raised using the appellant’s much better borrowing power; that the respondent would service the mortgage and all other costs of maintaining the property; and, finally, that the appellant would re-convey the property to the respondent. 
 [156]     The parties did not use the word “trust” in their discussions or refer to the distinction between a legal interest and a beneficial interest in property.  Neither of the parties, nor their respective spouses, would be expected to have employed such language or had knowledge of such concepts.  But the issue, as pleaded, was whether the true nature of the arrangement was such that the appellant would take the legal interest in the property as a trustee and the respondent would retain the beneficial interest.  That being the arrangement found by the trial judge, a finding with which I would not interfere, the document dated 24 April 2004 and the land title transfer were nothing more than the mechanical means of completing the arrangement, to the certain knowledge of both parties.  The terms contained in the writing were not of importance to the parties and the entire agreement clause was of no force and effect.  That clause cannot be the means by which the appellant can escape her obligations as trustee or compel the court to disregard the trust.

The British Columbia Court of Appeal upheld Madam Justice Dillon’s decision that Mrs. Stenner holds the home in Peachland in trust for Mrs. Bradshaw, who is entitled to title to the home.

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