Court of Appeal for Ontario
Date: 2024-02-27 Docket: COA-23-CV-0349
MacPherson, Miller and Paciocco JJ.A.
Between
Luigi Falsetto Applicant (Appellant)
and
Paula Falsetto Respondent (Respondent)
Counsel: Geoffrey Cullwick, for the appellant David Cutler, for the respondent
Heard: January 24, 2024
On appeal from the judgment of Justice Robyn M. Ryan Bell of the Superior Court of Justice, dated February 24, 2023, with reasons reported at 2023 ONSC 1351.
B.W. Miller J.A.:
Overview
[1] The appellant, Luigi Falsetto, is the former father-in-law of the respondent, Paula Falsetto. [1] Paula and Luigi’s son, Albert, are registered on the title of a property located at 415 Lisgar Street (“415 Lisgar”). Luigi is not. Luigi advanced half the purchase money for the property, has borne half of its expenses, and has received half of its incomes. Paula and Albert have separated. Luigi now claims a purchase money resulting trust in 415 Lisgar. The application judge rejected his claim, concluding that he intended to gift Paula her interest in the property.
[2] For the reasons that follow, I would allow the appeal. I would declare that Luigi has a 50 percent interest in 415 Lisgar and order that Paula’s interest vest in him.
(1) Facts
a. Luigi and Albert’s Real Estate Business
[3] Luigi and Albert have been engaged in the business of buying and redeveloping real estate together in the Ottawa area since around 1990. Many of their properties are located on Lisgar Street, and have been acquired with the intention that they will be redeveloped together. Legal title to these co-owned properties varies. Sometimes Albert is the sole owner registered on title, sometimes it is Luigi, and in some instances they have both been on title. Where title is not registered in both names, their practice has been to subject 50 percent of the legal title to a trust in favour of the unregistered party, making that party a beneficial co-owner. The beneficial ownership is not reflected on title but, in each instance, is documented in co-tenancy agreements executed in 2014 and 2019.
b. The Acquisition and Management of 415 Lisgar
[4] In 2011, Albert became aware that a property located at 415 Lisgar was for sale. Albert discussed a potential purchase with Luigi, and they decided they would make an offer to purchase the property. Albert handled the negotiations, and reached an agreement to purchase the property for $395,000. Albert was listed as the sole purchaser in the agreement for purchase and sale. He obtained mortgage financing from CIBC.
[5] Before the transaction closed, Albert’s and Luigi’s solicitor advised Albert that there would be an adverse consequence to Albert being the sole purchaser. Albert already held legal and beneficial title – outside of the auspices of Luigi and Albert’s business – to a property that was adjacent to 415 Lisgar, at 274 Nepean Street (“274 Nepean”). Due to the operation of the Planning Act, R.S.O. 1990, c. P.13, the consequence of Albert taking sole title of 415 Lisgar would be a merger of the titles of 415 Lisgar and 274 Nepean, such that the two properties would become one parcel of land. Luigi and Albert did not want to merge the title of the two properties.
[6] Their solicitor suggested that Luigi be added to the title to 415 Lisgar, which would prevent titles from merging. They accepted this advice, which also necessitated adding Luigi to the mortgage with CIBC. Six days before closing, the bank advised Luigi and Albert that there was insufficient time to approve Luigi under the mortgage. To save the transaction, Albert and Luigi decided that Albert’s wife, Paula, should take Luigi’s intended place on title instead. Luigi left it with Albert to arrange for Paula to sign the closing documents. Luigi and Paula never discussed the transaction.
[7] The transaction closed as planned on November 21, 2011. Luigi and Albert paid the down payment, land transfer tax, and other closing costs in equal shares. Paula made no financial contribution to the purchase. Title was taken jointly by Albert and Paula, and they were named as co-mortgagors.
[8] The property was subsequently rented out to tenants. All income has been paid to Luigi and Albert. Luigi and Albert continue to pay all expenses related to the property, including property management costs, property taxes, insurance fees, and mortgage payments. Paula has not made any financial or other contributions to the property. She has never contributed to the mortgage.
[9] In 2019, Albert and Luigi’s accountants informed them that since 2011, 12 of the properties they co-owned were incorrectly listed on Albert’s tax returns as entirely owned by Albert, rather than 50 percent co-owned with Luigi. Accordingly, Albert paid tax on Luigi’s part of the rental income, as well as his own. That was rectified in 2019, and Albert’s and Luigi’s tax returns were amended. Paula never declared income or expenses from 415 Lisgar on her tax returns.
