Ontario Court (General Division), Family Court
Perkins J.
Counsel:
Cary Boswell, for applicant.
W. Michael Adams, for respondent.
PERKINS J.:—
THE CASE
1This case raises some interesting and difficult issues:
Is a housing unit occupied by the wife's mother within the spouses' matrimonial home a part of their matrimonial home as defined in subs. 18(1) of the Family Law Act, R.S.O. 1990, c. F.3? This has important implications in this case because the home was (or may have been) a gift or inheritance, and if this part of the home is not within the matrimonial home as intended by the Act, the husband will be able to claim an exclusion from his net family property.
Was a joint account set up in the name of the husband and Henry Barron a gift by Henry Barron, as opposed to payment for services rendered?
Was a joint account agreement signed by the spouses effective to make the wife a joint owner by gift of the funds in an investment account held in the husband's name, or was the agreement not effective? The argument turns on whether the parties intended the agreement to have immediate effect and whether the formal requirements necessary to effect a change of ownership were carried out.
What is the method by which money from a gift that is mixed with other funds in the investment account referred to in issue no. 3 is traced under subs. 4(2) of the Family Law Act? Is the court to follow the old first in, first out rule as enunciated in Clayton's Case [Devaynes v. Noble; Clayton's Case (1816), 1 Mer. 572, 35 E.R. 781], or is there a new rule for prorating the funds between the gift and the other money in the account?
The husband bought a boat with money borrowed from his father. When his father died, the loan was forgiven. Is the husband entitled to exclude, as a gift, any of the value of the boat from his net family property?
The husband has spent money on maintenance of a house held in trust for his son Ashley. Under the terms of the trust, he is entitled to be reimbursed. He had a receivable from the trust at the date of separation. Is he entitled to exclude any of the receivable from his net family property on the ground that the money all came from the investment account referred to in issue no. 3?
Should there be prejudgment interest payable on the equalization payment in this case?
2The other issues in this case were either settled or put on hold to await the outcome of the trial of these seven issues.
FAMILY HISTORY
3Normally I would include under this heading only the spouses and their children, if any. However, in this case the history beginning shortly before the husband's birth needs to be set out in order to understand the unusual situation that led to this trial.
4The husband was born in 1945 in Halifax. His parents were Bill and Edith Goodyer. Bill Goodyer was at sea during World War II. Like many Canadians, the Goodyer family took boarders into their home during the war. The boarders living there in 1945 were Henry Barron and another man.
5After the war the Goodyers came to live in Toronto. The same two boarders came with them and lived in their house in the west end of the city. The husband left high school after grade 11 at the age of 18 and went to work at Canadian Tire and then at a hardware store. In 1970, the husband read an advertisement offering a hardware store near Lake Simcoe for sale. He suggested to Henry Barron, who had been working in jobs that required physical labour, that this might be a good opportunity. Henry Barron was getting too old to do heavy work, and the husband had experience in running a hardware store. Using Henry Barron's savings, they bought the business, which was put into Henry Barron's name. Henry Barron had earlier bought waterfront land nearby that became two house lots, on one of which he built a house (42 Lakeside). The husband and his first wife moved up to that house and lived there with Henry Barron. For the next 20 years, the husband worked in and managed the hardware store.
6In 1976 it was clear that the hardware store was a success. Edith and Bill Goodyer sold their Toronto home, bought one of the lots from Henry Barron and built a house on it (44 Lakeside). Henry Barron moved over from 42 to 44 Lakeside.
7In 1977, the husband and his first wife had a son, Ashley. About a year later the husband and his first wife separated and ultimately they divorced. The husband had custody of Ashley. In 1982, the husband and the wife met. They married on March 1, 1987, when Ashley was about 10.
8Bill Goodyer died on December 15, 1983. Edith Goodyer died on February 24, 1991. Shortly before Edith Goodyer's death, Henry Barron sold the hardware store for $212,000 and put $200,000 of the proceeds into an investment account.
9In 1991 or 1992 the wife's mother, Elsie Johnston, moved into 44 Lakeside, where Henry Barron was then living by himself. However, in 1993 the husband and the wife moved, with Ashley, into 44 Lakeside as well.
10In January, 1995, Henry Barron died. Shortly before his death, he dropped a bombshell: he declared that he was in fact the husband's father. This had been kept secret from the husband for over 45 years. The husband was Henry Barron's sole heir and also became entitled by right of survivorship to the investment account that he had held jointly with Henry Barron.
EXTENT OF THE MATRIMONIAL HOME: IS THE "GRANNY FLAT" INCLUDED?
Facts
11I have used a popular term to describe the wife's mother's accommodations within the house occupied by the spouses as their matrimonial home. In fact the unit was not sealed off from the rest of the house, although it did have an entrance at the rear of the house which Mrs. Johnston used for her comings and goings. The area she occupied was on the ground floor of the house and included a bedroom, living room, bathroom and kitchen. It was an area of about 500 sq. ft. in a house of slightly less than 3000 sq. ft. (not including basement), or roughly 1/6 of the living area. (Numbers up to 800 sq. ft. were given for Mrs. Johnston's living area, but the diagram that was accepted as accurate by the parties shows an area of 500 sq. ft. at the very most.) The connection to the other rooms on the ground floor was through two doorways that had doors on them, but the doors could not be locked. The husband and wife (and Ashley) had their living room and kitchen on the ground floor as well and their bedrooms and bathroom upstairs. No renovations were done to accommodate Mrs. Johnston's needs. There was no rent charged for use of the area, though Mrs. Johnston did contribute to some household charges such as cable TV.
