COURT OF APPEAL FOR ONTARIO
Simmons, van Rensburg and Hourigan JJ.A.
BETWEEN
Manuela Estrela Andrade
Plaintiff (Respondent)
and
Henrique E. Andrade and Leonardo Andrade,
Estate Trustee for Luisa Cabral Andrade
Defendants (Appellant)
Gavin MacKenzie and Patrick T. Summers, for the appellant
John J. Longo and Pamela Miehls, for the respondent
Heard: November 12, 2015
On appeal from the judgment of Justice Edward M. Morgan of the Superior Court of Justice, dated July 28, 2014, with reasons reported at 2014 ONSC 4473, and from the costs endorsement, dated September 23, 2014, with reasons reported at 2014 ONSC 5525.
van Rensburg J.A.:
A. Overview
1At issue in this appeal is the beneficial ownership of a house that has been in the Andrade family for over 40 years.
2The house, located on Crawford Street in Toronto, was purchased in 1974. Luisa Andrade lived there until her death in 2014. Legal title was originally taken in the names of two of Luisa’s children, Henrique (Henry) and Maria Jesus. Five years later, title was transferred to Henry and his brother Joseph. Henry and Joseph remained on title thereafter as the legal owners of the house.
3Joseph died in March 2007. In May 2007, Joseph’s widow, Manuela Andrade, transferred his half interest in the house into her own name. In 2009, she brought an action against Henry and Luisa seeking a declaration that she was the beneficial owner of a half interest in the house, and an order for partition and sale. Luisa counterclaimed for a declaration that she was the beneficial owner of the house and an order that Manuela and Henry transfer all of their right, title and interest in the house to her. In 2011, Henry transferred his half interest to Luisa. In 2014, a few months before the trial commenced, Luisa died. The action continued against her estate and Henry.
4Manuela was successful at trial. The trial judge found that she was the beneficial owner of a half interest in the house, and he rejected the counterclaim that the house was held by Joseph and Henry in trust for Luisa. He directed the house to be sold, with half the net proceeds to be paid to Manuela. He awarded costs of $237,396.19 against Luisa’s estate. Luisa’s estate appeals and seeks leave to appeal the trial judge’s costs endorsement.
5For the reasons that follow I would allow the appeal. In my view, the trial judge erred in failing to find a resulting trust in favour of Luisa. He made a palpable and overriding error of fact when he concluded that, at the time of the purchase and until she died, “Luisa had no money of her own”. This error informed his analysis of the parties’ legal rights. It caused him to ignore the evidence of Luisa’s intention when the house was put in her children’s names, and five years later when Joseph went on title, that she would remain the beneficial owner. Henry and Joseph held the house by way of resulting trust for Luisa who was, at the time of her death, its sole beneficial owner. Accordingly, I would dismiss Manuela’s action, declare Luisa’s estate to be the sole beneficial owner of the house, and order Manuela to transfer her legal half interest in the house to Luisa’s estate.
B. Facts
6Luisa, a widow and the mother of seven children, immigrated to Canada from Portugal in 1969. She was accompanied by her oldest daughter, Maria Luisa, who was 17. Luisa worked as a cleaner for a number of years, supporting her children in Portugal and saving money for their plane tickets. The rest of the children arrived in 1972. Leonardo (Leo), the youngest, was five years old.
7Luisa stopped working to care for her children. Each of the children left school and began working when they were teenagers. While they lived at home, they gave their earnings to their mother to support the family. This continued until they got married. Leo never married and he continues to live in the house.
8The trial judge described the “traditional pattern established by the Andrade family” as follows:
Everyone who testified at trial … described a tight-knit family that greatly respected and continuously supported their mother, and that tended to pool resources to an unusual extent. As each child left school and began their working lives, they contributed their paycheques (or a substantial portion thereof) to their mother for her support and for support of the children still too young to work.
9Initially, the family lived in a series of apartments. In September 1974, Luisa decided to buy a house, and with the help of a real estate agent, found the house on Crawford Street. The house had two upper floors subdivided into apartments that could be rented out.
10The purchase price was $58,500. Luisa signed the offer to purchase. She borrowed a cash deposit of $1,000 from a member of the community. The bulk of the purchase was financed with two mortgages, and a balance of $1,395.85 was paid on closing.
11At Luisa’s direction, the house was put in the names of her oldest son, Henry, who was 19, and her second daughter, Maria Jesus, who was 18, as joint tenants, and they signed the mortgages. Maria Luisa had married and moved out. Henry, Maria Jesus and Joseph (who was 15) were the children who lived at home, and worked and supported the family at the time.
12In 1979, on Luisa’s direction, Maria Jesus and Henry transferred the house to Joseph and Henry as tenants in common for nominal consideration of $2.00 “brother and sister to brother and brother”. The mortgages were renewed in the names of Joseph and Henry. At the time, Joseph and Maria Ludevina were the working children who provided their earnings to their mother.
13Over time, each of the children (except Leo) married, moved out and stopped giving their earnings to their mother. Maria Jesus did so in 1976. Henry did so in 1978 (although he and his wife lived in a rented apartment in the house for three years). Joseph married Manuela and moved out in 1980. Maria Ludevina started working in 1976 or 1977 and moved out in 1983. Manuel (Manny) started working in 1980 and married and moved out in 1989. Leo contributed his paycheques from 1980 to 1995. Commencing in 1995, Leo stopped giving all of his earnings to his mother and began giving her a biweekly amount, which continued until 2003.
