Falsetto v. Falsetto, https://canlii.ca/t/k33l8
Recently, Kim Whaley spoke at the Ontario Legal Conference on Family, Estates and Real Estate law on Joint Tenancy and Trust Claims. A copy of the paper submitted, written by Gabriella Banhara, A Gift, Trust, or Joint Tenancy? Understanding the Presumptions of Advancement & Resulting Trust and Principles Associated with Joint Tenancy can be found here.
The following article will discuss a recent decision which addresses the determination of a “purchase money resulting trust”. A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of a property but does not take legal title. In Falsetto v. Falsetto,[1] the Ontario Court of Appeal (“ONCA”) overturned a lower court judgment which found that the purchase money advanced for a property was a gift.
Background
Mr. Falsetto (the “Applicant”) sought a declaration that his former daughter-in-law (the “Respondent”), held her interest in an Ottawa property (the “Property”) in trust for him. The Respondent, together with her former husband, the Applicant’s son (the “Son”) were the registered owners of the Property.
The Applicant and the Son had been buying and redeveloping properties with each other since approximately 1990. Sometimes the Son is the sole title holder, sometimes the Applicant, and sometimes both, however, where title is not held by both, their practice was to hold 50 percent of the legal title to a trust in favour of the unregistered party.[2]
In 2011, the Applicant and the Son reached an agreement to purchase the Property. The Son was listed as the sole purchaser. The Son, however, already held legal and beneficial title to an adjacent property. Pursuant to the Planning Act,[3] this meant that upon the Son taking sole title to the Property, both properties would merge and become one parcel of land. To avoid this merger, the solicitor acting for the Applicant and the Son suggested placing the Applicant on title to the Property and on the mortgage. There was insufficient time to have the Applicant approved on the mortgage and as a result the Respondent took the Applicant’s place instead.
The transaction for the Property closed and the Applicant and the Son paid the down payment, land transfer tax, and other closing costs in equal shares. Title was then taken jointly by the Son and the Respondent.[4]
The Property was rented out to tenants. The income generated on the Property was paid to the Applicant and the Son. Together, the Applicant and the Son continued to pay all carrying costs of the Property. The Respondent made no contribution to the purchase nor the carrying costs.
In 2020, the Son and the Respondent separated. The Respondent asserted a 50 per cent interest in the Property, pursuant to her being a signatory to the mortgage agreement and being registered on title as a co-owner. The Applicant then brought an application seeking a declaration the Respondent held legal title to the Property in trust for him as a beneficial owner with the Son.[5]
Procedural History
The application judge dismissed the application on grounds that the Applicant advanced the purchase funds with the intention of making a gift to the Respondent. The application judge rejected the Applicant’s evidence that his intention was that the Respondent would take legal title only because he could not be approved by the bank as mortgagor before the transaction closed. Rather, the application judge accepted that the Respondent was put on title to prevent the merger of titles and held that this purpose was inconsistent with a purchase money resulting trust, and consistent with a gift.[6]
Analysis
First, the court noted that the application judge correctly stated the legal principles applicable for the dispute. In particular:
- There is a rebuttable presumption of a resulting trust where one party makes a transfer of property to another for no consideration;[7]
- A purchase money resulting trust is a type of trust that arises when a person advances funds to contribute to the purchase price of a property, but does not take legal title to that property;[8] and
- Where the person taking title is not the minor child of the person advancing the funds, there is a presumption that the parties intended for the person advancing the funds to hold a beneficial interest in the property proportional to their contribution.[9]
The Respondent argued that having a third party take title to avoid a merger under the Planning Act is a bar to relying on the presumption of resulting trust. The court held that this proposition is not supported by caselaw and inconsistent with general principles.[10]
The court, citing with authority the decision in Lattimer v. Lattimer,[11] held that where a resulting trust is presumed, the onus is on the party seeking to rebut that presumption to establish the purchaser intended to make a gift. The court further held that this requires establishing actual intention, which requires a case-by-case evaluation of the evidence to ascertain the transferor’s actual intention on a balance of probabilities.[12]
The majority of the ONCA held that the application judge’s characterization of the Applicant’s intention is incomplete, and glossed over the fact that his purpose for participating in the transaction was to purchase the Property for investment reasons. Here, the ONCA looked at what they described as overwhelming evidence[13] in support of this purpose and held that the application judge erred in concluding that this evidence did not assist in the determination of whether the Applicant intended to retain a beneficial interest rather than provide the Respondent with a gift.[14]
Finally, the court determined that the Respondent’s argument, and the application judge’s conclusion, rested on the single case of Holtby v. Draper.[15] In Holtby, it was necessary for beneficial ownership of an adjoining lot to be different from beneficial ownership of a farm lot, however, in that case, the court did not hold that achieving the Planning Act goal was decisive in determining the transferor’s intention; it was simply considered as one factor “consistent with the presumption of joint ownership [that] in no way refuted it.”[16] The ONCA in Falsetto held that while Holtby was materially different, the ultimate question was the same: what was the transferor’s intention at the time of the conveyance?