12Mrs. Johnston's kitchen was actually the laundry room of the house and it was used by the wife (and I suppose other members of the family) when laundry had to be done. Mrs. Johnston's toaster oven sat on top of the dryer. This room also contained a freezer that was used for the whole family. The wife's evidence was that she often entered her mother's area to spend time with her in her living room and that the wife and family visitors also sometimes used the main floor bathroom for convenience rather than running upstairs. The husband corroborated this as he said that the wife's use of the main floor bathroom was a point of irritation — he did not think it was right to impinge on Mrs. Johnston's space in this way. There was also evidence that the mother came occasionally into the main floor kitchen and dining room used by the spouses to eat and for socializing, though the wife admitted that there was not a lot of interaction between the husband and Mrs. Johnston. Nevertheless the husband acknowledged that they all gathered for cards on the main floor once or twice a week. Ashley sometimes went into Mrs. Johnston's area to use her VCR.
Law
13The relevant provisions of the Family Law Act, R.S.O. 1990, c. F.3, are found in s. 18 ([emphasis] added):
18(1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.
(3) If property that includes a matrimonial home is normally used for a purpose other than residential, the matrimonial home is only the part of the property that may reasonably be regarded as necessary to the use and enjoyment of the residence.
14The husband's first argument focuses on the words "ordinarily occupied by the person and his or her spouse as their family residence" in subs. 18(1). The husband says that the "granny flat", as I have called it, was not ordinarily occupied by the spouses and was not part of their family residence. Further, the argument goes that the granny flat was "normally used for a purpose other than residential""residential" meaning residential for the spouses. In other words, quarters that were rented out to a tenant would not qualify as part of the spouses' matrimonial home and neither does this living area, submits the husband.
15I have not been given any comparable cases and have not found any. My decision must be based entirely on an analysis of the statutory language.
16Dealing first with subs. 18(1), I think the evidence shows here that the spouses did occupy the area in question as part of their ordinary mode of life. To occupy something ordinarily does not require constant or continual occupancy, nor does it require occupancy of every square metre. In this case, the evidence shows that Mrs. Johnston's bathroom"kitchen" (really the family laundry room) and living room were all occupied from time to time on a free and easy basis by various members of the family, including the spouses and Ashley. Ashley's use of the area, while a dependent minor living with his father, is attributable to his father, in my view.
17That leaves only the bedroom, about which there was no evidence of direct use by the wife, the husband or Ashley. However, I do not think that anything turns on that. The great majority of the area was used by various family members. The entire area was used by Mrs. Johnston as a resident of the family home and I do not see that subs. 18(1) was intended to exclude from the spouses' matrimonial home parts of the home used for residential purposes primarily or even exclusively by an extended family member who was not even paying rent. I think the word "family" in the phrase "ordinarily occupied by the person and his or her spouse as their family residence" is not meant as an exclusive word, leaving out parents, children or other close relations of either of the spouses. If Ashley were no longer a dependent minor, or if a niece or cousin were living in the home, should the provision be interpreted to subtract their exclusive use areas from the spouses' matrimonial home? "Family" is not defined in the Family Law Act for the purpose of s. 18 and nothing in the context of s. 18 requires that it he given a restrictive meaning as sought by the husband.
18Nor does subs. 18(3) assist the husband, in my view. It talks about uses "other than residential", but does not qualify the word "residential" with a phrase such as "by the spouses". This area was used only for residential purposes, albeit primarily by Mrs. Johnston. Subs. 18(3) comes into play only if the area is "normally used for a purpose other than residential". There is no such use here.
19I note that the only cases found by counsel that even come close to this one involve portions of the matrimonial home that were rented out to parties at arm's length from the spouses, and even they are in the majority against the husband: Solonynko v. Solonynko, [1978] O.J. No. 118 (QL) (H.C.J.); C. v. C. (No. 1) (1979), 1979 3615 (ON SC), 11 R.F.L. (2d) 356 (Ont. Co. Ct.); C. v. C. (No. 2) (1979), 1979 3613 (ON SC), 11 R.F.L. (2d) 364 (Ont. Co. Ct.). But see Kozlowski v. Kozlowski (1984), 1984 4846 (ON SC), 39 R.F.L. (2d) 34 (Ont. H.C.J.) — house used 75% for commercial boarding house operation is a matrimonial home only to the extent of 25%; and see the commentary in Mamo, Alfred A., Matrimonial Property Law in Canada, O-148 to O-150.
20The husband's argument to exclude the "granny flat" from the spouses' matrimonial home must fail. He is not entitled to exclude any portion of the home from his net family property. The parties have agreed that the home is valued at $353,500 net of real estate commission and sale expenses and that amount must go on the husband's side of the net family property calculation.
WAS THE ACCOUNT SET UP BY HENRY BARRON IN HIS AND THE HUSBAND'S JOINT NAMES A GIFT?
Evidence
21The husband gave the only evidence on this issue. In 1990, after 20 years of working long and back-breaking hours, seven days a week, in Henry Barron's hardware store, the husband was burnt out. He went to Henry Barron and said that the store had to be sold, that he would quit if it were not. The store was sold for $212,000 and almost all of the money went into Henry Barron's investment account. The account was set up in the joint names of Henry Barron and the husband, but the husband said he had no knowledge that he was entitled to any of it. He said that the money belonged to Henry Barron and that he (the husband) had no power over it.
22The money was initially in an investment account at a brokerage where a broker and investment advisor named Ron Ptasiuk worked. He left that brokerage and went to another firm. When Henry Barron was in his last year or so of life, the husband urged him (quite understandably) to write a will to make proper provision for his son (the husband) and grandson (Ashley). Henry Barron did not only that, but he also immediately transferred his remaining $159,000 mutual fund investment account (formerly managed by Ron Ptasiuk) to Ron Ptasiuk's new firm and put it into the joint names of himself and the husband. This was Henry Barron's idea and the husband went along. On January 12, 1994 they both signed, with Ron Ptasiuk as witness, a joint account application form and joint account agreement.