14At various times between 1974 and 2011, Luisa rented out the upstairs apartments. She advertised for tenants, and negotiated and collected the rents. In 1983, Maria Luisa moved into a flat in the house with her three children and paid rent to Luisa until 1990. Henry too paid rent to Luisa when he and his wife lived in an apartment in the house from 1978 to 1981.
15None of the children, with the exception of Henry for a brief period of time before he married, and Leo, many years later, paid any of the expenses associated with the house directly. Luisa repaid the $1,000 loan and paid all expenses in relation to the house with money from her bank account. The expenses included the mortgages (paid off in 2008), utilities, insurance and property taxes.
16Until 1990, the money in Luisa’s bank account consisted of her unmarried, working children’s earnings and the rent she collected from tenants. In 1990 Luisa began receiving old age security benefits (eventually about $1,200 per month), and in 2003 she received a $21,000 settlement in a lawsuit.
17Although they never received rent from the house, or incurred significant expenses without being reimbursed by Luisa, for tax purposes, Joseph and Henry declared the rental income from the house and claimed expenses in relation to the house. They paid taxes on the net rental income. Although Luisa never paid rent, she claimed a rental tax credit.
18After Joseph’s death in 2007, Manuela registered her interest as Joseph’s executor on title. By lawyer’s letter, in April 2008, Manuela sought to have the house sold, to recover Joseph’s alleged interest. The letter also claimed an “accounting of all revenue earned in respect of the property and expenses paid on account thereof since the property was purchased in 1979 [sic]”. All of the surviving siblings and Luisa resisted the sale, claiming that the house belonged to Luisa as beneficial owner. Manuela brought an action against Henry and Luisa seeking a declaration that she is the beneficial owner of a half interest in the house and an order for partition and sale.
19Manuela’s position in the litigation was that Joseph had been a beneficial owner of half of the house since it was purchased in 1974. All of the other siblings, and Luisa (whose affidavit, cross-examination and discovery evidence were admitted at trial) testified that the house belonged to Luisa.
20At one point in the litigation, Henry sought to amend his pleading to assert a beneficial interest in the house. The amendment was refused, and in 2011, Henry assigned his legal half interest in the house to Luisa. In January 2014, Luisa died and her interest in the litigation passed to Leo, as estate trustee.
21The action proceeded to trial in March and April 2014. The trial judge granted judgment in favour of Manuela and ordered the sale of the property at fair market value, with the net proceeds of sale to be divided evenly between Manuela and Luisa’s estate.
C. Decision of the Trial Judge
22The trial judge concluded that Luisa put no money of her own toward the purchase of the house. He said that she had no money of her own when the house was purchased in 1974 and thereafter. She had borrowed the deposit, and it was her children’s earnings (along with the rental income) that were used to pay the mortgages and other expenses.
23The trial judge found that Henry, Maria Jesus and Joseph were working at the time the house was purchased and they gave their earnings to their mother. This pattern was later followed by each of the Andrade children (except, according to the trial judge, Leo).
24The trial judge rejected the evidence of Albert Miller, the lawyer who acted on the purchase of the house, that he had discussed a trust with the Andrade children and Luisa. Neither Maria Jesus nor Henry recalled any specific discussions about a trust. The trial judge concluded that “no one ever discussed or turned their minds to forming a trust for Luisa’s benefit at the time the property was purchased in [1974]”.
25The trial judge found that title to the house was taken in the names of Maria Jesus and Henry “as the two contributors who were old enough to go on title”. He did not however make a specific finding that they were beneficial owners of the house when it was purchased. In fact, his reasons do not disclose any finding as to beneficial ownership of the house at that time.
26As for the transfer in 1979 from Maria Jesus and Henry as joint tenants to Henry and Joseph as tenants in common, the trial judge again rejected Miller’s evidence that the transfer was precipitated by Maria Jesus’ impending marriage and that they had discussed a trust. He concluded that the transfer “had far more to do with Joseph’s coming of age and his financial responsibility for the [house] than with Maria Jesus’ marriage three years previously”, and that the mortgages and all other expenses rested largely on Joseph’s shoulders at the time.
27The trial judge referred to certain “subsequent dealings with the house” as evidence that Henry and Joseph were the actual owners.
28First, in July 1981, Henry and Joseph signed agreements of purchase and sale for the sale of the house and the purchase of a new property on Gilbert Avenue. He noted that the documentation does not refer to Henry and Joseph as “trustees”, so “[b]y all appearances” the two were selling one house they owned and buying another.
29Second, there was the manner in which the house was treated for income tax purposes by Joseph, Henry and Luisa. The trial judge rejected Henry’s explanation that he and Joseph were trying to help their mother by declaring the rental income she earned from non-family member tenants. He said it was contrary to what “any tax accountant” would have advised as both the correct and more tax efficient way to go about their filings.
30The trial judge also rejected the evidence of Ted Ward, Henry and Joseph’s accountant, regarding the parties’ intentions respecting the property. He concluded that a letter Ward wrote in 2009, which supported the position that Henry and Joseph were trustees for Luisa, was inaccurate in certain respects and that Ward “must have been asked by Henry to play a role in [the] drama, but … did not quite get his lines right”.
