COURT FILE NO.: CV-21-00659674-0000 COURT FILE NO.: CV-21-00663558-0000 DATE: 20220210
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
ANTONIO ZAPPACOSTA and BERNADETTE ZAPPACOSTA Applicants
- and –
PHILIP ZAPPACOSTA Respondent
APPLICATION under rule 14.05 (3) (d) of the Rules of Civil Procedure, R.R.O.1990, Reg. 194 and sections 2 and 3 of the Partition Act, R.S.O. 1990, c. P.4
Wolfgang Kaufmann and Dina Peat for the Applicants John M. Picone for the Respondent
AND BETWEEN:
PHILIP ZAPPACOSTA Applicant
- and –
ANTONIO ZAPPACOSTA Respondent
APPLICATION under sections 2 and 3 of the Partition Act, R.S.O. 1990, c. P.4, and rules 14.05(2) and 66 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194
John M. Picone for the Applicant, Philip Zappacosta Wolfgang Kaufmann and Dina Peat for the Respondent Antonio Zappacosta
HEARD: January 21, 2022
PERELL, J.
REASONS FOR DECISION
A. Introduction and Overview
[1] In an application, pursuant to the [Partition Act],[^1] Antonio and Bernadette Zappacosta sue their son Philip Zappacosta. In a cross-application, pursuant to the Partition Act, Philip sues his parents.
[2] The family are litigating about who owns 619 Clinton St., a 3,300 square foot, two-unit house located in the Seaton Village neighbourhood in Toronto.
[3] In the application, the elder Zappacostas seek an Order that they are the beneficial owners of 619 Clinton St. The elder Zappacostas say that they sequentially purchased three homes for Philip to live in as his principal residence: (a) 69 Lynn Williams St.; (b) 181 Davenport Rd.; and, (c) 619 Clinton St. They say that by virtue of some combination of express, resulting, or constructive trusts, they were the owners of each of these properties. In asserting a 100% beneficial ownership, Antonio and Bernadette rely on an alleged oral and partially written expression of a trust and the doctrines of resulting trust and constructive trust to assert that they are the beneficial owners of 619 Clinton St.
[4] In the application, the elder Zappacostas seek an Order that Philip transfer his legal title to them in exchange for a payment of $368,079.52, less any costs incurred because of Philip’s breach of trust in failing to transfer the property upon demand. Alternatively, the elder Zappacostas seek partition and sale of 619 Clinton St. with the net proceeds being paid to them.
[5] Philip denies that there are resulting or constructive trusts. Philip’s counterargument is that he is the 100% beneficial owner of 619 Clinton St. and that he was the 100% beneficial owner of the two preceding purchases of properties. In making his counterargument, Philip relies on: (a) alleged monetary gifts from his parents; (b) the fact that the growth in equity from 69 Lynn Williams St. and 181 Davenport Rd. was rolled into 619 Clinton St.; (c) the fact that the title to the Clinton St. property is currently registered to Antonio and Philip with Antonio having a 1% legal interest and Philip Zappacosta having a 99% legal interest; and (d) the closing documents on the purchase of 619 Clinton St., including a written trust agreement where Antonio acknowledges that he is holding his 1% interest in the property in trust for Philip.
[6] In the cross-application, Philip seeks a declaration that he is the sole beneficial owner of 619 Clinton St. and an Order removing Antonio from the registered title to the property. In the alternative, Philip seeks an Order for the sale of the property with the net proceeds paid to him.
[7] To put it mildly, determining the ownership of 619 Clinton St. is complicated. The history of this family fight involves, among other things: (a) the family’s real estate investment strategy; (b) Philip’s role in the family’s clothing business; (c) the family’s concerns about preserving its wealth from any claim from Philip’s fiancée through a pre-nuptial agreement; (d) the elder Zappacostas’ estate planning; (e) the purchase and sale of the two properties where Philip lived before the acquisition of 619 Clinton St., where he now lives; (f) the details of the purchase of 619 Clinton St.; (g) Philip’s departure from the family businesses; and (h) the circumstances of Philip’s reneged promise to move out of 619 Clinton St. and transfer title of 619 Clinton St.