23In cross-examination, the husband said that he was not paid a fair wage for his work in the hardware store, 70 hours a week, seven days a week, with virtually no vacations. He said he was paid between $200 and $325 a week, but also pointed out that he and his family lived in a house Henry Barron owned and paid no rent over the years. From the time the store was sold until Henry Barron's death, the income on the money in the account also went to support the husband, the wife and Ashley. The husband speculated that Henry Barron meant to benefit him by setting up the joint account because he had built up the business just as much as Henry Barron did, because of the low remuneration he had received over the years and because he was in fact Henry Barron's son. There was no evidence of a statement (orally or in writing) of Henry Barron's actual intention, other than the fact that Henry Barron made the husband his beneficiary under his will.
Law
24The husband's lawyer did not argue that the investment account was something to which the husband had a claim, by quantum meruit, at the date of marriage in 1987. He said that this was a case not of pre-marriage property deductions, but rather of exclusions for a gift and an inheritance.
25If the husband is to exclude any of the investment account from the net family property equalization, he has the onus of establishing the exclusion: Family Law Act, subs. 4(3). The wife's counsel submitted that the husband had not met that onus because there was no express intention proved and the evidence supported the conclusion that the joint account was deferred compensation for the many years of work the husband put into the hardware store. However, the husband is entitled to rely on the equitable presumption of advancement, that money put by a father into his son's name is presumed to be a gift. This is also supported by the surrounding circumstances of Henry Barron's preparing a will and a power of attorney in favour of the husband as part of an overall estate plan. Finally, there is also no express evidence that Henry Barron acknowledged a legal rather than a moral obligation to the husband and there was evidence of substantial, even if perhaps inadequate, compensation to the husband for his 20 years of work. The facts alone, without the benefit of any equitable presumption, make it more likely than not that Henry Barron intended a gift to the husband.
WAS THE JOINT INVESTMENT ACCOUNT AGREEMENT EFFECTIVE TO MAKE THE WIFE A JOINT OWNER?
Evidence
26The money in the investment account (with the exception of $150,000 raised by mortgaging 44 Lakeside) came from the husband's father Henry Barron, by gift (as I have just decided). The issue is whether, by signing a joint account agreement to change the account from his name alone to the joint names of himself and his wife and leaving the agreement with the broker who handled the investments, the husband made the wife a joint beneficial owner of the funds.
27The account agreement in question is a standard form used by the broker's firm and is headed:
JOINT ACCOUNT AGREEMENT
WITH RIGHT OF SURVIVORSHIP
(EXCEPT QUEBEC)
in bold capital letters about the size shown. The agreement contains a number of lines that were not filled in. The relevant portions of the form, with the blanks left by the parties and the broker, are set out below (in 8 point type similar to the original):
In consideration of your agreeing on our joint and several request to act as Stock Brokers in our behalf, the undersigned do hereby appoint you to be our Stock Brokers for the purpose of opening and maintaining one or more joint brokerage account(s) for us. In consideration of Midland Walwyn carrying one or more joint account(s) for the undersigned we jointly and severally agree that each of us shall have authority, all on behalf of said joint account(s) to operate such account(s) including: to buy and/or sell ...; to receive money, securities and property of every kind and to dispose of same; ... and generally to deal with you as fully and completely as if each of us alone was interested in said account(s), all without notice to the other(s) ... All of the above pursuant to the terms and conditions of Midland Walwyn's Customer Trading Agreement for Cash/Margin Accounts and/or Customer Trading Agreement for Option Accounts which we have executed and are numbered as follows:
Cash/Margin-Account Number(s)_________________________________
Options-Account Number(s)_____________________________________
The undersigned declare that their interests in the joint account(s) are as joint tenants with full rights of survivorship and not as tenants in common. In the event of the death of either or any of the undersigned, the entire beneficial interest in the joint account(s) shall vest in the survivor or survivors on the same terms and conditions as theretofore held ...
This agreement is a continuing one and shall remain in full force and effect until terminated on behalf of the undersigned by written notice to Midland Walwyn signed by either of the undersigned ...
This agreement shall be binding on all the undersigned jointly and severally, on their heirs, executors, administrators or legal representatives and on Midland Walwyn's successors and assigns.
Dated at ... in the province of ... this ... day of 19 ...
(city)
The undersigned declare that they are the only persons having an interest in said account(s) and that their respective interest in the joint account is joint and several.
"Ken Goodver"
WITNESS
CUSTOMER'S SIGNATURE
"Lori Goodver"
WITNESS
CUSTOMER'S SIGNATURE
Received by Midland Walwyn Capital Inc.:
Date:_____________
Per:________________
28The joint account agreement was accompanied by a "new account application form" that contained a "customer margin agreement" printed on the back. The new account application form called for the customer's name, address and other identifying information, employment and income information, a statement of net worth, banking and credit references and details of investments with the brokerage and others. It was entirely blank except for the signatures following these passages:
THIS INFORMATION IS FULL AND COMPLETE. MIDLAND WALWYN MAY RELY THEREON UNTIL THE UNDERSIGNED SENDS WRITTEN NOTICE OF ANY SIGNIFICANT CHANGES. IT IS UNDERSTOOD THAT A MARGIN ACCOUNT INVOLVES THE BORROWING OF MONEY FOR ACCOUNT TRANSACTIONS., EXCEPT WHERE A CASH ACCOUNT IS REQUESTED BELOW, THE UNDERSIGNED AGREES TO THE TERMS OF THE MARGIN AGREEMENT ON THE REVERSE SIDE.
THE UNDERSIGNED REQUESTS THAT A MARGIN ACCOUNT BE OPENED.
DATED_____________ SIGNED "Ken Goodyer" SIGNED "Lori Goodyer"
29The form also contained the following note (in the margin) just under the form's title:
IMPORTANT:
SHADED AREA MUST BE WIRED
TO THE NEW ACCOUNT DEPT.
OR RRSP ACCOUNT DEPT. TO
HAVE THE APPROPRIATE ACCT.
NUMBER ASSIGNED.