31Turning to the legal arguments, the trial judge rejected the claim that the property was Luisa’s by way of resulting trust. He stated that this was not a case where “the child acted as agent for the parent in purchasing the house”, nor was it one in which “the parent claims to be beneficial owner because she remains in control of a property after transferring it to a child”, because Luisa never owned the house and never paid for it in the first place.
32In his constructive trust analysis, the trial judge rejected the contention that this was a case where property had been purchased with the money of one person but the conveyance was taken in the name of another, on the basis that Luisa had no money of her own.1 He stated that it was Luisa’s children who worked and earned the money and it was her children, as well as the rental income from the property, that over time paid the mortgages. In his opinion, Luisa did not have a legal right to her children’s paycheques. Disposing of the constructive trust claim, the trial judge concluded that there was no “causal connection” between Luisa and the “acquisition, maintenance, improvement, etc. of the [house]. Having made no financial or other legally cognizable contribution of her own, there is no equity in favour of Luisa.”
33The trial judge also stated that he found no real evidence of a “commonly shared intention” to purchase and hold the house in trust for Luisa. He referred to the fact that Henry, at one stage in the litigation, described Luisa as having what amounted to a “life interest” in the house, and the evidence of some of the children that the house was their mother’s until she died.
34The trial judge found that there was insufficient evidence that a trust for Luisa’s benefit was intended. He also concluded that it would be contrary to public policy to give credence to Luisa’s ownership claim because of how the property was treated for tax purposes.
D. Issues
35The appellant asserts that the trial judge erred in failing to find that Luisa, at the time of her death, was the beneficial owner of the house by way of resulting trust, or alternatively that her estate is entitled to the house by way of constructive trust. The appellant’s primary argument is that the trial judge made a palpable and overriding error in concluding that Luisa had no money of her own, and in holding that, without a financial or other legally cognizable contribution of her own, there was no equity in favour of Luisa. The appellant contends that, contrary to the trial judge’s conclusion, this was a case where property was purchased in the name of another with money provided by the beneficiary. The appellant asserts that the trial judge overlooked certain important and uncontroverted evidence with respect to intention. Finally, the appellant argues that the trial judge erred in invoking public policy as a further reason to reject Luisa’s ownership claim.
36The respondent asserts that the trial judge made no such errors, and that the result was fully supported by his findings of fact. Luisa contributed no money of her own to the purchase and her estate failed to prove that her money (and not that of her children) was used in the purchase and maintenance of the house. The respondent also contends that the appeal attacks a key finding of fact by the trial judge – that Henry and Joseph were the legal and beneficial owners of the property from the date of the purchase in 1974, and that this finding is fully supported by the evidence. The respondent says that all of the alleged errors raised by the appellant are factual errors or errors of mixed fact and law, and the applicable standard of review is palpable and overriding error.
E. Analysis
37I will address each of the issues raised in turn. Since I have concluded that Luisa was the beneficial owner of the house by way of resulting trust, it is unnecessary to address the constructive trust claim.
38As a preliminary point, the respondent is wrong to say that the trial judge found that Joseph acquired beneficial ownership in the property when it was purchased in 1974. Manuela’s position at trial was that in 1974 Maria Jesus took title as bare trustee for Joseph, and that she agreed to transfer title to the property to him when he reached the age of majority. There was however no evidence to support that claim. The trial judge concluded only that Joseph “acquired his one-half interest” in the house in 1979. He did not find that Joseph was a beneficial owner of the house in 1974 or that Maria Jesus was a trustee. As I have already noted, he made no finding at all as to the beneficial ownership of the property when it was purchased.
39Manuela also took the position at trial that while Joseph lived at the house his earnings were used to pay the mortgages and other household expenses, and that after he moved out the rents were sufficient to pay these expenses. The evidence respecting when the apartments were rented and the rental income that was generated was contradictory. In any event, the trial judge did not accept that only the rents were used to carry the house, after Joseph moved out, or at any time. Rather, he found that the Andrade children (except Leo) continued to give their paycheques to their mother until they married and it was their money, as well as the rent, that was used to pay the mortgages.
(1) Luisa did in fact pay for the house
40The cornerstone of the trial judge’s reasoning is not, as Manuela contends, that Joseph acquired beneficial ownership of the house because of his direct financial contributions. Rather, it is his finding that Luisa had no money of her own to purchase the house, and to pay the mortgages, and as such that she could not have been the beneficial owner of the house. That finding permeates his reasons, and is the basis for his rejection of the resulting and constructive trust claims advanced on Luisa’s behalf.
41Luisa did not have paid employment from the time her children arrived in Canada until her death. From this, the trial judge concluded that “[f]rom 1972 until her death in 2014, she earned no income and was entirely supported by her children who worked”. He noted Luisa’s admission in her examination for discovery, that in 1974 “she had no money of her own to put toward the purchase.” He found that Luisa “had no funds of her own and did not advance anything in respect of the purchase of the [house]”, that “she never contributed any money of her own to the purchase”, and that all of the witnesses agreed that “Luisa put no money of her own toward the purchase of the [house]”. He explained that “[Luisa] had not worked for a number of years prior to 1974, and had no income to contribute to the purchase or financing of the [house].”
42With respect to the argument that Luisa always paid the mortgages, the trial judge stated:
Luisa may have paid the mortgages on the [house] in the sense that the mortgage payments went to the mortgagees from her bank account. But she made those payments with her children’s money, not her own; she had no money of her own. … [I]t was Luisa’s children (along with the rental income that the [house] generated) who over time paid the mortgages.