[8] Unravelling the facts is further complicated because there were only two witnesses that testified, and on important details, I did not find Philip’s and Antonio’s contested evidence plausible, reliable, or credible.
[9] Antonio and Philip both reconstructed the contested events in a self-serving way that told a story that was implausible and not supported by the documentary evidence. Antonio’s and Philip’s testimonies respectively were inconsistent and belied by adverse admissions that are found in the spotty and unfocussed documentary record that they respectively assembled for the application and for the cross-application. There are reasons for their disingenuous evidence. In addition to self-interest, it is apparent that the purchases of 69 Lynn Williams St., 181 Davenport Rd., and 619 Clinton St. were designed for tax avoidance purposes. Whether there was lawful tax avoidance or unlawful tax evasion, I cannot and need not say, but I can say that Philip and Antonio were not candid or forthcoming in their evidence about the details of a series of real estate investments. Moreover, there are numerous adverse inferences to be drawn by the absence of evidence of Bernadette, but the inferences are harmful to both Philip and Antonio. Assuming she told the truth, neither would have wanted Bernadette to testify.
[10] It is this complicated, acrimonious, and disingenuous, family history that has led to the application and the cross-application now before the court. My conclusion from the evidence is that 619 Clinton St. was purchased as an asset of a sort of partnership or joint venture of the Zappacosta family and that Antonio and Philip are 50:50 owners of 619 Clinton St.
[11] For the reasons that follow: (a) I declare that Antonio and Philip are 50:50 owners of 619 Clinton St.; (b) I order that 619 Clinton St. be sold pursuant to the Partition Act; (c) I order that if the parties cannot agree about the arrangements for a sale of 619 Clinton St., then the sale procedure shall be referred to an associate justice of this court; (d) I order that the proceeds of the sale of the property be paid into court; (e) I order that if the parties cannot agree about the taking of the accounts of income, occupation rent, and expenses with respect to 619 Clinton St. based on a 50:50 ownership, this accounting should be referred to the associate justice; (f) I order that after adjusting for the taking of accounts, the net proceeds of the sale should be divided 50:50 between the elder Zappacostas and Philip; and (g) I make no order as to costs of the Application and the Cross-Application.
B. Procedural and Evidentiary Background for the Application and the Cross-Application
[12] On April 20, 2021, pursuant to the Partition Act and rule 14.05(3)(d) of the Rules of Civil Procedure,[^2] Antonio and Bernadette Zappacosta commenced an application against Philip Zappacosta. Antonio and Bernadette Zappacosta supported their application with affidavits of Antonio Zappacosta dated April 20, 2021 and August 20, 2021.
[13] On June 10, 2021, Philip Zappacosta brought a cross-application against Antonio Zappacosta. Philip Zappacosta supported his cross-application and resisted the elder Zappacostas’ application with an affidavit dated June 10, 2021.
[14] On October 1, 2021, Philip was cross-examined.
[15] On October 28, 2021, Antonio was cross-examined.
[16] Bernadette Zappacosta, who has important and relevant evidence, did not testify.
[17] The family’s accountant and tax adviser, Wayne McDougall, who has important and relevant evidence, did not testify.
[18] Antonio’s business partners in his real estate dealings, who have important and relevant evidence, did not testify.
[19] Philip’s sister Leandra, who has important and relevant evidence, did not testify.
[20] Philip’s ex-fiancée, who has important and relevant evidence, did not testify.
[21] It is unfortunate that Terence S. Dineen, the family’s lawyer, passed away. He too would have been able to provide relevant important information about this nasty family dispute.
C. Facts
[22] Antonio Zappacosta is married to Bernadette Zappacosta. They have two adult children: Philip Zappacosta (age 35) and Leandra Zappacosta (age 31-32).
[23] Antonio and Bernadette were the owners of a now insolvent clothing store business in Toronto, that has operated, among other places, in the ritzy Yorkville Village retail area in Toronto. Antonio was the chief executive officer, and Bernadette was the chief financial officer of the family’s businesses.