30The shaded area was not filled out and no new account number was ever assigned. There are no signatures at the bottom accepting the account on behalf of the brokerage. The investment account in the husband's name was never transferred over into joint names by the brokerage. Apparently the forms sat in a drawer until after the separation, when they were called for as part of the disclosure process in this case.
31The wife argued that the signature of the joint account papers by the spouses was intended to and did make her a joint owner of the investments. The husband said that the documents were never intended to and did not have any immediate effect, that they were a contingency plan for a never realized eventuality. The central question is which version of events is reality. Needless to say, each of the parties has a different recollection of the events and the intentions of the parties at the time.
32The background facts surrounding the sale of the store and the creation of the joint account in the names of Henry Barron and the husband have been summarized above. On January 12, 1994 they both signed, with Ron Ptasiuk as witness, a joint account application form and joint account agreement identical in form to the one signed by the husband and the wife in 1996. There were some important differences, however: the application and agreement signed by Henry Barron and the husband were fully completed, in what looks to be Ron Ptasiuk's handwriting; the account application was accepted and signed by the branch manager several days later; the account was set up a month or so later and the funds formerly in Henry Barron's own account (with another institution at which Ron Ptasiuk had formerly worked) were transferred into it. When Henry Barron died in January, 1995, the entire account passed to the husband by right of survivorship.
33In June, 1996, at around the same time the joint account agreement was signed, the husband established a mutual fund investment account in the wife's name at the same brokerage with an initial deposit of $2000 or $3000. The account documents (application and agreement) are again virtually identical to the forms for the joint account. The wife's signature was not witnessed but the application was signed as accepted by two brokerage representatives, one of whom was Ron Ptasiuk. The forms were fully completed (all in handwriting that is not the wife's), including the new account number, and the account was actually set up. The branch manager's signature accepting the account on behalf of the brokerage was added more than two weeks after the wife signed the form.
34The wife's version of the 1996 events surrounding the joint account agreement in question in this case is as follows. The joint account agreement came about as a result of a meeting in the summer of 1996 at the office of Ron Ptasiuk, who had been handling the husband's money (and Henry Barron's before that) for years. These meetings were a regular occurrence and there was (she said at first) no special reason that they met on this occasion. At the time, Mr. Ptasiuk suggested that the account should be turned into a joint account because he worried about things and particularly about the couple's money and he thought it would be a good idea. When Ron Ptasiuk suggested it, the husband "sort of went along" and Mr. Ptasiuk went to get the forms. When he was gone, the husband told the wife "not to make me regret doing this". Asked why the forms were only signed and not completed, the wife said that it was because Ron Ptasiuk asked them if they needed cheques or a credit card in their joint names and they said no, and so there was no particular need to fill out the forms. She was surprised to find out later that the joint account had never been set up. She had understood the joint account was "in effect"; no one had told Mr. Ptasiuk not to put the joint account into operation.
35In cross-examination the wife gave the real reason for the joint account agreement. In 1996 a growth appeared on the husband's neck. The husband was afraid it was cancer, as there was cancer in his family. Ultimately a biopsy proved negative, but that was the reason the spouses wanted the account changed over to joint names: in case he died, they wanted the wife and Ashley to be taken care of. The wife acknowledged that the husband's "don't make me regret this" comment came because he had cause to be worried: the couple had separated or almost separated previously. She also noted that the husband was always worried that the government would get his money in taxes on his death, but that he did not want to pay lawyers for a will or a power of attorney either.
36Ron Ptasiuk gave his evidence next. He said that the husband had been concerned about his health and if something happened to him he wanted the wife to have access to the funds without the funds being "held up". He confirmed that it was intended to put a right of survivorship on the account. The means of doing that was to open a new account and transfer the funds into it because "we cannot affect an account. An account is an account as it is." So the new account agreement was signed. At this point Mr. Ptasiuk avowed that his recollection was foggy, but repeated that the husband was concerned about what would happen to the funds if something happened to him. The new account agreement was "put into the file in the hope that the eventuality would never come. We weren't really looking for a new account, we were just looking for the right of survivorship." Normally, if the client's wish to transfer an account were not carried out"we would be questioned about it. That leads me to believe we were just keeping it in the file in the event something happened to Mr. Goodyer ... If Mr. Goodyer became ill, we would probably have instituted it." But if there had been a sudden accident, they "would have been out of luck". Under cross-examination by the husband's lawyer, Mr. Ptasiuk pulled back a bit, saying that the joint account agreement "wasn't an answer for the issues at the time. There was some legal work to be done." But "we had the paper work done". He agreed that this was unusual and that he had never done it before.
37Mr. Ptasiuk was doing his best in giving his evidence but was clearly uncomfortable, partly from being caught in the middle of a matrimonial dispute over the money he had managed for the couple for years, partly out of concern for what he had done or not done about the joint account agreement and partly because his recollection was not as clear as he or the parties might have wished. On the last point, it is very interesting that the husband's lawyer did not ask about a conversation the husband reported having with Mr. Ptasiuk shortly after the joint account agreement was signed — see below.
38Of course, the husband also testified to his version of the events surrounding the joint account agreement. He said that when he found the growth on his neck, he was afraid that it was cancer. "Everybody in the family" had died of cancer, including his 38-year-old brother. The growth increased in size until it interfered with his speech. It took six or seven months to get a referral to a specialist in 1996 and he finally had a surgery date set for October. In the spring of 1996, the husband was the only person who could write cheques on the account (the investment account included chequing and credit card privileges). He agreed with the wife's evidence that at the meeting with Ron Ptasiuk, Mr. Ptasiuk asked whether they wanted new cheques and they answered that they did not.
