Legal Blog

Severance

   Two or more people may own property together in one of two ways: as joint tenants or as tenants in common. On death, the interest of one joint tenant passes to the other joint tenant whereas the interest of a tenant in common passes to that person’s heirs in the normal course. Joint tenants acting together may, if they wish, choose to convert (or sever) a joint tenancy to a tenancy in common. Indeed, one joint tenant can unilaterally sever a joint tenancy. Is there ever a circumstance in which a third party can sever a joint tenancy? This question is answered in Royal & SunAlliance Insurance Company v. Muir, a 2011 decision of the Ontario Superior Court of Justice.

 Concepts

A joint tenancy needs 4 unities:

 1. Interest. Each joint tenant must have the identical interest as the other.

2. Possession. Each joint tenant has an equal right to possession of the property.

3. Title. Each joint tenant takes an interest in the property under the same instrument (e.g. deed/transfer).

4. Time. The interests of all joint tenants vest at the same time.

 Accordingly, a transfer in which the owners are A & B as joint tenants, with A holding a 40% interest and B holding a 60% interest, is not a joint tenancy – regardless of what it says; it is a tenancy in common.

 Conversely, a tenancy in common needs only one unity: possession.

 A joint tenancy is converted into a tenancy in common by cutting the continuance of any of the first three unities; the unity of time cannot be cut because it relates to the initial creation of the joint tenancy. A joint tenancy may be severed at any time before death. At the moment of death, the deceased’s interest in the property vests in the surviving joint tenant, the ability to sever the joint tenancy having died with the joint tenant.

 Facts

 Husband and wife owned a condominium unit as joint tenants. Creditor obtained a judgment against husband in 1998, worth $1.4 million in 2011, and obtained and filed a writ of seizure and sale in 1999. That writ bound husband’s interest in the unit.

 In 2001, creditor initiated a sheriff’s sale against husband. The sheriff wrote to husband, with a copy to wife, stating that creditor’s lawyer had instructed the sheriff to sell husband’s interest in the unit. The sheriff gave husband 10 days to pay the judgment.

 One month later, the sheriff sent another letter to husband and wife. He enclosed the sheriff’s notice of sale, which indicated that the sheriff was to sell husband’s interest in the unit 6 weeks later. The sheriff then advertised the sale in the Ontario Gazette and the local newspaper.

 For whatever reason, the sheriff did not or could not sell husband’s interest in the unit and creditor paid $2,000 for the aborted sale.

 The status quo continued until wife died in 2008. Wife had made a convoluted will that the judge ultimately interpreted as follows: give my half interest in the unit to my son; let my husband keep everything else I own; give nothing to my daughters because I have already made gifts to them.  

 So what is the dispute and with whom? If husband and wife owned the unit as joint tenants, then husband takes wife’s interest and owns the unit and son gets nothing. Of course, if husband owns the unit, then creditor seizes and sells it. If husband and wife owned the unit as tenants in common, then wife’s share devolves to her son through her will and creditor can claim only against husband’s  interest in the unit.

 Result

 A creditor can sever a joint tenancy to which it is not a party under certain circumstances. One of them  arises when the creditor moves to have a joint tenant’s  interest sold under a writ of seizure and sale and the sheriff advertises the property for sale, that, in itself, is sufficient to sever the joint tenancy. It is not necessary for the sheriff to have finally completed the sale of a joint tenant’s interest in the property.

 In this case, the sheriff had advertised the sale. The judge therefore held that the joint tenancy had been severed and that, accordingly, the son and husband were each half owners of the unit as tenants in common. Creditor was in no better position after wife’s death than it was before her death.

 Implications

 In this case, wife died first. What would have happened had husband died first? Since the joint tenancy had been severed, husband’s interest would not have vested with wife and creditor would have been no worse after husband’s death than before.

 Accordingly, if a creditor has a judgment, the debtor is elderly or in ill heath, and the property is owned in joint tenancy, then the creditor probably ought to initiate a sheriff’s sale immediately, even if the sale may be unsuccessful. At worst, the creditor pays the disbursements of an aborted sheriff’s sale. However, in doing so, the creditor ensures that the debtor’s death will not wipe out the only asset that the debtor has. At best, the sheriff’s sale is completed and the creditor is paid.

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 DEPENDS AGAIN

 In our April 2011 newsletter (Depends), we discussed when a limitation period starts to run: from the date that a creditor knows of a possible claim or from the date that the trustee in bankruptcy knows of it. One of the cases we discussed was Re Edwards, a 2010 decision of the Registrar in Bankruptcy. In that case, the Registrar determined that the limitations period for an attack on a preference under the BIA started when the trustee knew of the claim. The Registrar decided that, since two years had passed from the date the trustee knew of the claim, the trustee was out of luck. The trustee appealed the decision.

 Applicable

 The Registrar had held that the Ontario Limitations Act, with its two-year limitation period, applied to determine the limitation period. The trustee attacked this aspect of the decision.

 The judge decided that a provincial limitations statute applies, but only if federal statutes (e.g. the BIA) are silent regarding the issue. In this case, section 95 of the BIA is not silent. It allows a trustee to attack a preference that takes place within three months of the date of bankruptcy; it does not put any further limitation on the trustee’s discretion to commence an action.

 Since the trustee was attacking a preference that took place within 3 days of the assignment into bankruptcy, the trustee was well within its jurisdiction to commence the action. The judge set aside the decision of the Registrar and allowed the trustee to continue its action against the credit union, which had scooped money from the bankrupt’s RSP