[24] In addition to the retail clothing business, Antonio was an investor and dealer in real estate. This is evidenced by the email message, he sent to Philip and Leandra in 2013, where he proudly stated: “Just wanting to update on the success that we are having with our Realistate company. Please see below our recent transactions. We have now sold over 13 million dollars [of residential units for which they would be entitled to commissions]. I will be updating you on a regular basis so that you will be aware of all the business that our family is doing and sharing in.”
[25] Philip’s affidavit and his cross-examination chronicle his struggles to work his way up the ranks of his mother and father’s retail business and his ambitions to succeed his parents as the chief executive of the business. Much of this evidence is irrelevant to the matter of the ownership of 619 Clinton St.
[26] For present purposes, it is sufficient to say that in 2008, after graduating from McGill University, Philip returned to Toronto to work in the family’s retail clothing business. Initially, he lived at the family’s home. Between 2008 and until the end of 2019 when he left the clothing business, it was an ongoing struggle for Philip to wrestle control from his commanding parents and the struggle ultimately led to Philip giving up his efforts in the autumn of 2019 and withdrawing from the business as of the end of that year. The settling of accounts between the family members is the backdrop to the dispute about 619 Clinton St.
[27] The forefront of the dispute about 619 Clinton St. is the story of three successive purchases of property occupied by Philip beginning with 69 Lynn Williams St., followed by 181 Davenport Rd. and ending with 619 Clinton St.
[28] In 2013, Antonio and Bernadette decided to use Philip as an instrument in the family’s real estate ventures. For reasons that will shortly become apparent, it shall be important to keep in mind, as indicated by Antonio’s email message above, that the Zappacostas’ investing in real estate was a “family business” managed and directed by Antonio and with the “sharing” determined by Antonio and Bernadette.
[29] In late 2013, Philip signed an agreement to purchase a condominium unit at 69 Lynn Williams St. The purchase price was $423,900. The elder Zappacostas made the down payment of $63,585.00. The elder Zappacostas paid $85,335.16 for improvements to the property. They paid in total $148,920.16.
[30] In his affidavit and during his cross-examination, Philip testified that the $148,920.16 was a gift.
[31] In contrast, in his affidavit and during his cross-examination, Antonio deposed that the $148,920.16 was not a gift to Philip to purchase 69 Lynn Williams St. Antonio testified that the $148,920.16 was a loan to Philip so that Antonio and Bernadette would become the owners of the property, which was held in trust for them by Philip.
[32] At first blush, to those trained in the law, Antonio’s evidence is absolute legal nonsense. However, legal meaning can be given to it.
a. I find as a fact that Antonio’s evidence and the evidence that I will next describe prove that there was no gift to Philip.
b. I find as a fact that the $148,920.16 paid by the elder Zappacostas for 69 Lynn Williams St. was neither a gift nor a loan.
c. I find as a fact that the purchase of 69 Lynn Williams St. was a part of the family’s real estate enterprise, a sort of joint venture.
d. Antonio was using Philip’s purchase of 69 Lynn Williams St. as an investment of the family’s assets.
e. For family financial planning reasons, Antonio arranged to have Philip purchase 69 Lynn Williams St. as an investment for the family. It was in this sense that Antonio meant that he loaned the $148,920.16 to Philip and that Philip held the property in trust for the family enterprise.
f. As demonstrated by the correspondence amongst family members, Philip was made the title holder because Antonio and Bernadette wished to use the circumstance that there are tax exemptions for a person’s principal residence. Antonio and Bernadette did not want the family enterprise to be liable for income tax as a trader in real estate. The family had title registered in Philip’s name so that there would be no income tax or capital gains tax, given that 69 Lynn Williams St. would be Philip’s principal residence.
g. In effect, Antonio and Bernadette and Philip were joint venturers and the family business purchased 69 Lynn Williams St. for the purpose of the family enterprise. Philip would be responsible for the expenses of maintaining the property, including making the mortgage payments. In return, Philip would have a place to live. The joint venturers would settle up later to account for their respective contributions to maintaining the property and how future proceeds of sale of the property would be used.