39The husband's concern was"I could have a stroke or I could die. I wanted to have someone to have the power to keep things going if something happened to me." He considered a will but did not want to spend the money on it, having accompanied Henry Barron when he arranged for a will and having seen him pay $1200 or $1500 for it (as well as a trust for Ashley and a power of attorney). "What I wanted to do was have someone have the power to pay the bill and then revert back to how it was, when I got better." After the specialist reassured him about the growth on his neck not being life threatening, he said to Ron Ptasiuk that he just wanted to "leave it" (let the joint account agreement just lie in Mr. Ptasiuk's file)"I don't want to go any farther with it." This conversation reportedly took place at a lunch with Mr. Ptasiuk within days of the signature of the joint account documents. (This is the conversation that Ron Ptasiuk was not asked about and did not mention in his testimony.)
40The husband also said that he set up the small account in the wife's name because "she was upset she couldn't have money of her own".
Legal issues
41The husband's lawyer did not argue that the signature of the joint investment account documents amounted to a gift in contemplation of death (donatio mortis causa), but submitted that it was a legally ineffectual transaction, an event with no immediate legal significance: first because the parties did not intend it to have any present effect but rather intended it only as a conditional document whose condition precedent — something happening to the husband — was never fulfilled; and second because, even if they did intend it to have present effect, the documents were not filled out and the husband's existing account did not get transferred into joint names.
42It was agreed that the only way this transaction could be effective was as a gift to the wife of a joint interest in the account. The law of equity and the Family Law Act, R.S.O. 1990, c. F.3, s. 14, presume that, in the absence of evidence of a different intention, when a husband makes a transfer of his property to the joint names of himself and his wife, the parties intend it to be a gift to the wife of a joint beneficial interest. Of course, s. 14 was intended not only to codify the common law but also to extend its application to spouses of both sexes equally. It also expressly confirms that money in a deposit account in both spouses' names is deemed to be money in joint ownership.
43A gift requires an intention by the donor to make a gift and "delivery" of the gift: C.E.D. CD-ROM (August, 1998)"Gift", §58; Hayton, David J., Underhill and Hayton: Law Relating to Trusts and Trustees, 15th ed. (1995), 130. In the case of a mutual fund account, which is (in the archaic French still used in property law) a chose in action"delivery" means that the donor must have taken all the steps within the donor's power that are required of the donor to achieve a transfer of the property into the donee's name: Hayton, David J., Underhill and Hayton: Law Relating to Trusts and Trustees, 15th ed. (1995), 129-135.
Intention to make a gift at all? An immediate gift? A conditional gift?
44What was the husband's intention here? The first and best piece of evidence is the joint account application he signed, which states:
The undersigned declare that their interests in the joint account(s) are as joint tenants with full rights of survivorship and not as tenants in common. In the event of the death of either or any of the undersigned, the entire beneficial interest in the joint account(s) shall vest in the survivor or survivors on the same terms and conditions as theretofore held.
45This is more than just a document to protect the financial institution. It is a clear and unequivocal statement signed by both spouses that they were intended to be joint owners of the account, with the right of survivorship that is unique to joint ownership. Ron Ptasiuk said that the prime purpose of signing the documents was to create a right of survivorship. The only way in law to achieve that is to create a joint interest, and the statute and the law of equity presume a gift when the husband transfers property into joint names with the wife.
46Is there evidence from which I should conclude that this document, unconditional on its face, was intended to be conditional? There is no doubt that the motivating factors in the signature of the joint account documents were the husband's illness and the spouses' concern and fear about what might befall him. But a motive is not a condition precedent.
47Against the account documents having immediate effect was the evidence of Ron Ptasiuk that the agreement was "put into the file in the hope that the eventuality would never come" and that if the joint account had been intended to be put into place, he would have expected to be "questioned about it", which did not happen. He thought that "if Mr. Goodyer became ill, we would probably have instituted it", which sounds as though there was a choice to be made at some future time and that if there had been a sudden accident, they "would have been out of luck" so far as the wife being able to get at the funds. Then there was the conversation the husband recounted with Ron Ptasiuk, in which the husband said he told Mr. Ptasiuk"I don't want to go any farther with it", which implies that there was something still to be done.
48In favour of the account documents having immediate effect was the evidence of the wife, who reported the husband's admonition (not denied by the husband) "not to make me regret doing this". Also, Ron Ptasiuk's evidence favoured this interpretation of events when he said that the parties wanted the wife to be able to have access to the funds if something happened without the money being "held up" and that the parties intended a right of survivorship on the account. Both spouses testified that they were asked if they wanted, immediately, new credit cards and cheques. The husband gave the clearest evidence on the issue of conditionality:
I could have a stroke or I could die. I wanted to have someone to have the power to keep things going if something happened to me ... What I wanted to do was have someone have the power to pay the bill and then revert back to how it was, when I got better.
49This evidence is, it seems to me, clear on the point that the joint account was intended to guard against the eventualities of both sudden death or incapacity and long term illness. Whatever Mr. Ptasiuk thought about sudden accidents, the husband knew that they were covered. The husband's testimony does not speak of the account being only brought to life by one of those events — instead, he speaks of undoing the joint account and restoring the former situation once he got better. And what was there for the husband to be concerned about, for the husband to "regret doing this", as he said to his wife, if the joint account documents were not effective? Similarly, if the new account arrangement was not intended to be effective immediately, why did Mr. Ptasiuk ask the spouses if they wanted new cheques and credit cards?
50Probably what the husband really ought to have done is sign a conditional and revocable power of attorney. But he did not. He had seen how much it had cost Henry Barron to have the legal work done properly and he was having none of that. He knew all about the benefits of joint accounts with right of survivorship and how they work, for he had very recently benefited from the joint account he had held with Henry Barron. He knew that they operated during life and after the death of one of the account holders. Never mind that the joint account conferred greater rights on his wife than he really wanted or needed. It would do for his purposes, which were to ensure that his son and his wife had access to money during his hospitalization and post surgical recovery, if things went well, and after his death, if things did not.