[10] In 2020, Albert and Paula separated. Paula asserted a 50 percent interest in 415 Lisgar, pursuant to her being a signatory to the mortgage agreement and being registered on title as a co-owner. Luigi brought an application seeking a declaration that Paula held legal title to 415 Lisgar in trust for him as a beneficial co-owner with Albert.
(2) The Reasons Below
[11] The application was dismissed. The application judge found that Luigi advanced the purchase funds with the intention of making a gift to Paula of the 50 percent interest in 415 Lisgar. She rejected Luigi’s evidence that his intention was that Paula would take legal title only because the bank was unable to approve Luigi as mortgagor before the transaction closed. She likewise rejected the submission that Luigi advanced the funds – and continued to pay the mortgage – as the beneficial owner of the 50 percent interest registered on title to Paula.
[12] The application judge accepted the evidence of Luigi and Albert that the reason Paula was put on title was to prevent title in the two properties merging to form a single parcel of land. She concluded that this intention to prevent merger of title was inconsistent with a purchase money resulting trust, and was consistent with a gift.
[13] The inconsistency arose, the application judge held, because if Luigi retained a beneficial interest in 415 Lisgar, the Planning Act would operate such that the titles to 415 Lisgar and 274 Nepean would merge. In her view, Luigi and Albert’s plan could only work if Paula took both legal and beneficial title.
[14] Without explanation, the application judge concluded that the evidence that Luigi paid the mortgage, operated the property, and received income from the property did “not assist” in determining whether, at the time of the purchase, he intended the property to be a gift. On the other hand, she found that the facts that Albert and Paula remained on title together for 10 years and that Luigi’s tax returns for a number of years did not claim an ownership interest in the property were consistent with Luigi having intended at the time of the purchase to pass the beneficial interest to Paula.
[15] The application judge further reasoned that “a party cannot achieve one result for the purpose of avoiding a legal consequence prescribed by statute – in this case, the Planning Act – and achieve an opposite result for other purposes.” If Luigi intended to pass beneficial ownership to Paula to avoid a legal consequence under the Planning Act, no resulting trust could arise.
(3) Analysis
[16] Luigi argues that in rejecting his assertion of a purchase money resulting trust, the application judge made multiple errors of fact and law. As explained below, I agree and would allow the appeal. I have read my colleague’s dissenting reasons. With respect, they do not engage with the arguments advanced on appeal.
[17] The application judge correctly stated the general legal principles applicable to the dispute: for most categories of relationships, including the one involved here, there is a rebuttable presumption of a resulting trust where one party makes a transfer of property to another for no consideration: Pecore v. Pecore, 2007 SCC 17, [2007] 2 S.C.R. 795, at para. 24. A purchase money resulting trust is a type of resulting trust. It arises “when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property”: Nishi v. Rascal Trucking Ltd., 2013 SCC 33, [2013] 2 S.C.R. 438, at para. 1. Where the person taking title is not the minor child of the person advancing the funds, there is a presumption that “the parties intended for the person who advanced the funds to hold a beneficial interest in the property in proportion to that person’s contribution”: Nishi, at para. 1.
[18] Paula argued on appeal that having a third party take title to avoid merger under the Planning Act is a bar to relying on the presumption of resulting trust. This proposition is not supported by the case law and is inconsistent with general principles. Where a resulting trust is presumed, the onus is on a party seeking to rebut that presumption to establish that the purchaser intended to make a gift: Lattimer v. Lattimer, (1978), 18 O.R. (2d) 375, at p. 378 (H.C.). This is not a matter of constructive or deemed intention, but of establishing actual intention, requiring a case-by-case evaluation of the evidence to ascertain the gratuitous transferor’s actual intention on the balance of probabilities: Schwartz v. Schwartz, 2012 ONCA 239, 349 D.L.R. (4th) 326, at paras. 42-43. The intention to avoid merger does not necessarily entail the intention to make a gift.
[19] The presumption of resulting trust would seem obviously to apply to the purchase of the half interest in 415 Lisgar, for which Luigi supplied half the down payment and the closing costs. The application judge, however, found that Luigi must have advanced the funds with the intention of making a gift to Paula, because there was no other way to avoid the operation of the Planning Act, and avoiding the operation of the Planning Act was Luigi’s sole purpose. [2]
[20] There are several problems with the application judge’s chain of reasoning.
[21] First, the application judge’s characterization of Luigi’s intention is incomplete. What is left inexplicably in shadow is that Luigi’s purpose in participating in the transaction was to purchase 415 Lisgar as an investment property – to become its co-owner in a joint business venture with Albert. Luigi always intended to – and did – earn income from the property.