[33] Thus, I find as a fact that the $148,920.16 paid by the elder Zappacostas for 69 Lynn Williams St. was neither a gift nor a loan. It was a family investment. And these findings will ultimately explain the legal nature of Antonio and Philip’s purchase of 619 Clinton St.
[34] These conclusions about the nature of the family’s dealings in real estate are supported by the following evidence, with some emphasis added to portions of the correspondence described below.
a. There is no documentation to prove a loan for 69 Lynn Williams St., not even a promissory note or an IOU.
b. There is no documentation to corroborate an express trust for 69 Lynn Williams St.
c. I believe Antonio’s evidence under cross-examination that he purchased 69 Lynn Williams St. for “family financial planning reasons.” Antonio explains the nature of the transaction in his answers to questions 457 and 458 of his cross-examination where he stated:
457 Q. You say that you lent Philip money to buy 69 Lynn Williams, right?
A. I say that this money is my money that went into Lynn Williams that he was holding in trust.
458 Q. He was holding the money in trust or the property in trust or both?
A. These were all my properties, okay? Philip was holding them in trust for the family estate.
d. I agree with Antonio’s evidence given under cross-examination that Philip’s subsequent conduct confirms that Philip understood that 69 Lynn Williams St. was some sort of family asset and not the sole property of Philip. Thus, I agree with the gist of Antonio’s answers to questions 404 and 405 of his cross examination where, referring to the Strategic Plan of September 12, 2017 prepared by Philip (of which more will be said below), Antonio answered as follows:
404 Q. And then in paragraph 12, when you talk about the sale of Lynn Williams, you say that the proceeds of sale were $228,362.24. Have I understood that correctly?
A. Yes.
405 Q. And it's your claim in this litigation that that money is yours not Philip's. Have I got that right?
A. Yes, actually, John, all of the money is ours because if you look at the Strategic Plan [of September 12, 2017] where Philip admits and is trying to negotiate with me in all these areas that he does not own the property. So, all of what he's got here as far as the affidavit is concerned, as far as I'm concerned, is all a bunch of BS because the actual facts are right here in these exhibits. […] the fact of the matter is he has explained and demonstrated and written and signed that he did not own these properties, and he does not own these properties. This is for estate planning for the family, and eventually, at the end of the day, they would have gotten it when we passed away. Unfortunately, Philip got greedy. He was upset that he didn't get the business, and that's why we've come to this here right now. Because it's really, really agitating to me because it's so evident to me that he does not own the property. These exhibits here are showing it.
e. The conduct of the parties and the exhibits reveal that the parties were engaged in ongoing bargaining about the distribution of the proceeds from the family’s investments in 69 Lynn Williams St., 181 Davenport Rd., and 619 Clinton St.
f. In January 29, 2020, when the family was embroiled in the dispute about the fate of 619 Clinton St., Philip sent an email message to Bernadette. In his message, he was attempting to justify - retroactively - receiving a gift for his parents’ contribution to the purchases of 69 Lynn Williams, 181 Davenport Rd., and 619 Clinton St. in consideration of his transferring title of 619 Clinton St. to his parents. Philip wrote:
Subject: Concluding our Real Estate Transaction
Dear Mom,
I am sorry that you’re feeling emotional and unable to meet in person to discuss this matter […] I am also sorry that dad is feeling emotional and been unable to meet for the past two months to discuss this matter. I am writing you this email to state that I am asking for a Deed of Gift in the amount of $490,865 CAD based solely on our Three Real Estate Transactions together. I have attached two documents to explain how I arrived at this amount. I am not moving out of 619 Clinton St. until we meet in person on February 15, 2020 […] As you know, I have spoken to our lawyer Terry, and he is aware that we are not on the same page and has advised to resolve this matter ourselves. […] I do not agree with the way you and dad conduct business and this is why I want to exit. […] I am counting on you to act reasonably so that I can accept my gift and be on my way in life. I look forward to scheduling a meeting to come to an agreement […] based on the contents of this email.