43He stated that the purchase funds were borrowed and the loans were serviced by Luisa’s unmarried working children.
44In finding that Luisa contributed no money of her own to the acquisition of the house, both at the time of purchase and in paying down the mortgages, the trial judge made a number of errors.
(a) Confusing Luisa’s money with its source
45First, the trial judge erred in characterizing the money given to Luisa by her children and used by Luisa to pay for the house as the children’s money. The money her children earned, once given to Luisa, became her money, even if it was expected to be used, and was in fact used, for the support of the family, including to pay the mortgages.
46In finding that Luisa had no money of her own the trial judge conflated “income from paid employment” and “money”. He confused the question of whether Luisa had money with the source of her money, which at least in the early years was the paid employment of her adult children. He did not explain why or how, once the working children gave their paycheques to Luisa, the money remained “their” money. It was no longer their money because they made a gift of it to their mother, knowing she would use it to support the family. Luisa’s bank account was not a trust account. There was no evidence that the money was earmarked for specific purposes. Once the money was given to Luisa, it became “Luisa’s money”.
47The trial judge observed that Luisa had no “legal right” to her children’s paycheques. Whether she had a legal right is not the issue. Rather, the question is whether the paycheques were a legal gift, or were transferred to Luisa to acquire an interest in the house.
48There was no evidence that any of the title holders provided their paycheques to their mother intending to acquire a property interest in the house. To the contrary, all of Luisa’s children, whether they were on title or not, behaved in the same manner. They provided their paycheques to their mother while they lived in the house and stopped doing so when they moved out. And the testimony of the children who testified at trial was unanimous. When they gave their mother their earnings, the money was for her to use “as she saw fit”. That is, the money was, as a matter of law, a gift to Luisa.
(b) The rent belonged to Luisa
49The trial judge referred to the fact that expenses in relation to the house were paid from rent generated by the house. He did not make any finding as to who the rent belonged to, but implicit in his decision is that the rent did not belong to Luisa.
50Yet the evidence shows that Luisa was the only person (except in later years when she was assisted by Leo) who advertised for and negotiated with prospective tenants and collected their rent. Where rent was paid by cheque, the tenants’ cheques were made out to Luisa and deposited into her bank account. The legal title holders never collected rent from tenants or demanded an accounting from their mother.
51Other than declaring the rent as their income for tax purposes, there is no evidence that Henry and Joseph made any claim to the rent. Henry specifically denied the rent was his, and only after Joseph’s death did his widow Manuela claim an accounting of rent from Luisa (going back to 1974). Maria Luisa paid rent to her mother, not to her brothers, when she lived in the house with her children for some eight years. Leo lived in the house from the age of four, and paid amounts to his mother, but not to his brothers.
52In all of these circumstances, including those in the foregoing section, the rent generated by the house was also Luisa’s money.
(c) Luisa had other sources of money
53The trial judge erred in finding that Luisa’s children supplied all the money for the house and in saying that “[f]rom 1972 until her death in 2014, [Luisa] earned no income and was entirely supported by her children who worked.” This is incorrect. Luisa’s children did not support their mother financially after they married and moved out of the house. Joseph, for example, stopped supporting her and his siblings in 1980 when he married Manuela. The last of the Andrade children to marry (Manny) moved out in 1989.
54In addition to rent, Luisa received old age security benefits commencing in 1990 (ultimately about $1,200 per month) and, in 2003, she received a settlement of $21,000. The trial judge did not consider these sources of Luisa’s money. Yet the evidence showed that for a period of 24 years Luisa paid all household expenses without any significant financial contribution from any of her children, except for Leo, who continued to live at the house.
55Accordingly, the trial judge erred in concluding that Luisa had no money of her own and that she had contributed no money of her own to the purchase of the house. He was wrong to conclude that “the loans [to purchase the house] were serviced by Luisa’s unmarried children – Maria Jesus, Henry, and Joseph.” The loans were serviced by Luisa from money in her bank account. This included money given to her by her children, the rent she collected from tenants and, after 1990, her pension and settlement monies.
56The trial judge concluded that the house was not held in resulting trust for Luisa. His rejection of the resulting trust claim was explained on the basis that Luisa never owned the house and never paid for it in the first place, and the fact that “Luisa had no money of her own”. In my view this was a palpable and overriding error that informed the balance of the trial judge’s analysis and ultimately his rejection of the resulting trust claim. I turn now to consider Luisa’s resulting trust claim.
(2) The resulting trust claim
(a) The relevant legal principles
57“A resulting trust arises when title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner”: Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at para. 20.
58A purchase money resulting trust can occur “where a person advances a contribution to the purchase price of property without taking legal title”: Nishi v. Rascal Trucking Ltd., 2013 SCC 33, [2013] 2 S.C.R. 438, at para. 21. It is one of the “classic resulting trust situations” and can arise when a party contributes directly to the purchase price or the mortgage: Eileen E. Gillese, The Law of Trusts, 3rd ed. (Toronto: Irwin Law, 2014) at pp. 113-15. In Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 12, Cromwell J. noted that it has been “settled law since at least 1788 in England (and likely long before) that the trust of a legal estate, whether in the names of the purchaser or others, ‘results’ to the person who advances the purchase money”.