51Once he got better, he could have removed all the money from the joint account — the account agreement said as much. He could have arranged to put the money back into his name alone. However, he never did anything about the joint account papers. He never had them destroyed and he never instructed Ron Ptasiuk to have the account "revert back to how it was". He may have secretly thought that the joint account documents became at some point ineffective, but that does not mean that they were.
52I think that the husband's recollection of a conversation with Ron Ptasiuk about not going any further with the joint account documentation is likely convenient and self-serving memory at best, as Mr. Ptasiuk said not a word about any such conversation. I would have expected Mr. Ptasiuk to have recalled and acted on that kind of instruction from a long-standing and important customer like the husband.
53Someone who asserts that a formal legal document, signed by that person and another, does not mean what it says has an onus to prove that the document does not tell the whole story, and must provide evidence, other than self-serving statements, that the real story is as the person says it is. I do not think that the husband has discharged the onus on him. I conclude that the husband intended the joint account documents to take effect immediately and that an immediate gift to the wife of a joint interest in the investment account was intended.
The requirement of "delivery" of the gift and the failure to complete the account documents
54The husband and wife merely signed the two account documents put in front of them by Mr. Ptasiuk. Then they left them in his custody in his office in the brokerage. They took no other steps.
55It is clear from the other joint account documents signed by the husband (with Henry Barron) and the account documents for the wife's own account that the customer was not required to do anything other than sign. All the forms were filled out by somebody else (in one case, apparently by Ron Ptasiuk). In any event, the husband and wife were customers long known to the brokerage and Ron Ptasiuk, though the wife had not had her own account there before. The information called for by the forms was either known or unnecessary. The account number was necessarily assigned by the brokerage itself, and the preparation and issuing of other account papers took place internally as well. The husband and wife were offered and expressly declined new credit cards and cheques, which they did not need or want. There was nothing else for them to do to bring about the transfer of the account — it was all up to the brokerage.
56Does anything turn on the fact that neither the husband nor the wife pursued the completion of the transfer into joint names over the year leading up to their separation? The wife testified she did not know it had not been carried out and was surprised to discover that fact. The husband, who looked after the family finances, did not take any action either to have the transfer completed or to have the documents destroyed or cancelled. But he had already done everything the brokerage required of him. In a case like this, equity deems him to be holding the legal title of the account in trust for the joint beneficial owners: Hayton, David J., Underhill and Hayton: Law Relating to Trusts and Trustees, 15th ed. (1995), 130-135.
57I find that the requirement of delivery of the gift was satisfied as soon as the husband signed the form with the wife.
TRACING THE FUNDS IN THE ACCOUNT
Importance of the issue
58In light of my conclusion on the issue of an intended gift of an immediate joint interest to the wife in the investment account, it might be said that the tracing issue does not arise. However, counsel took some pains to present the evidence on this issue and, in case this decision is reviewed by a higher court, I ought to proceed with my analysis of the facts and law. I am also told by counsel that the method of tracing in these circumstances has not been dealt with in a recent family law case, and indeed I have not found any.
Facts
59It was conceded by the husband that he was unable to trace specific mutual fund sales and purchases all the way from the initial purchases when the account was opened down to the separation. The husband was able to provide a summary (exhibit 6) of the monthly statements from the brokerage showing transactions in the investment account and provided the statements themselves for some of the key months, namely: February, 1994, the month when the account was opened in the joint names of the husband and Henry Barron, the proceeds of Henry Barron's account at his previous brokerage were paid into the new account and the initial purchases of mutual funds were made; June, 1996, the month the husband and the wife signed the joint account agreement discussed above and the month ending just a few days before the husband deposited $150,000 (from a mortgage loan) into the account; and June, 1997, the month the spouses separated.
60The account balance was generally declining from its opening until July, 1996, as the spouses (and Ashley) were living off the income and, because the income was not sufficient, they were eating into the capital. Because of this, the husband took out a mortgage and placed the $150,000 mortgage proceeds in the investment account on July 3, 1996 in an effort to generate greater income.
61The husband also provided a summary of the number of units of specific funds that he owned at particular times (exhibit 5). It tracked the number of units of four particular mutual funds over the three key months of February, 1994, June, 1996 and June, 1997.
Legal issues
62At issue here is an attempt by the husband to exclude part of the investment account from the net family property equalization to be carried out under the Family Law Act. The initial contribution to the account was by way of gift. The following are the governing provisions of section 4:
4(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse's net family property:
Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
(3) The onus of proving ... an exclusion under subsection (2) is on the person claiming it.
63As the husband conceded that he could not trace individual purchases and sales of mutual fund units from the date the account was opened until the date of separation or the application of the different sources of funds to purchases, there is a need to consider how the tracing provisions of the Family Law Act apply to this case.
64Tracing is a remedy invented by equity to deal with the wrongful disposition of trust property. Its application in this case results from the use of the word "traced" in par. 5 of subs. 4(2) of the Family Law Act, which has been interpreted by the cases, rightly in my respectful view, as a borrowing of as much of the equitable law of tracing as will comfortably fit in the context of an equalization of the spouses' net family properties.
65Spouses are not usually trustees for each other in their dealings with property during the marriage (although in this case I have decided that the husband was a trustee of the legal title to the investment account for himself and his wife jointly). Their dispositions of property generally within a marriage, and the dispositions in this case in particular, are not wrongful appropriations of trust funds. Tracing is a fault-based concept applied after the fact in family law to a series of transactions that were never wrongful and have not become so by reason of the separation of the spouses. The tracing concept was adopted because the Family Law Act property scheme has a bias in favour of sharing the value of assets in existence at the separation date and a bias against the exclusion of assets from the equalization calculation. Hence the onus on the spouse seeking to exclude assets, and hence the requirement that the spouse seeking to exclude a gift received during the marriage be able to trace it from its original form into assets in existence at the separation.