In answering that the Applicant’s intention in avoiding the consequences of the Planning Act was fully aligned with his intention in retaining beneficial title, the ONCA in Falsetto held that the application judge’s conclusion does not follow.
The majority of the court allowed the appeal, granted the declaration sought that the Applicant is the beneficial owner of a 50 per cent interest in the Property and an order vesting title of the Respondent’s Property in him.
Dissenting Opinion
In his dissenting opinion, MacPherson J.A. was of the view that the application judge wrote “exemplary reasons and reached the correct result.”[17] His Honour based this view on four factual points:
- The sole reason for putting the Respondent on title was to avoid a merger of title of the Property and the adjoining property;
- After the Respondent was placed on title, she remained co-owner with the Son for more than ten years (and neither the Applicant not the Son took steps to change the formal ownership of the Property);
- For at least eight of these years, the Applicant’s tax returns reflected no ownership interest in the Property; and
- There was never any suggestion that the Respondent’s co-ownership of the Property would be held by her for the Applicant: there were no trust documents and never any discussions between the Applicant and the Respondent about a trust.[18]
Concluding Thoughts
The majority decision concluded that the dissenting opinion of MacPherson J.A., did not engage with the arguments advanced on appeal.
Pursuant to the decision in Schwartz, the majority closely evaluated the Applicant’s evidence and determined that his actual intention was not to provide the Respondent with a gift, but rather, to purchase the property for investment purposes. In the court’s eyes, the fact that it was necessary to place title in the Respondent’s name because of Planning Act implications and insufficient time to have the Applicant approved on the mortgage was not determinative of an intention to make a gift.
As we have seen many decisions which relate to the presumption of resulting trust, this decision on the determination of a purchase money resulting trust hinges on the actual intention of the transferor and provides yet another cautionary tale where it concerns joint tenancy and the involvement of third parties in a purchase.
—
[1] 2024 ONCA 149 [Falsetto].
[2] Falsetto, supra at para 3.
[3] R.S.O. 1990, c. P.13 [Planning Act].
[4] Falsetto, supra at para 7.
[5] Ibid., at para 10.
[6] Ibid., at paras 11-12.
[7] Ibid., at para 17 citing Pecore v. Pecore, 2007 SCC 17, [2007] 2 S.C.R. 795, at para 24.
[8] Ibid., citing Nishi v. Rascal Trucking Ltd., 2013 SCC 33, [2013] 2 S.C.R. 438, at para 1 [Nishi].
[9] Ibid., citing Nishi at para 1.
[10] Ibid., at para 18.
[11] (1978), 18 O.R. (2d) 375, at p. 378 (H.C.).
[12] Falsetto, supra at para 18 citing Schwartz v. Schwartz, 2012 ONCA 239, 349 D.L.R. (4th) 326, at paras 42-43 [Schwartz].