[First Attachment]
Discussion Points Property Equity Calculation
I am asking for a Deed of Gift in the amount of $490,865 CAD based solely on our Real Estate Transactions together.
Property 1 & 2
I paid for all the following carrying costs out of pocket on these two properties and therefore I did not include utilities, condo fees and Mortgage Interest payments on this spreadsheet. […] All Highlighted values were taken from documents.
Property 3
If we sell this property now, given the increases in the Toronto Real Estate market since the date of purchase, we are up by approximately 15% which equates to $331,000: I would be entitled to half this - $160,500. If we do not sell now, I am not getting any of the value on the Sale of this property to recuperate my costs and realize my gains on this investment, therefore, I should be reimbursed for my carrying costs. I was taxed at 43% for all of the rent collected. I would never have bought this property alone as a principal residence; this was decided on together at the time of purchase as an investment property for us.
NOTES
67 [sic] Lynn Williams – If I had paid rent for $700 to stay at home for 32 months. I would have saved $57,600: $2,500 (mortgage) – rent x 32. Hence I am owed 50% of profits gained from sale. We acted together under the premise that you were assisting me in getting started on my first property investment and as investment partners.
Benefits for Parents to work with Philip – Capital gains if you sold it as a second property – rent would have covered only 17K of equity. – I maintained it. – They made 20K less if they were to do this investment alone, but we saved 33K in taxes by doing it together.
[Second Attachment]
Strategic Plan for YFG [the retail clothing business]
- Philip will close on 181 Davenport, hold for minimum period of time and then sell. Upon sale of condo – financial remuneration of Sale price will be reconciled between Philip and Bernadette and Tony based on established percentages of ownership as follows:
a. Half the interest payments will be paid back to Philip from Bernadette and Tony as a lump sum – on 69 Lynn Williams, Suite 804 and on 181 Davenport, Suite 410.
b. Whatever Philip paid down in principal at 69 Lynn Williams, Suite 804, he will be paid back plus whatever it equates to as a percentage of the Sale Price. We will consider Philip’s profit from 69 Lynn Williams, suite 804 as an investment in 181 Davenport, suite 410 and its respective equity value at the time of the sale of 181 Davenport will be his percentage of the profits.
c. Profit at 181 Davenport Suite 410 will be calculated after Tony’s dollars in commissions is deducted.
The following signatures confirm the two parties are in agreement on terms and conditions in the document:
Philip Zappacosta, Chief Operating Officer – Tony Zappacosta, President and CEO
September 12, 2017
g. The second attachment in Philip’s January 29, 2020 email is the strategic plan of September 12, 2017, mentioned above. The strategic plan, which was signed by Philip and Antonio, confirms that 69 Lynn Williams St. and 181 Davenport Rd. were some sort of family asset, the ownership and accounting of contributions and profits of which were ongoing works in progress.
h. Philip followed up his email of January 29, 2020 with another email on February 19, 2020 to both parents. This message confirms that the purchases of 69 Lynn Williams St., 181 Davenport Rd., and 619 Clinton St. were all part of joint decisions about the family’s real estate investments. Philip’s email message of February 19, 2020 confirms that there was no gifting; rather, Philip wanted an after-the-fact deed of gift as consideration for the transfer of 619 Clinton St. failing which he demanded a sale with 50:50 distribution of the net proceeds of sale plus an accounting for his contributions to maintaining the property as a family investment. The email message stated:
Subject: Your Immediate Attention is Required: Concluding our Real Estate Transactions
Dear Mom and Dad,
It has been nearly a month since I sent you the details of the monies that are owed to me if you wish to assume full ownership of 619 Clinton St. and I have not received a response from you. It appears as though you do not have a viable plan of action that is mutually beneficial in regards to the next steps to take with my principal residence at 619 Clinton St. and the monies owed to me from our 2 previous real estate investments which were also my principal residences (as detailed in the attachments to this email: 69 Lynn Williams, Suite 804 & 181 Davenport, Suite 410). […] I require payment in full in 30 days on March 20, 2020 as an Irrevocable Inter Vivos Deed of Gift made payable to me personally in the amount of $490,865 initially