59Except where title is taken in the name of a minor child, where property is acquired with one person’s money and title is put in the name of another, there is a presumption of resulting trust. While some authorities refer to a presumption of resulting trust arising when a gratuitous transfer is made between unrelated persons, the presumption of advancement between spouses was abolished by statute in Ontario (see Family Law Act, R.S.O. 1990, c. F.3, s. 14) and between parents and adult children by the Supreme Court in Pecore: see para. 36.
60In this case the respondent argued both at trial and on appeal that the appellant had not overcome the presumption that the legal title holders owned the house. Given the evidence of Luisa’s contributions to the purchase price and mortgages, however, the presumption here was one of resulting trust.
61The decision in this case however does not turn on the application of a presumption. A presumption is of greatest value in cases where evidence concerning the transferor’s intention may be lacking (for example where the transferor is deceased). “[T]he focus in any dispute over a gratuitous transfer is the actual intention of the transferor at the time of the transfer … “[T]he presumption will only determine the result where there is insufficient evidence to rebut it on a balance of probabilities”: Pecore, at paras. 5 and 44.
62The trial judge referred on multiple occasions to “the parties’ intentions”, stating that he could find “no real evidence of a commonly shared intention to purchase and hold the [house] in trust for Luisa.” Common intention, however, is not the issue. The intention of the grantor or contributor alone counts, as the point of the resulting trust is that the claimant is asking for his or her own property back: Kerr v. Baranow, at para. 25.
63The relevant time for ascertaining intention is the time of the acquisition of the property, when the funds were advanced: Nishi v. Rascal Trucking Ltd., at paras. 30 and 41; Pecore, at para. 59. Evidence of intention that arises subsequent to a transfer must be relevant to the intention of the transferor at the time of the transfer. The court must assess the reliability of such evidence and determine what weight it should be given, guarding against evidence that is self-serving or tends to reflect a change in intention: Pecore, at para. 59.
(b) The principles applied
64Once it is accepted that Luisa had money of her own, and that it was her money that was used to purchase the house and to pay down the mortgages, then a purchase money resulting trust could arise. Luisa borrowed the deposit and paid it back, and she serviced the mortgages using money from her own bank account. Although they signed the mortgages, there was no evidence that the legal title holders considered themselves responsible for making any of the payments. Luisa borrowed their “names”, not their money. All of this is consistent with Luisa having advanced the purchase price of the property.
65Having concluded that Luisa had not made a contribution to the acquisition of the house, the trial judge did not direct himself to the question of her intention. Rather, he looked at the intentions of Luisa’s children, and concluded that they did not intend to set up a trust for Luisa. The trial judge reasoned that, if Luisa had not put money of her own into the purchase of the house, then she had no resulting trust claim against those who were on title.
66The trial judge mischaracterized the claim when he said that Luisa’s estate was not trying to recover something that Luisa once had. That is in fact how the claim was advanced. Luisa’s estate argued that Luisa’s money was used to purchase the house in that she borrowed the deposit and paid it back, paid the lawyers’ fees and other expenses in relation to the purchase, and paid the mortgages, using her money (consisting of the money she received from her children, the rent she collected, and later her old age pension and monies she received from a settlement).
67The question was not whether the legal title holders intended to create a trust for Luisa (hence the trial judge’s focus on the fact that there was no “trust” document, that the parties did not understand the concept of a trust, and that the tax and other documents did not refer to Luisa as the beneficial owner). Rather, the question was Luisa’s intention. Having contributed the money toward the purchase of the property, did she intend to confer beneficial ownership of the property on the legal title holders, to the exclusion of herself and her other children?
68Evidence of Luisa’s intention at two points is important – in 1974 when the property was first acquired, and in 1979, when Joseph went on title.
69It was Luisa who, in 1974, decided to buy a house where she and her children would live. As the trial judge noted, both Maria Jesus and Henry testified that the reason title was taken in their names was that, with the exception of Maria Luisa who was already married, they were the only two family members of age who had sufficient income to potentially qualify for a mortgage. Henry said, “[t]he discussion was simple. [Luisa] couldn’t get a mortgage and we [had] to put our names on it because we [were] working.” Neither Henry nor Maria Jesus asserted that their mother intended to give them property rights. To the contrary, they claimed to be her nominees and regarded the house as her property.
70Luisa’s evidence, although not mentioned by the trial judge, was to the same effect.2 In her examination for discovery she said, “[i]f the house had been purchased in cash, I wouldn’t have needed their names.” While there was some difficulty with Luisa’s evidence, which was given through an interpreter, on this point she was clear. She considered herself the owner of the house.
71Manuela testified that, in 1974 (when she was 12 years old), Joseph told her that he “bought a house”, and that he referred to the house on Crawford Street as “his house”. Although the trial judge did not make a specific finding about beneficial ownership of the house when it was purchased, there was no evidence to support this theory, and there is nothing in his reasons to suggest that the trial judge accepted that Joseph was a beneficial owner in 1974, and that Maria Jesus was holding his interest as a bare trustee. Rather, he found that Joseph acquired his interest in 1979.
72There was no evidence at all that Luisa intended to confer beneficial ownership on any of her children when the house was purchased in 1974.
73As for the circumstances in 1979, there is no dispute that Joseph went on title at the time of a mortgage renewal, and at his mother’s direction. Maria Jesus testified that she did what her mother directed, as it was her mother’s house. This of course is inconsistent with Maria Jesus transferring a beneficial interest to her brother. And, if Maria Jesus was Luisa’s nominee, there was no evidence to suggest a change in Luisa’s intention – that is, to give Joseph a beneficial interest in the property when Maria Jesus had no such interest.
