Legal Blog

Resulting Trust

When a purchaser gratuitously places another person on title, the law presumes that this person, who has contributed nothing, holds the property in trust for the purchaser who paid everything. In the case of Costa v. Costa, a 2022 decision of the British Columbia Supreme Court, the judge dealt with types of contribution required to ground an ownership interest.

On-Again Off-Again

Between 2008 to 2018, a woman and her common law spouse had a classic on-again off-again relationship. Over the years they would live together for some time and then split-up – with the spouse moving into his houseboat. The two would then reconcile and the cycle would continue. No doubt the fact that the two had a child perpetuated this cycle.

The woman and her parents purchased a property in 2017. The mortgagee required that the spouse co-sign the mortgage for the property. Because of this, everyone was shown on title as a registered owner of the property, with each parent having a 33% interest, the woman having a 32% interest, and the spouse having only a 2% interest.

Aside from signing the mortgage commitment, the spouse contributed nothing: he made no payments towards the deposit, made no monthly payments to the mortgage, made no payments towards maintenance, paid nothing when there was a settlement of litigation regarding the property, did not contribute to the monthly utilities (aside from making 2 months’ worth of payments while he was residing there), and never paid property taxes.

The two separated for the final time in 2018.  Neither party made any claims for separation of property under family law statutes. In 2022, the woman sought an order that the spouse’s 2% interest was held by way of a resulting trust for her and her parents. The spouse claimed that he was entitled to the 2% interest and denied the trust.

Form or Substance

The judge found that any family law claims were statute barred and decided the case under the common law. His decision turned on whether the co-signing of the mortgage was sufficient consideration to rebut the presumption of a resulting trust that would normally apply when there was no consideration.

Although the judge acknowledged that it was possible for the pledging of credit to suffice in the proper circumstances, each case required an assessment of whether the pledging of credit provided “material value”. In other words: did the pledging of credit actually matter?

The judge found that simply co-signing the mortgage was insufficient. He found no evidence of any real risk to the spouse in co-signing the mortgage. The woman and her parents had all signed the mortgage documents and each had assets. The property had substantial equity, which was  increasing because house prices had risen. The co-signing was required only because the woman had personally guaranteed the spouse’s car loan from which the spouse continued to benefit. The judge found that any personal risk that the spouse assumed was more theoretical than actual.

Ultimately, the judge found that the spouse’s 2% interest was held in trust for the woman or her parents and ordered that the true ownership of the property be reflected on title. The judge also held that, even without a resulting trust, the woman and the parents would have succeeded on a claim for unjust enrichment. The spouse had been unjustly enriched by receiving something (the 2% interest) for which he had done nothing. The woman and her parents had suffered a corresponding deprivation because they had paid the costs associated with the 2% interest and had received nothing in return. Finally, here was no juristic reason (e.g., contract, gift, disposition of law) for the enrichment and deprivation.

Criticism

In his decision, the judge was critical of the spouse for not agreeing to the woman’s attempts to purchase his 2% interest for a fair price and, worse yet, his assertion that he had more than a 2% interest despite making no contributions to the property.

The decision puts into focus that, when it comes to determining whether a presumption of resulting trust applies to a transaction, the question is not whether the person claiming the interest contributed to the transaction; rather, that party must show a material contribution. The case will make it harder to defeat the presumption of resulting trust for those who merely extend credit, especially if they make no other contributions. The court will not be blind to the realities that sometimes a contribution on paper is not an actual contribution in real terms.

Image courtesy of OleksandrPidvalnyi.

Written by Tim Morgan, a litigator with a focus on commercial matters. He has appeared before all levels of Ontario Courts and has represented businesses of all sizes, from Canada’s largest corporations to privately held, family-run businesses.