detailed plus $4,967.77 (February 2020 mortgage payment) = $495,833 Canadian Dollars. In order to show good faith, I am requesting that you provide me with an LOI [letter of intent] by Registered Mail with both of your original signatures and two legal witnesses' original signatures confirming all the details of the gift by 5 PM on February 28, 2020 to 619 Clinton St. where I am currently dwelling. If you are unwilling to pay what is due to me as stated above and detailed in the attachments to this email with your available funds and assets then we will have to list 619 Clinton St. for sale immediately to capitalize on the Spring 2020 market. We will then divide up the capital gains 50/50 on this sale and split our initial equity invested into this property as detailed in the attachments to this email, all from the proceeds of the sale of 619 Clinton St. In addition, we will also conclude on your fair share on the carrying costs of the property that I have covered entirely since the purchase of this property and allocate it to me from the proceeds of the sale. […] Please note that the carrying costs for 619 Clinton that I have covered entirely out of my pocket since we purchased it include but are not limited to: all mortgage payments excluding solely January 2020, all Home Owners Insurance payments, all Toronto Utilities Bills, all Property Taxes, all Enbridge Gas Bills and all Toronto Hydro bills which I have brought to your attention on several occasions and you still have not responded despite your initial commitment to help with me the monthly carrying costs when we made the decision to purchase 619 Clinton. I am comfortable to go this route but please be advised that it will likely equate to more dollars owing to me than detailed here given the appreciation in the Toronto Real Estate market since we purchased the property. […]
i. In reaction to Philip’s email message of February 19, 2020 about settling accounts concerning the family’s real estate investments, Bernadette sent an email message to Wayne McDougall, the family’s accountant, the same day. The message reveals that Bernadette was disturbed by the aggressive position Philip was taking in settling the family’s joint venture in real estate. Her email message confirms the rolling forward of the family’s investments and that the family was organizing its purchases of real estate for tax planning purposes. Her email message to Mr. McDougall stated:
Subject: URGENT! Your Immediate Attention is Required: Concluding our Real Estate Transactions
Wayne,
We are needing your assistance here. Unfortunately, Philip has become very vindictive and aggressive regarding the property we put in his name to avoid capital gains from the initial purchase of 181 Davenport which we rolled into 619 Clinton. Philips original condo we provided the funds for funds for as well, 69 Lynn Williams will also be included. I am forwarding Philip’s demands and his accounting. He is obviously getting some external advice but as you can see his figures are missing all kinds of expenses that have come from Tony and I. We have done our own calculations that I will forward to you separately. I know you have just begun tax season and you are loaded but I really hope you can have a look at all of this by Saturday and give me a call. I will also forward to you the instructions we have sent to Terry Dineen who is fully aware of our financial situation and history with all these properties. I will send you a fair amount of back up like Statement of Adjustments etc. to aid in this so please look at everything. Philip has also collected all the rent for the basement apartment (that Tony and I paid for) since the first tenant which you put into Philip’s tax return last year. It has been rented continuously since. (Now Leandra is living in the apartment!) I can’t tell you how much I appreciate your attention to this and appreciate your confidentiality regarding this as well.
[35] Thus, based on my review of the testimony that I find to be plausible, credible, and reliable and based on the documentary evidence, I find as a fact that 69 Lynn Williams St. was purchased as a part of the Zappacosta family’s real estate investment planning in which Philip’s principal residence would be used as a means to fashion a more or less tax free investment, except where the purchased property earned rental income as was the case for 181 Davenport Rd. and 619 Clinton St. Philip’s acquisition of 69 Lynn Williams St. reveals the modus operandi for the Zappacosta family’s joint venture in real estate and was replicated for 181 Davenport Rd. and for 619 Clinton St. The investment plan was to flip the properties building up equity to reinvest in the rising Toronto residential real estate market.