[13] Including his history of similar business transactions with the Son, his advancement of the purchase money and closing costs, his post-purchase management and renting out of the property, and his eventual payment of a share of the property taxes.
[14] Falsetto, supra at para 22.
[15] 2017 ONCA 932, 138 O.R. (3d) 481 [Holtby].
[16] Holtby, supra at para 69.
[17] Falsetto, supra at para 32.
[18] Ibid., at paras 34-37.
Menu
Written by: Brett Book
Posted on: March 18, 2024
Categories: Commentary, WEL Newsletter
Falsetto v. Falsetto, https://canlii.ca/t/k33l8
Recently, Kim Whaley spoke at the Ontario Legal Conference on Family, Estates and Real Estate law on Joint Tenancy and Trust Claims. A copy of the paper submitted, written by Gabriella Banhara, A Gift, Trust, or Joint Tenancy? Understanding the Presumptions of Advancement & Resulting Trust and Principles Associated with Joint Tenancy can be found here.
The following article will discuss a recent decision which addresses the determination of a “purchase money resulting trust”. A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of a property but does not take legal title. In Falsetto v. Falsetto,[1] the Ontario Court of Appeal (“ONCA”) overturned a lower court judgment which found that the purchase money advanced for a property was a gift.
Background
Mr. Falsetto (the “Applicant”) sought a declaration that his former daughter-in-law (the “Respondent”), held her interest in an Ottawa property (the “Property”) in trust for him. The Respondent, together with her former husband, the Applicant’s son (the “Son”) were the registered owners of the Property.
The Applicant and the Son had been buying and redeveloping properties with each other since approximately 1990. Sometimes the Son is the sole title holder, sometimes the Applicant, and sometimes both, however, where title is not held by both, their practice was to hold 50 percent of the legal title to a trust in favour of the unregistered party.[2]
In 2011, the Applicant and the Son reached an agreement to purchase the Property. The Son was listed as the sole purchaser. The Son, however, already held legal and beneficial title to an adjacent property. Pursuant to the Planning Act,[3] this meant that upon the Son taking sole title to the Property, both properties would merge and become one parcel of land. To avoid this merger, the solicitor acting for the Applicant and the Son suggested placing the Applicant on title to the Property and on the mortgage. There was insufficient time to have the Applicant approved on the mortgage and as a result the Respondent took the Applicant’s place instead.
The transaction for the Property closed and the Applicant and the Son paid the down payment, land transfer tax, and other closing costs in equal shares. Title was then taken jointly by the Son and the Respondent.[4]
The Property was rented out to tenants. The income generated on the Property was paid to the Applicant and the Son. Together, the Applicant and the Son continued to pay all carrying costs of the Property. The Respondent made no contribution to the purchase nor the carrying costs.
In 2020, the Son and the Respondent separated. The Respondent asserted a 50 per cent interest in the Property, pursuant to her being a signatory to the mortgage agreement and being registered on title as a co-owner. The Applicant then brought an application seeking a declaration the Respondent held legal title to the Property in trust for him as a beneficial owner with the Son.[5]
Procedural History
The application judge dismissed the application on grounds that the Applicant advanced the purchase funds with the intention of making a gift to the Respondent. The application judge rejected the Applicant’s evidence that his intention was that the Respondent would take legal title only because he could not be approved by the bank as mortgagor before the transaction closed. Rather, the application judge accepted that the Respondent was put on title to prevent the merger of titles and held that this purpose was inconsistent with a purchase money resulting trust, and consistent with a gift.[6]
Analysis
First, the court noted that the application judge correctly stated the legal principles applicable for the dispute. In particular:
The Respondent argued that having a third party take title to avoid a merger under the Planning Act is a bar to relying on the presumption of resulting trust. The court held that this proposition is not supported by caselaw and inconsistent with general principles.[10]