[22] There is an overwhelming amount of evidence in support of Luigi’s testimony in this regard. This includes all of the evidence of his history of similar business transactions with Albert, his advancement of the purchase money and closing costs, his post-purchase management and renting out of the property, and his eventual payment of a share of the property taxes. This evidence all tends to affirm the presumption of resulting trust: Nishi, at paras. 1-2; Andrade v. Andrade, 2016 ONCA 368, 131 O.R. (3d) 532, at paras. 64, 78-81. The application judge erred in concluding that this evidence did not assist in discerning whether Luigi intended to retain a beneficial interest rather than provide Paula with a gift. Luigi’s history of dealing with the property – including his on-going payment of expenses – would have made a gift that much more extravagant and that much less likely.
[23] Luigi’s intention with respect to the mode of purchase is another matter. He intended to purchase 415 Lisgar and – on his evidence – he intended to do so in a manner that did not trigger adverse Planning Act consequences. At first, he intended to accomplish this by registering himself on title as co-owner. When that option became impossible – due to financing considerations – he and Albert instead decided that Paula would take title to a 50 percent interest, subject to a trust in favour of Luigi.
[24] The application judge rejected Luigi’s evidence that he advanced the funds so as to obtain a beneficial interest in the property. But why? Because, she reasoned, this plan of action could not achieve the end that Luigi sought, an end she mischaracterized as avoiding the operation of the Planning Act. Here, for his actual end – of purchasing the property as co-owner for investment purposes – the application judge substituted the means he chose to achieve that end.
[25] The application judge’s conclusion – and the respondent’s argument - rests on the single case of Holtby v. Draper, 2017 ONCA 932, 138 O.R. (3d) 481. The respondent contends that Holtby provides a complete answer to Luigi’s application. But it does not.
[26] The facts in Holtby were in some ways similar to the instant case, but significantly more complicated. The saliant facts were these. Mr. Holtby co‑owned a parcel of land with his first wife. They were registered as joint tenants. Mr. Holtby owned an adjacent property registered solely in his name. After the dissolution of his first marriage, he married Ms. Draper. His first wife’s half-interest in the matrimonial home was transferred to Ms. Draper and they were registered as joint tenants. On the dissolution of that marriage, Mr. Holtby claimed that Ms. Draper held title to the half-interest as trustee for Mr. Holtby, who was the beneficial owner. The court disagreed, concluding that in all the circumstances, Mr. Holtby’s intention was that Ms. Draper hold title as joint tenant and not subject to a resulting trust. Among the reasons for this conclusion were the facts that in Holtby the presumption of advancement applied, Ms. Draper had contributed to the mortgage, and that, “[t]o achieve the intended goal under the Planning Act, it was necessary for the beneficial ownership of [the adjoining lot] to be different from the beneficial ownership of the farm property”: Holtby, at para. 69. Contrary to the respondent’s reading, Holtby did not hold that achieving the Planning Act goal was decisive in determining the transferor’s intention. The court simply considered it as one factor “consistent with the presumption of joint ownership [that] in no way refute[d] it”: Holtby, at para. 69.
[27] This case is materially different than Holtby, but the ultimate question is the same: what was the transferor’s intent at the time of the conveyance? Did Luigi intend to retain a beneficial interest in 415 Lisgar, as we are to presume, or did he intend to give Paula a gift? The application judge held that Luigi intended to give Paula a gift because he wanted to avoid merger and, on the application judge’s reading of the law, avoiding merger required that he give her beneficial ownership in order to achieve that end. But on Luigi’s evidence: (1) the end he was trying to achieve was to purchase 415 Lisgar as an investment property; (2) in so doing he wanted to avoid merging the title with 274 Nepean; and (3) he thought he could achieve this through having Paula take legal title while he retained the beneficial interest. The application judge rejected his evidence on the basis that because the plan could not have worked it therefore could not have been intended.
[28] The application judge found that her conclusion was bolstered by various decisions of this court which addressed the effect of conveyances of property undertaken to avoid creditors or the imposition of probate fees. She concluded that “a party cannot achieve one result for the purpose of avoiding a legal consequence prescribed by statute – in this case the Planning Act – and achieve the opposite result for other purposes.” This, of course, is a factor for consideration in determining what the transferor’s intention was. But on the evidence, Luigi’s intention in avoiding the consequences of the Planning Act – whether it was effective or not – was fully aligned with his intention in retaining beneficial title. The application judge’s conclusion does not follow.
[29] In sum, the application judge erred in making the presumed operation of the Planning Act determinative of the question of whether Luigi intended to make a gift of the purchase money or retain a beneficial interest in the property.