[36] Philip lived at 69 Lynn Williams St. for approximately three years and in mid-2016, he sold the property. The sale netted proceeds of $228,362.24. These proceeds were paid to Antonio and Bernadette. Antonio deposes that this payment was to repay the amounts loaned by them to Philip to purchase 69 Lynn Williams St. Apart from the inconsistency that the purported loan was for $148,920.16 and the repayment was for $228,362.24, I find as a fact that the payment did repay the loan on 69 Williams St. because as I found, there was no loan. What there was, was the movement of family assets for family financial planning reasons.
[37] For his part, Philip says that the money from the sale of 69 Lynn Williams St. was paid to his parents as safekeeping because he was planning to live with his partner in a new residence, but they did not have a co-habitation agreement. Philip says the proceeds of sale from 69 Williams St. was his money because he had been gifted the purchase monies for 69 Lynn Williams St and had paid the mortgage. For the reasons already stated, I do not believe Philip’s evidence. The $228,362.24 was paid to his parents for safekeeping for the family’s next investment in real estate using Philip having a principal residence as a means to facilitate tax planning.
[38] The family’s next real estate investment had actually been in the works for some time. While Philip had been living at 69 Williams St., Antonio and two business partners had created 2308349 Ontario Limited to offer consulting services for the developer of a condominium project being constructed at 181 Davenport Rd. Antonio and his business partners purchased three units including suite 410, for which they were entitled to a consulting fee credit against the purchase price.
[39] Antonio decided to sell a unit at 181 Davenport to Philip as the next investment for the family. To implement this investment for the family enterprise, Antonio entered into an agreement of purchase and sale for suite 410. While Philip was living at 69 Lynn Williams St., Antonio paid the deposits for the unit at 181 Davenport Rd. Antonio paid the balance due on closing and had title registered in Philip’s name. The family used funds from the sale of 69 Lynn Williams St.
[40] Philip moved into 181 Davenport Rd., and he lived there with his companion, until he sold the unit and they moved into the Zappacosta family home pending the purchase of 619 Clinton St. On May 2, 2018, Philip sold 181 Davenport Rd. The family’s real estate lawyer, Terence Dineen, held the net sale proceeds of $923,500.83 in the firm’s trust account pending its use on the purchase of 619 Clinton St.
[41] I find as a fact that the purchase of 619 Clinton St. was part of the Zappacosta family’s dealing in real estate. On March 14, 2018, “Tony Zappacosta In Trust” entered into an agreement of purchase and sale to purchase 619 Clinton St. for a purchase price of $2,208,698 with a $200,000 deposit, with a scheduled closing date of June 1, 2018.
[42] The Clinton St. property was a 3,300 square foot three-storey, two-unit residence. The plan of the family was, once again, that they would exploit Philip having a principal residence status. The family was also planning their next real estate move. The plan was that the Clinton St. property would eventually become the principal residence of the elder Zappacostas and Philip would move to find another principal residence.
[43] The ultimate purchase price of 619 Clinton St. was $2,292,598.95. The purchase price was paid using the $923,500.83 from the sale of 181 Davenport plus $264,749.12 paid by the elder Zappacostas and the balance of $1,104,349 from first mortgage proceeds.
[44] In entering into the agreement “in trust,” Antonio’s design was to make Philip the notional owner of the property. As was the case with 69 Lynn Williams St. and 181 Davenport Rd., the plan was that Philip obtain a mortgage to finance the purchase. However, to obtain the first mortgage from the Royal Bank of Canada (“RBC”), it was necessary for Antonio to be a registered owner. Thus, before the closing of the transaction, Antonio agreed to go on title for a 1% interest to bind himself to Philip’s mortgage covenant. This agreement enabled Philip to obtain the mortgage loan. Before the closing of the transaction, Antonio signed a declaration that Philip was the beneficial owner of the 1% interest in the property. The registered title for the Clinton St. property indicates that Philip has a 99% interest and Antonio has a 1% interest. There is no written declaration that Philip was holding his 99% legal interest in trust for his parents.
