Legal Blog

Resulting Trust (2)

We have previously discussed resulting trusts several times (e.g. see February 2025 and October 2023 newsletters) – because a trust normally means that what a creditor sees does not reflect the true state of affairs. A creditor will be disappointed if the debtor is shown to be an owner on title, but, because of a trust, is not the true owner. Conversely, a creditor will be pleased if it can demonstrate that a debtor, though not shown on title, is the true beneficial owner because of a trust.

When a purchaser or transferor gratuitously arranges for the registration of another person on title, the law presumes that this person, who has contributed nothing, holds the property in trust for the purchaser or transferor who paid everything. This is known as a resulting trust.

The concept of resulting trust was discussed in two 2024 cases in the Ontario Court of Appeal: Bradshaw v. Hougassian and Falsetto v. Falsetto.

Falsetto

For decades, father and son were engaged in the business of buying and redeveloping real estate. Sometimes, father was registered on title as the sole owner of a property; sometimes, it was son; and sometimes, it was both. When the properties were not registered in both names, the titled owner would hold 50% of the legal title in trust for the unregistered party.

Son found a new property in 2011. Father and son agreed that they would offer to purchase the property. Son was the sole purchaser in the agreement of purchase and sale. Unfortunately, before the transaction closed, the lawyer for father and son advised the parties that son could not be the sole purchaser because he already held legal and beneficial title to a property adjacent to this property. Under the Planning Act, if son took title, the two properties would merge into one title; not a good result.

Father and son accepted their lawyer’s advice that, by adding father to title to the property, the titles of the two properties would not merge. Unfortunately, the mortgagee advised the parties that there was insufficient time to approve father under the mortgage. The parties then decided to have son’s wife replace father on title. Seemingly, having wife go on title allowed the mortgage money to be advanced without any difficulties.

Father advanced half the purchase money; son advanced the other half. Aside from wife being on title and on the mortgage, she had nothing to do with the property. Father and son split the revenue, expenses, and profit. Father and son each declared half of the net income for tax purposes. Wife never declared income or expenses for the property on her tax returns. However, when son and wife dissolved their marriage, wife claimed that, when she took title to a 50% interest in her name, father made a gift to her. Father moved for a declaration that wife held her interest for him by way of a purchase money resulting trust.

Application

The application judge reasoned that “a party cannot achieve one result for the purpose of avoiding a legal consequence prescribed by statute – in this case the Planning Act – and achieve an opposite result for other purposes.” She held that if father intended to pass beneficial ownership to wife to avoid the legal consequence under the Planning Act, no resulting trust could arise. Father appealed.

Appeal

The Court, in a 2-1 split decision, noted that case law did not support the application judge’s proposition and that it was inconsistent with general principles.

As a general principle, if a resulting trust is presumed, the onus is on a party seeking to rebut that presumption to establish that the person who paid the money or transferred the property intended to make a gift. It is not a question of constructive or deemed intention; it is a question of actual intention on the balance of probabilities. Accordingly, the intention to avoid a property merger did not conclusively establish father’s intention to make a gift; it was merely a factor for consideration in determining father’s actual intention.

The Court held that there was overwhelming evidence to support father’s testimony that he intended to be a 50% owner, and earn income from the property. All evidence affirmed the presumption of a resulting trust.

Bradshaw

The presumption of a purchase money resulting trust is defeated if a contributor to a purchase did not intend to acquire a beneficial interest. This can be established by demonstrating that the money that the contributor advanced was meant either as a loan or as a gift.

Facts

Son (22 years old) purchased a house in 1980 for $38,500. Son contributed $8,000, mother contributed $10,000, and son financed the remaining $20,500 by way of a mortgage in his name, but guaranteed by mother. Son had title put in his name alone – although both mother and son had signed the agreement of purchase and sale. Throughout the years, mother lived in the house, but son covered most of the expenses associated with it. Further, mother had not included the property among her assets when she filed for bankruptcy in 2006.

Son became highly successful. financially Accordingly, mother decided that she would not leave anything to son in her will because he had no need of anything she could give to him. On mother’s death in 2018, the question was whether mother had held a 26% resulting trust in the house (i.e. $10,000/$38,000) because she contributed 26% of the original purchase price.

Actual Intention

The application judge held that, in 1980, mother had limited money, limited prospects, and an overwhelming need to become independent – while son had enough money to purchase the property outright. The judge therefore rejected the argument that mother had decided to give or lend all her money to son to further the completion of the agreement of purchase and sale that mother and son had entered into jointly.

Son appealed the decision.

Result

The Court of Appeal agreed with the application judge that (i) the doctrine of purchase money resulting trust focuses on the parties’ intentions at the time of the advance of the purchase money and (ii) evidence about how claimants conduct themselves afterwards may be relevant, but only to the degree that it sheds light on what they intended at the time of the advance of the purchase money.

Once the Court made that determination, son’s appeal was doomed. There was evidence to support the decision of the application judge and the Court was not going to revisit the facts and impose its fact findings in lieu of the application judge’s findings. The Court was bound to accept the findings of fact, based on the evidence, that the application judge made.

The Court also noted that, in an estate context, son’s evidence was not corroborated (s. 13 of the Evidence Act), but also noted that the trial judge did not rely on the lack of corroboration to find that mother had neither loaned nor gifted the money.

Relevance

Just as father in Falsetto and mother’s estate in Bradshaw claimed that they were beneficiaries of resulting trusts so too could their creditors. What seems to be the case when looking at title is not necessarily what is actually the case.

 

Image courtesy of TierraMallorca.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.