74Luisa, in her examination for discovery, said that Joseph was unhappy that Henry was “the boss” and that she wanted to keep Joseph happy by putting him on title. She denied that he was the owner; she continued to deal with the house in the same way. The transfer to Joseph occurred without any consideration. Joseph paid nothing to Maria Jesus or his mother for the transfer. Luisa paid the legal fees then, as she had in 1974. The trial judge explained the transfer to Joseph’s name as occurring because, at the time, he was “the senior working sibling, and was providing funds for the entire household.”
75All of these circumstances are consistent with a change in legal title, but not with a gift of half the property to Joseph. The fact that Joseph (as well as his sister Maria Ludevina) was providing his earnings to Luisa was consistent with the family’s pattern. His contributions were no more “consideration” for a transfer of beneficial ownership than the contributions of his siblings.
76Not only was there no direct evidence that Luisa intended to favour Joseph in 1979 when he went on title, the rationale for a gift was missing. There was no reason for Luisa to have made a gift of her house to two of her children to the exclusion of the others. After they married, neither Henry nor Joseph paid any of the household expenses directly. Rather, their younger siblings continued the family pattern of pooling their earnings and providing them to their mother. There is no basis for an inference that Joseph was to be favoured with beneficial ownership of half of the house because of his contribution, which was no greater than, and in fact less than, that of some of his siblings.
77The respondent argues that the transfer of the house from Henry and Maria Jesus as joint owners to Joseph and Henry as tenants in common is consistent with an intention to confer beneficial ownership. However, there was no evidence to explain why this happened. The trial judge, quite properly, drew no inference of Joseph and Henry’s beneficial ownership from the way title was taken in 1979.
78As for subsequent conduct, there are several aspects of what occurred that are inconsistent with Luisa having an intention in 1979 to gift the house to Henry and Joseph.
79Luisa continued to live in the house where she raised her other children, while Henry and Joseph purchased houses for their own families in the 1980s. Luisa collected and kept the rent. Luisa paid all the bills in relation to the house, including the mortgages, property taxes, insurance and the cost of a number of repairs.
80In 1990, Luisa sourced new lenders for a replacement mortgage which was renewed until it was paid off in 2008. It was Luisa who decided what repairs and renovations were needed and who directed and paid for work, including roof repairs, new flooring, and replacement of the furnace. She paid for materials but not labour that her children supplied. While Henry and Joseph did some work on the house, the other children also made contributions over the years. As the trial judge observed, “the motivation for all of the Andrade siblings’ contributions to the household had more to do with family loyalty than with property rights.”
81Luisa was not simply a “resident” of the house (as the trial judge described her). She conducted herself in relation to the house as its owner from the time the house was purchased until she passed away.
82The appellant relies on certain other evidence said to be supportive of the fact that Luisa was the beneficial owner of the house. Maria Jesus, Henry, Manny and Leo all testified that Joseph had complained about being on title and had asked his brothers to go on title for him. While it is true that the trial judge did not mention this evidence, much like the evidence of Manuela, her son, sister and nephew, that Joseph talked about the house as “his house”, which was also not mentioned, it is self-serving and of doubtful reliability. It is in any event of little assistance in resolving the issue of Luisa’s intention.
83I turn now to two aspects of the evidence that the trial judge relied upon as “subsequent conduct” that was inconsistent with Luisa’s ownership of the house. Again, I emphasize that the trial judge considered this evidence in the context of whether there was a “commonly shared intention” or an intention by the children to “[form] a trust for Luisa’s benefit”.
84First, the trial judge relied on the fact that in 1981 Henry and Joseph entered into two agreements of purchase and sale, one to sell the house and another to buy a new property. He noted that there was no reference to them being “trustees” and “[b]y all appearances … Henry and Joseph were selling one house they owned and were buying another.”
85What the trial judge did not mention was the evidence of how the proposed transaction came about. Henry testified that Luisa was having trouble paying the mortgages, and she thought she could get by with a smaller house. Manuela, who was already married to Joseph at the time, did not testify otherwise. The fact that Henry and Joseph signed all the documents reflected what was already in place. Luisa could not go on title because she did not qualify for a mortgage. The fact that Henry and Joseph’s names were on the agreements was equally consistent with their position as Luisa’s nominees.
86I note here that the appellant contends that the trial judge ignored evidence of a note from Miller’s file that stated “no need for a trust agreement, wait to sell”, which was contemporaneous with the proposed 1981 transactions. This evidence is corroborative of Miller’s evidence that he understood the house was held in trust for Luisa and that he had discussed a trust with someone in the Andrade family, at least when the note was made (the note is undated). Miller identified the note in his testimony. Although the trial judge did not mention this evidence, there is no reason to doubt that he considered it. He rejected Miller’s evidence which was proven wrong on certain details. There is no reason to interfere with that assessment. I disagree with the appellant’s contention that the note was important evidence that the trial judge overlooked.
87Second, the trial judge placed significant emphasis on how the parties dealt with the house for income tax purposes – with Henry and Joseph paying tax on the net rental income, including a deemed rent for Luisa, and Luisa taking a tax credit for rent “paid” to her sons. He regarded the tax treatment as evidence that Henry and Joseph were in fact the “real, beneficial owners” of the house, and, as discussed below, as the foundation for a public policy reason not to recognize Luisa’s beneficial interest in the house.