66Counsel also put before me the cases of Allgeier v. Allgeier (1996), 1996 19720 (ON SC), 26 R.F.L. (4th) 65 (Ont. Ct. (Gen. Div.)), and Rosenthal v. Rosenthal (1986), 1986 6320 (ON SC), 3 R.F.L. (3d) 126 (Ont. H.C.J.), on the issue of whether tracing has to be done forward from the original gift (Rosenthal) or can be done backward from the separation to the date of the gift (Allgeier). The statutory language (subs. 4(2)) and the law of equity generally establish, as Rosenthal points out, that one must start at the original gift and follow the transactions forward from there.
67I think the husband has discharged the onus on him to trace the gift from Henry Barron by showing the monthly transactions in the account from its opening to the date of separation. Fortunately for him, there were only two, readily identifiable, capital injections into the account: the original gift from Henry Barron together with the money borrowed when the account was set up; and the $150,000 mortgage proceeds added in July, 1996. The identification of securities bought and sold each month is possible through the statements, though specific shares or units are not identifiable by a certificate number. I do not think it is necessary to count the number of units of specific funds and demonstrate that the number never sank below a given level, as the husband's lawyer attempted to do. The account statements are a sufficient record of the continuity of the account itself and the transactions in it to satisfy the tracing requirements of subs. 4(2). The real issue is how the sources of funds translate into excluded and not excluded portions of the account as of the separation date, taking the issue of interest and dividends into account.
68The wife's counsel sought to rely on the venerable rule in Devaynes v. Noble; Claytons Case (1816), 1 Mer. 572, 35 E.R. 781 (Ch.), which adopts the principle of first in, first out for tracing money deposited to and withdrawn from an account. In other words, the first money put into the investment account, the gift from Henry Barron, would be deemed to be the first money withdrawn and used up for the family's living expenses, payments on loans against the securities in the account and any other charges against the account. The net result would be no exclusion for the husband, as all of the original gift money would have been used up.
69The husband's lawyer countered with an argument for a pro rata allocation of the withdrawals and charges as between the original gift and the subsequent deposits, most notably the $150,000 mortgage funds from July, 1996. He relied on Re Ontario Securities Commission and Greymac Credit Corp. (1986), 1986 2693 (ON CA), 55 O.R. (2d) 673, 30 D.L.R. (4th) 1 (C.A.); affirmed 1988 56 (SCC), [1988] 2 S.C.R. 172, 52 D.L.R. (4th) 767. That case went to some lengths to confine the application of the old rule in Clayton's Case. The rule was strongly criticized by both the trial judge and the Court of Appeal as being a legal fiction that did not accord with people's sense of what is right or sensible, except possibly in a dispute between a bank and its customer, which was the fact situation at issue in Clayton's Case. Ontario v. Greymac involved unauthorized withdrawals by a trustee from a mixed trust fund that belonged to two beneficiaries. In a very strong and carefully reasoned decision by Morden J.A., the Court of Appeal concluded that the rule in Clayton's Case was not to be applied in a contest between two equal beneficiaries of a trust fund and that a pro rata approach was to be adopted. The appeal from this decision to the Supreme Court was dismissed from the bench without calling on the respondent.
70If Ontario v. Greymac represents the law of tracing generally in trust cases, on the basis that a pro rata approach is more sensible and just, it must also be the law for family law cases where tracing is to be carried out under subs. 4(2) of the Family Law Act. There is no reason to resort to the old legal fiction in these circumstances, even though the Family Law Act has a bias against exclusions. Once an exclusion for gift property is established, the amount of the exclusion should be calculated in accordance with the new rule as set out in Ontario v. Greymac. Mittler v. Mittler (1988), 1988 8645 (ON SC), 17 R.F.L. (3d) 113 (Ont. H.C.J.), must be taken to have been overruled on this point.
Applying the pro rata method in this case
71Immediately after the account was set up in March, 1994, the securities in it were valued at $210,635 but the net value after deducting the balance of the loan used to purchase the securities was $140,378. The net equity, all of which came from the Barron gift to the husband, represented 69.28% of the securities. The total value of the account declined steadily each month (with minor exceptions) to $132,867 at the end of June, 1996, of which the net equity was $68,440 or only 51.51%. The loan balance had also fluctuated from $70,257 in March, 1994, to a maximum of $97,299 in June, 1995, and then to a low of $64,427 in June, 1996. The loan balance declined overall by 9.04%. The net equity declined by 105.11%.
72The account was credited with interest and dividends over the years, some of which were attributable to the original capital and some of which resulted notionally from the injection of loan funds, but none of the interest and dividends is entitled to be excluded from the equalization calculation under subs. 4(2) par. 2, because there was no express statement by Henry Barron that the income from his gift was to be excluded. In any event, the interest and dividend credits were in fact used up, as shown by the sharply declining net equity position with only a minimal decline in the loan. I realize that this is a last in, first out accounting of the dividends and interest, but this makes sense — the husband, the wife and their broker intended the capital to be maintained as much as possible in order to generate future income. A deliberate choice was made to spend the interest and dividends and not pay the loan off. I think that I should give effect to actual intent to allocate the interest for daily living expenses, rather than rely on a presumption or a legal fiction.
73The husband's lawyer tried to persuade me that the pro rata approach means that, in this case, the husband's exclusion for the Barron gift is fixed at 69.28% of the securities in the account, as the original gift money represented 69.28% of the original account value. By his calculation, the husband would be entitled to an exclusion of $85,362 as of the separation date. However, the actual picture by June, 1996 was very different — the net asset was much less than that amount. I see no reason why I should not look at the reality in June, 1996, when the net value of the asset had declined to its lowest point. As the wife's lawyer said, the husband cannot exclude an amount greater than what he actually had at any given point. See also Fridman, G.H.L., Restitution (2nd ed.), 433, and James Roscoe (Bolton) Ltd. v. Winder, [1915] 1 Ch. 62. So the exclusion as of June 30, 1996 was $68,440.
