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Resulting and Constructive Trusts: What are They and What is Their Significance for Real Estate Lawyers?

Important developments have taken place in Canadian jurisprudence from the 1960s relating to interpretation and application of resulting and constructive trusts and more recently, the presumption of advancement. Such equitable doctrines have been reflected in some recent Canadian judgments.

The Resulting Trust

The English Chancery Court maintained in 1788 that in all cases without any exception, the trust of a legal estate, whether freehold, copyhold, or leasehold; whether taken in the names of the purchasers or others jointly, or in the names of others without that of the purchaser; whether in one name or several; whether jointly or successive, is reposed on the person who advances the purchase money.

A resulting trust is formed whenever legal or equitable title to property is in one party’s name.  If that party is a fiduciary or gave no value for the property, then he is under the obligation to return the property to the original title owner, or to the person who paid for it. The trust, which is formed by operation of law to return the beneficial ownership of that asset to the person who paid for the expenses, is known as a resulting trust.  That person could be the previous owner who transferred the asset to the resulting trustee, or the person could have paid all or part of the purchase price for the transfer.

Considering that equity assumes bargains and not gifts, a rebuttable presumption of a resulting trust would naturally arise where property has been transferred from one party to another for nominal or no cost. It is for the transferee to rebut this presumption by showing a balance of probabilities that the transferor intended the property to be a gift. This “apparent gift” creates the presumption of resulting trust.�

Rebutting the Presumption of Resulting Trust

Evidence to rebut a resulting trust includes written as well as circumstantial evidence. If the evidence shows an intended gift, then the donor cannot take it back. In Danicki v. Danicki, the judgment was that a 100 year old mother transferring her home to her 65 year old son, subject to a life interest in her favour, could not after two years take it back so as to transfer the property to both her son and daughter. The Court found that the lawyers of Mrs. Danicki, while registering the deed and drafting her will, acted with the appropriate level of care and scrutiny expected of solicitors in the circumstances.  Both of them met with Mrs. Danicki alone on more than one occasion; they took instructions from her directly after they ascertained that her mental capacity was intact and that she was making her own decisions. Pronouncing in favour of the son, Cumming J. said at paragraphs 49 and 50:

“Mr. Danicki has not transgressed any secular law… One can say only, at most, that Mr. Danicki has chosen to ignore the fifth commandment, “Honour thy father and thy mother”, which unfortunately is not a law within the jurisdiction of this court.”

A Gift or Not a Gift? That is the Question

In Groves v. Barnes, the defendant, Mary Ruth Barnes could not prove that the money given to her by the plaintiff, Ernest Groves, for a condominium property was a gift, even though they were involved in an intimate relationship for eight years. Groves, 69, former Vice President of Culligan Water, was an astute businessman and investor. Married for 47 years, he lived with his wife and two adult daughters, while Barnes, a real estate agent, was a divorcee with an adult daughter, who lived with her for most of the duration of her relationship with Groves. The sum of $154,151.97 was provided to Barnes by Groves for the purchase of a condominium in July 11, 2000. The property was bought, on September 1, 2000, and the only beneficiary was Barnes. Groves sued her claiming that the condominium was part of an investment for the benefit of both. After purchase, the property was to be “flipped”, with the net profits being divided equally between Barnes and Groves.

Money for the purchase of the property came from Groves, while Barnes signed a document stating that in the event of her death, the property would go to Groves. Groves said that it was never his intention to make a gift of the money or the property to Barnes. Apart from providing the money, he had no involvement in the transaction. The Court decided that the purchase amounted to a resulting trust in favour of Groves, after weighing the evidences provided by both parties and observing in particular that the document signed by Barnes relating to the property reverting to Groves in the event of Barnes’ death did not support the claim that Groves gifted the property to Barnes. The verdict was that the property was to be sold and the proceeds used to repay Groves the amount he put up for the purchase plus pre-judgment interest. If there was any additional profit from the sale it was to be divided equally among the parties.

For more information about different types of trusts and how they may affect you, or how you may use trusts to your advantage, contact the lawyers at Levy Zavet PC (Levy Zavet) in Toronto, Ontario.