88The way the parties dealt with the property for tax purposes was consistent with legal title, but did not reflect what was actually occurring. Luisa received the rents: her sons did not. Luisa never paid rent to her sons, and a fictional amount was used as the rent she “paid” in the parties’ returns. Luisa did not account to her sons for the rent received and expenses on the house. They included as expenses property taxes, mortgage payments and payments for repairs and maintenance which were paid by Luisa (and not only expenses they incurred themselves).
89There was no evidence that Luisa was involved in any decisions about her taxes or her sons’ taxes. To the contrary, Luisa, who did not speak, read or write English, had her tax returns prepared first by a local travel agent, then by her daughter Maria Ludevina, who simply followed the pattern that had been established. Henry and Joseph’s returns were prepared by their accountant with figures provided by Henry, which were divided equally to attribute income and expenses to each brother.
90The only evidence about why the tax returns were prepared that way came from Henry. He testified about a meeting in 1998 with the Canada Revenue Agency (“CRA”) who told him that Luisa had to pay rent because she lived in the house and that he and Joseph had to claim income on the property because they each owned and lived in other properties. Henry also said that he and Joseph were trying to help out their mother by paying the tax on the rental income.
91While the trial judge did not reject Henry’s explanation outright, he observed that it “raises more questions than it answers.” He did not resolve the question of what the tax treatment said about intention, and in particular, Luisa’s intention. Instead he moved directly to the conclusion that the tax returns accurately reflected the beneficial ownership of the property.
92The issue here however is to determine Luisa’s intention. The fact that a party represents or deals with property in a certain way that is inconsistent with beneficial ownership does not preclude a claim of beneficial ownership in litigation. The tax reporting issue in this case raises concerns similar to those in a line of cases referred to by the appellant – cases where a party transfers property to a spouse to defeat creditors and then claims to be the beneficial owner of that property. In each case, the trust claimant makes a claim that is inconsistent with how the property was dealt with at another stage and for another purpose.
93In Schwartz v. Schwartz, 2012 ONCA 239, title to a matrimonial home was transferred from the wife to the husband. There were competing claims to the house by the wife and the husband’s judgment creditor. The central issue was whether the wife had conveyed her entire interest in the matrimonial home to her husband. Simmons J.A. held that the fact that the transfer may have been for the purpose of insulating the wife from claims by her own potential creditors did not in itself rebut the statutory presumption of resulting trust between spouses. She stated, at paras. 42-43:
In Kerr, the Supreme Court of Canada also confirmed the view expressed in Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at paras. 43-44, that where there is a gratuitous transfer, the actual intention of the transferor is the governing consideration. At para. 44 of Pecore, Rothstein J. noted that where a gratuitous transfer is being challenged, “[t]he trial judge will commence his or her inquiry with the applicable presumption and will weigh all of the evidence in an attempt to ascertain, on a balance of probabilities, the transferor's actual intention.”
Further, as Karakatsanis J. observed in Nussbaum v. Nussbaum (2004), 2004 CanLII 23086 (ON SC), 9 R.F.L. (6th) 455 (Ont. S.C.), at paras. 20 and 32, while the “intention to gift property trumps the presumption of resulting trust”, a party's intention at the time of a conveyance is a question of fact. Further, as she stated, at para. 32, “[w]hile evidence that someone intended to fully evade creditors can be evidence that they intended to gift their entire interest in the property”, a party's actual intention remains a question of fact to be determined based on the whole of the evidence.
94See also Korman v. Korman, 2015 ONCA 578, at para. 38, where, citing the same passage from Nussbaum, and the Schwartz decision, this court confirmed that the motivation to shield property from a transferring spouse’s potential creditors does not in itself rebut the presumption of a resulting trust in a gratuitous transfer of property between spouses.
95Similarly, in the present case, the analysis cannot not begin and end with the tax treatment of the house. The court was entitled to consider the fact that Luisa’s tax filings are contrary to her estate’s argument that she was a beneficial owner of the property, as well as all of the evidence as to how this came to be. The tax treatment is some evidence of intention, but Luisa’s actual intention at the time of the transaction remains a question of fact to be determined on the whole of the evidence.
(c) Conclusion respecting resulting trust
96I have concluded that the money used in the purchase of the Crawford St. property was Luisa’s money. Although its source was in part money given to her by her working children, Luisa was the person who took on the responsibility to pay for the house at the time of the purchase, in 1979, and during the next 35 years until she died. Although the house was in her children’s names, her intention was not to benefit the title holders to the exclusion of her other children by giving them a property interest in the house. The evidence is inconsistent in particular with Manuela’s claim that Luisa intended to give Joseph a beneficial interest in the house from the time it was purchased in 1974. While the parties’ income tax returns treated the house in a way that was consistent with legal title, they did not reflect the reality of how the property was handled – that Luisa, and not Henry and Joseph, collected and kept the rents, that Luisa, and not Henry and Joseph, paid the expenses in relation to the house, and that Luisa treated the house as its owner, and not as a tenant.
97In these circumstances, I find that Luisa was the beneficial owner of the house by way of resulting trust.
(3) The “public policy” issue
98In addition to holding that there was insufficient evidence that a trust for Luisa’s benefit was intended, the trial judge concluded that “for public policy reasons this is not an appropriate case in which to impose any trust” with Luisa’s estate as a beneficiary. In my view, the trial judge cast the net too broadly in concluding that it would be against public policy to recognize Luisa’s estate as the beneficial owner of the house when she had received tax credits on the basis that she was not the beneficial owner.
