Legal Blog

Trust

A trustee in bankruptcy or an execution creditor wants to increase the pie to be applied to the debt. Sometimes, however, some of the assets are not what they seem to be. This was demonstrated in Kajtar (trustee of) v. Bannerman, a 2005 decision of the Ontario Superior Court of Justice. 

Whose Money 

Unmarried male and female purchase a house with a $36,000 down payment from the female. They agree in writing that they will hold the house as tenants in common and that, if they separate, the female gets the $36,000 and the net proceeds of sale are then divided equally.

The couple separates, the house is sold, a solicitor holds the net proceeds of sale of $50,000, and then the male goes bankrupt. His trustee claims entitlement to $25,000. The female claims $36,000 plus one-half of the balance of $14,000.

Decision 

The judge noted that three certainties are necessary for a valid trust: certainty of intention, certainty of subject matter, and certainty of object (or beneficiary). He held that each of those certainties applied to the agreement that the couple made. They intended a trust; the trust related to the house; and the beneficiary of the $36,000 was apparent. Accordingly, the trustee lost because the trustee gets no more than the bankrupt would have received. The female received $43,000.

The real fight in many of these situations is not whether, based on the interpretation of the trust document, a trust exists, but whether the trust document that mysteriously materialises is legitimate. Was it really signed before the bankruptcy or seizure or was it concocted afterwards?