74In July, 1996, the account was increased by the mortgage loan proceeds of $150,000. The account records show the capital injection on July 3, so the June 30 statement (which is only two business days away from the mortgage loan date) should be used for calculation purposes. The account then consisted of a net position of $68,440 and the $150,000 in new mortgage funds was immediately used for a securities purchase in the same amount. On the investment account statements, the mortgage funds are shown as part of the owner's equity in the account. Thus of the total securities in the account of $282,867, the net equity of $68,440 apart from the mortgage funds represented 24.20% and the mortgage funds of $150,000 represented 53.02%, with the balance of 22.78% being the loan advances within the investment account. The ratio of net equity to mortgage funds was 24.20:53.02 or, in other words, the total "equity" portion of the account was 31.34% from the Barron gift and 68.66% from the mortgage loan.
75By June 30, 1997, the total account had risen and then declined in value to $248,279; the total equity (including the mortgage loan proceeds) had declined to $131,148. The loan balance on the account had increased substantially, from $74,172 to $117,131, using up all the interest and dividend income on the securities and more. In my view the application of the pro rata principle from Ontario v. Greymac calls for the $131,148 account balance net of the loan to be apportioned between the Barron gift and the mortgage funds on the basis that 31.34% of it, or $41,101.78, is traceable from the Henry Barron gift. That is the amount of the exclusion to which the husband would be entitled, if the account were not jointly owned by the spouses.
76A final note on the exclusion of the traced gift from Henry Barron. If the account was jointly owned, counsel were agreed that, on the authority of Colletta v. Colletta (1993), 1993 16125 (ON CA), 50 R.F.L. (3d) 1 (Ont. C.A.), the husband's exclusion would be half the amount he would have been able to exclude if the account was his alone. In this case, the exclusion on the basis of my finding of joint ownership would be $20,550.89.
EXCLUSION OF THE BOAT
Facts
77The husband bought a boat in 1994 for $34,000, of which he borrowed the sum of $20,000 from Henry Barron. When Henry Barron died in 1995, the loan was forgiven. The boat was worth $25,000 at the separation date, as it was sold for that price shortly after the separation.
Legal issue
78The husband seeks to exclude 20/34 of the boat's $25,000 value because the money used to buy it was, in his submission, a gift. The difficulty with this is that at the time the husband acquired the asset, the money was not a gift, it was a loan. When the loan was forgiven the following year, it reduced the husband's indebtedness and increased his net worth, but the gift did not go towards any particular asset's acquisition. In order to trace the gift into an asset at the time of separation, the husband must show that the money found its way into that asset, but the husband already owned the boat — both legal and equitable title, free of any charge in favour of Henry Barron — before he received the gift.
79Rosenthal v. Rosenthal (1986), 1986 6320 (ON SC), 3 R.F.L. (3d) 126 (Ont. H.C.J.), is a similar case, and I agree with its conclusion that the nature of the transaction is established when the asset is acquired and that it is not open to the husband to trace an asset back to a gift, rather than trace a gift forward into an asset. The husband acquired the boat by purchase with borrowed money, not by gift, and is not entitled to exclude any of its value.
THE "ASHLEY RECEIVABLE"
Facts
80On October 20, 1994, Henry Barron, the husband and the wife signed a trust agreement. Under it, Henry Barron transferred 42 Lakeside to the husband in trust, while retaining a life interest. The ultimate trust beneficiary is the husband's son Ashley, on his attaining age 30. The husband is required to sell the property "as soon as practical", but as of the trial date that had not happened. He is entitled "to recover from the sale proceeds any costs he has incurred from the date of the transfer related to maintaining these lands and tax payments made". He testified that he had been paying for the maintenance of 42 Lakeside, to the extent of $15,746.36 (I am not sure whether this was as of the separation or as of the trial date), out of the capital of the investment account. He said that after the interest on the account is used to pay for 44 Lakeside, there was nothing left for 42.
Legal issue
81The husband's counsel submitted that the money owing to the husband, the "Ashley receivable" as it was called, was an excluded asset because it could be traced from the also excluded gift from Henry Barron that was the original funding of the investment account. The only money the spouses ever had, he said, came from the Henry Barron gift, the interest and dividends that came from it and the money borrowed for and put into the investment account. They used all the interest to live on — a submission with which I agree — and so none of the money spent on 42 Lakeside and due to the husband as the Ashley receivable came from the interest. Accordingly, the husband's counsel said that the Ashley receivable as of the separation date should be excluded to the same extent as the investment account itself.
82The wife's counsel said that there was no evidence of what investments were sold off to fund the maintenance of 42 Lakeside and thus no evidence permitting the husband to trace any gift money into the Ashley receivable.
83As I said above, the individual assets in the investment account need not be traced with any degree of detail, so long as the history and continuity of the account as a whole are proved. It has also been established that, as the husband's lawyer submitted, these people never had any money other than what went into and came out of the investment account. Just as in the case of the investment account, I find that the husband is entitled to exclude the Ashley receivable as of the separation date to the extent of 31.34%, less half in recognition of the fact that the money spent on 42 Lakeside belonged to the husband and the wife equally.
PREJUDGMENT INTEREST
84There are only two major assets available to the husband to satisfy the wife's property claims in this case, the investment account, which is (as I have found) joint property, and the matrimonial home, which has been on the market for a long time. The husband has already made an advance payment on account of the equalization in this case as well. In these circumstances, and in view of the issues the husband has raised, quite reasonably, about the wife's entitlements, this is not a case for prejudgment interest on the equalization payment.
COSTS AND OTHER ISSUES
85The wife has had substantial success on her claims, though the husband has achieved some relief in relation to his two exclusion claims. This appears to be a case where party-and-party costs should be awarded to the wife, unless there are offers of which I am not aware. I may be spoken to about costs on any case conference day.
86If there are other outstanding issues that require attention in light of this decision, I may be spoken to on a case conference day.
87Order accordingly.