[30] To address one final argument raised by the respondent, I do not find it significant that after the transaction closed, nothing was ever done to transfer Paula’s legal interest to Luigi, and do not find that this supports the conclusion that Luigi’s intent was to make a gift. What would the point of such a transaction have been? The property had been purchased. Income was received. Expenses were paid. The state of affairs was entirely satisfactory to Luigi. There was no apparent reason for anyone to incur additional transaction costs – including land transfer tax – for no perceived benefit.
DISPOSITION
[31] I would allow the appeal, and grant the declarations sought: that Luigi is the beneficial owner of a 50 percent interest in 415 Lisgar and an order vesting title of Paula’s interest in him. I would grant Luigi costs of the appeal in the amount of $20,000 as agreed between the parties. If the parties are unable to agree on a costs award for the proceedings below, they may make submissions in writing, limited to 5 pages each, to be received within two weeks of the issue of these reasons.
“B.W. Miller J.A.”
“I agree. David M. Paciocco J.A.”
MacPherson J.A. (dissenting):
[32] I have read the draft reasons prepared by my colleague. With respect, I do not agree with his analysis or proposed disposition of the appeal. In my view, the application judge wrote exemplary reasons and reached the correct result.
[33] There are four crucial factual points that ground the application judge’s legal analysis and conclusion.
[34] First, the sole reason for putting the respondent Paula Falsetto on title to the property at 415 Lisgar St. in Ottawa was to avoid a merger of title of it and the adjoining property at 274 Nepean St.
[35] Second, after the respondent was placed on title in 2011, she remained the co-owner with her husband for more than ten years. Neither her husband (now ex-husband) Albert nor her father in-law Luigi took any steps to change the formal ownership of the Lisgar property.
[36] Third, for at least eight of those years Luigi’s tax returns reflected no ownership interest in 415 Lisgar.
[37] Fourth, there was never any suggestion that Paula’s co-ownership of 415 Lisgar would be held by her for Luigi. There were no trust documents. There were never any discussions between Albert and Paula, or Luigi and Paula, about a trust.
[38] Against this backdrop, the application judge found:
On the whole of the evidence, I find that Luigi and Albert’s intentions were one and the same: to avoid merger under the Planning Act with a neighbouring property owned by Albert.
Albert’s evidence is that he discussed adding Paula to title with Luigi and they agreed that they were “stuck” and “had no choice because there wasn’t time enough to get [Luigi] approved.” The bank’s internal notes confirm that Paula was added to title to deal with the merger issue.
Luigi’s position, maintained throughout his cross‑examination, that he never intended Paula to be a “real” owner of 415 Lisgar, belies this evidence and the Planning Act goal.
… Paula and Albert have remained on title together for more than 10 years and Luigi’s tax returns for a number of years reflected no ownership interest in 415 Lisgar. Both of these facts are consistent with an intention by Luigi at the time of purchase to pass the beneficial interest to Paula.
The court’s decisions in Zacher v. Zacher, and Styres v. Martin support the conclusion that a party cannot achieve one result for the purpose of avoiding a legal consequence prescribed by statute – in this case, the Planning Act – and achieve an opposite result for other purposes.
In this case, I find that Luigi intended to pass beneficial ownership in 415 Lisgar to Paula in order to avoid a legal consequence under the Planning Act. Accordingly, no purchase money resulting trust arose in Luigi’s favour.
[39] In my view, this analysis and conclusion are, in a word, impeccable.
[40] My colleague says that “the application judge made multiple errors of fact and law.” In the face of the application judge’s comprehensive consideration of all of the relevant facts and her careful analysis and application of the relevant case law, especially the leading case Holtby v. Draper, 2017 ONCA 932, this criticism is exaggerated and unfair.
[41] In my view, the simple fact that governs this appeal is that for about ten years Albert and Luigi initiated, accepted, and did not challenge Paula’s crystal clear beneficial ownership, together with her husband, of the property at 415 Lisgar St. Luigi’s attempt, after his son’s marriage to Paula ended, to claim half ownership of a property that was never registered in his name and for which he reported nothing to the tax authorities for almost a decade, was, and still is, grossly unfair. Fortunately, the application judge saw this for what it was. I agree with her analysis and conclusion.
[42] I would dismiss the appeal. I would award the respondent her costs of the appeal fixed at $20,000 as agreed by the parties.
Released: February 27, 2024 “J.C.M.”
“J.C. MacPherson J.A.”
[1] As the application judge did below, I refer to the parties by their first names for clarity.
[2] We received no submissions on the operation of the Planning Act. In the absence of submissions, we express no view on whether Luigi and Albert would have either failed or succeeded in avoiding merger with respect to 415 Lisgar and any of their other properties given the manner in which they structured or contemplated structuring the legal and beneficial ownership of these properties.