The court, citing with authority the decision in Lattimer v. Lattimer,[11] held that where a resulting trust is presumed, the onus is on the party seeking to rebut that presumption to establish the purchaser intended to make a gift. The court further held that this requires establishing actual intention, which requires a case-by-case evaluation of the evidence to ascertain the transferor’s actual intention on a balance of probabilities.[12]
The majority of the ONCA held that the application judge’s characterization of the Applicant’s intention is incomplete, and glossed over the fact that his purpose for participating in the transaction was to purchase the Property for investment reasons. Here, the ONCA looked at what they described as overwhelming evidence[13] in support of this purpose and held that the application judge erred in concluding that this evidence did not assist in the determination of whether the Applicant intended to retain a beneficial interest rather than provide the Respondent with a gift.[14]
Finally, the court determined that the Respondent’s argument, and the application judge’s conclusion, rested on the single case of Holtby v. Draper.[15] In Holtby, it was necessary for beneficial ownership of an adjoining lot to be different from beneficial ownership of a farm lot, however, in that case, the court did not hold that achieving the Planning Act goal was decisive in determining the transferor’s intention; it was simply considered as one factor “consistent with the presumption of joint ownership [that] in no way refuted it.”[16] The ONCA in Falsetto held that while Holtby was materially different, the ultimate question was the same: what was the transferor’s intention at the time of the conveyance?
In answering that the Applicant’s intention in avoiding the consequences of the Planning Act was fully aligned with his intention in retaining beneficial title, the ONCA in Falsetto held that the application judge’s conclusion does not follow.
The majority of the court allowed the appeal, granted the declaration sought that the Applicant is the beneficial owner of a 50 per cent interest in the Property and an order vesting title of the Respondent’s Property in him.
Dissenting Opinion
In his dissenting opinion, MacPherson J.A. was of the view that the application judge wrote “exemplary reasons and reached the correct result.”[17] His Honour based this view on four factual points:
Concluding Thoughts
The majority decision concluded that the dissenting opinion of MacPherson J.A., did not engage with the arguments advanced on appeal.
Pursuant to the decision in Schwartz, the majority closely evaluated the Applicant’s evidence and determined that his actual intention was not to provide the Respondent with a gift, but rather, to purchase the property for investment purposes. In the court’s eyes, the fact that it was necessary to place title in the Respondent’s name because of Planning Act implications and insufficient time to have the Applicant approved on the mortgage was not determinative of an intention to make a gift.
As we have seen many decisions which relate to the presumption of resulting trust, this decision on the determination of a purchase money resulting trust hinges on the actual intention of the transferor and provides yet another cautionary tale where it concerns joint tenancy and the involvement of third parties in a purchase.
—
[1] 2024 ONCA 149 [Falsetto].
[2] Falsetto, supra at para 3.
[3] R.S.O. 1990, c. P.13 [Planning Act].
[4] Falsetto, supra at para 7.
[5] Ibid., at para 10.
[6] Ibid., at paras 11-12.
[7] Ibid., at para 17 citing Pecore v. Pecore, 2007 SCC 17, [2007] 2 S.C.R. 795, at para 24.
[8] Ibid., citing Nishi v. Rascal Trucking Ltd., 2013 SCC 33, [2013] 2 S.C.R. 438, at para 1 [Nishi].
[9] Ibid., citing Nishi at para 1.
[10] Ibid., at para 18.
[11] (1978), 18 O.R. (2d) 375, at p. 378 (H.C.).
[12] Falsetto, supra at para 18 citing Schwartz v. Schwartz, 2012 ONCA 239, 349 D.L.R. (4th) 326, at paras 42-43 [Schwartz].
[13] Including his history of similar business transactions with the Son, his advancement of the purchase money and closing costs, his post-purchase management and renting out of the property, and his eventual payment of a share of the property taxes.
[14] Falsetto, supra at para 22.
[15] 2017 ONCA 932, 138 O.R. (3d) 481 [Holtby].
[16] Holtby, supra at para 69.
[17] Falsetto, supra at para 32.
[18] Ibid., at paras 34-37.
Author
View all posts