99Rosenthal v. Rosenthal (1986), 1986 CanLII 6320 (ON SC), 3 R.F.L. (3d) 126 (Ont. H.C.J.), the case relied upon by the trial judge, was a matrimonial case. There was an issue about whether certain shares owned by the husband had been purchased by him (in which case they were part of his net family property) or received as a gift (and thus excluded from net family property). There was evidence that while an initial transfer of shares from a third party was by way of gift, two subsequent transfers of shares by the same party were made in exchange for demand notes bearing no interest. The third party testified that his intention was to gift all of the shares to the husband and that the demand notes were forgiven over time. He said the reason for structuring the latter two transfers in this manner was to avoid payment of gift tax, which was in operation at the time.
100The trial judge in Rosenthal held that the initial transfer of shares was a gift but the latter two transfers were not and thus the value of those latter shares should be included in the husband’s net family property. He stated, at para. 51, that “it is being argued that for the purpose of the Income Tax Act in 1969, the transfer of shares was not a gift, but for the purpose of the Family Law Act in 1986, the transfer of shares was a gift. Such a result should not be condoned by the court on the grounds of public policy alone.”
101His logical conclusion was that, having structured a transaction as a purchase specifically to avoid taxes that would be payable if it were a gift, the husband could not subsequently claim that the transaction was in fact a gift. While he did not explain the public policy concern in any detail, it appears to be that a party should not be permitted to structure a transaction in one way to avoid the payment of taxes, and then to subsequently disclaim that very structure.
102In the present case, there was no evidence that Luisa put the property into the names of her children so as to avoid taxes or to obtain a tax benefit. The evidence was to the contrary – the children took legal title because Luisa did not have paid employment and could not qualify for a mortgage. The fact that subsequently the Andrade family treated the house for tax purposes in a manner that was consistent with the legal title, as a result of which Luisa received some benefit (and her sons some detriment), is, as noted earlier, evidence to be considered when determining Luisa’s intention but is not determinative.
103Rosenthal does not stand for any general public policy principle that would prevent a party from taking one position for tax purposes, and another in respect of a claim in litigation. In cases where a party must rely on fraudulent documents to prove a claim, the “clean hands” doctrine and considerations of illegal purpose may bar the claim: see e.g. Buist v. Greaves (1997), 11 O.F.L.R. 3 (Gen. Div.). However actions unrelated to one’s claim will not necessarily bar a plaintiff from her remedy: see e.g. Parnell v. Viger (2003), 2003 CanLII 2336 (ON SC), 41 R.F.L. (5th) 327 (Ont. S.C.), rev’d in part on other grounds (2005), 2005 CanLII 8665 (ON CA), 14 R.F.L. (6th) 84 (Ont. C.A.), at paras. 20-23 (fraudulent documents filed with Revenue Canada did not disentitle a plaintiff from an equitable remedy where she did not have to rely on the documents to prove her claim). The governing principle was stated by Lord Browne-Wilkinson of the House of Lords in Tinsley v. Milligan, [1994] 1 A.C. 340 (U.K.), at p. 375: “A party to an illegality can recover by virtue of a legal or equitable property interest if, but only if, he can establish his title without relying on his own illegality."
104In the present case, Luisa’s estate does not seek to profit from the manner in which her tax filings were arranged. Rather, it seeks equitable relief in relation to Luisa’s interest in the family home. Her tax filings are not fundamental to that cause of action. They are not necessary to establish the relief that she seeks. They are relevant evidence, but are not in any way dispositive of her claim.
105And, the Schwartz and Korman cases referred to earlier confirm that even if a party has transferred ownership of property in one way for one purpose (such as to defeat creditors) a resulting trust claim is not precluded. The question remains one of the transferor’s intention at the time of the transfer.
106The trial judge erred in treating the fact that Luisa claimed tax credits as dispositive of her trust claim for public policy reasons alone. While her tax treatment of the property, considered in isolation, was evidence inconsistent with her beneficial ownership, her actual intention in relation to the property was a question of fact to be determined based on the whole of the evidence.
F. Disposition
107For these reasons, I would allow the appeal and set aside the judgment in the court below (including the award of costs). I would dismiss the claims of Manuela Andrade; order and declare that the Estate of Luisa Andrade is the sole beneficial owner of 510 Crawford St., Toronto (the “Property”); order and declare that Manuela Andrade holds registered title in the Property as trustee for the Estate of Luisa Andrade; and order Manuela Andrade to forthwith transfer all of her right, title and interest in the Property to the Estate of Luisa Andrade.
108If the parties are unable to agree on costs in the court below, they shall provide their written submissions to this court within 20 days, limited to five pages each, exclusive of any bill of costs or offer to settle. The respondent shall pay the appellant’s costs of the appeal fixed at $30,000, the amount agreed between the parties, which is inclusive of HST and disbursements.
Released: (KMvR) May 16, 2016
“K. van Rensburg J.A.”
“I agree Janet Simmons J.A.”
“I agree C.W. Hourigan J.A.”
Footnotes
- As explained below, such a trust is properly termed a purchase money resulting trust, however the trial judge appears to have considered this argument in the context of his constructive trust and unjust enrichment analysis.
- Except for her concession that she had no money of her own, there is no reference in the trial judge’s reasons to Luisa’s evidence.