[45] Philip relies on: (a) Antonio having signed the agreement of purchase and sale “in trust;” (b) the trust document signed by Antonio; and (c) the direction re title and various closing documents as evidence that he was the 100% beneficial owner of 619 Clinton St. All these documents and Philip and Antonio’s explanation of them is belied by the reality that the truth of the matter is that 619 Clinton St. was another real estate investment by the Zappacosta family with financial adjustments to be made later based on what the parties would agree was fair in the circumstances then exigent. The property itself was a family asset.
[46] Antonio deposed that Philip’s purchase of the Clinton St. property was pursuant to what he called the “Initial Deposit Agreement.” Antonio described the “Initial Deposit Agreement” as a savings plan for Philip for a house of his own that provided him with accommodation in a large modern home in a desirable Toronto neighbourhood and also a means to establish a credit history. Antonio deposed that the terms of the Initial Deposit Agreement were as follows:
a. Antonio and Bernadette would purchase the Clinton St. property and pay the purchase price by paying $1,104,349 and the closing costs of $90,298.79 with the balance of the purchase price paid by a first mortgage on the property that would be taken out by Philip.
b. Philip would hold the Clinton St. property in trust for Antonio and Bernadette and convey it to them at the end of the five-year mortgage.
c. Philip would live in the property and pay the carrying costs (mortgage, property taxes, maintenance) for five years. The carrying costs were estimated to be $6,000.
d. Philip was entitled to rent the basement apartment. The rent was estimated to be $4,000.
e. At the end of five years, Philip was to be paid a 1/3rd interest in the initial deposit of $1,104,349. (This interest was described by Antonio as a “contingent 1/3rd interest. It was calculated on the basis of being roughly equal to the $6,000 carrying costs.)
[47] Although, the Initial Deposit Agreement reflects the nature of the family’s modus operandi in real estate ventures, I find as fact that the Initial Deposit Agreement is an after-the-fact concoction of Antonio so that he could claim ownership of the Clinton St. property for the purposes of his Partition Act application.
[48] Antonio testified that the Initial Deposit Agreement was an oral agreement, but he deposed that on June 1, 2018, at the time of the closing of the Clinton St. property, he and Philip signed handwritten instructions that set out the terms of the Initial Deposit Agreement. The text of the handwritten instructions is as follows:
June 1, 2018
To: Terence S. Dineen
From: Tony Zappacosta & Philip Zappacosta
Re: Purchase of 619 Clinton St., Toronto, ON M6G 2Z8
Terry,
As you are aware we intend to do a “Trust Agreement” for the above-noted property. This agreement will be attached to the wills of Bernadette & Tony Zappacosta. This Trust Agreement will reflect the ownership of the noted property. This Agreement will also serve to balance the advance of money given to Philip with his sister Leandra Zappacosta in the event that this is not done prior to the settlement of Tony & Bernadette’s Last Wills & Testaments. The Trust will state: 619 Clinton St. – Ownership Philip Zappacosta 1/3, Tony Zappacosta (Bernadette) 2/3. The actual $ amount advanced is approximately 1/3 of the down payment of $1.1 million (actual amounts will be provided).
“Tony Zappacosta” “Philip Zappacosta”
[49] As is readily apparent, the handwritten instructions to Mr. Dineen do not remotely reflect the terms of the “Initial Deposit Agreement.” During his cross-examination, Antonio conceded that his evidence in his affidavit that the handwritten instructions were signed on June 1, 2018 was mistaken and that the truth was that it was signed on May 30, 2018 and dated for the closing. The cross-examination and that discordance between the oral “Initial Deposit Agreement” on this minor point demonstrates an instance of the unreliability and implausibility of Antonio’s evidence.
[50] On this point, I believe Philip’s evidence that the handwritten instructions were signed in August 2018 and backdated to June 1, 2018. It is with respect to other matters that Philip demonstrates the unreliability and implausibility of his evidence.
[51] What I find to be the truth is that that within weeks of the closing of the family’s acquisition of 619 Clinton St., Philip and his parents began discussions about the ultimate use to be made of 619 Clinton St. as the retirement home of the elder Zappacostas while providing a means for Philip to establish a family home of his own. It is quite possible that they discussed Philip living in 619 Clinton St. and then moving to another property but there was no Initial Deposit Agreement.
[52] In any event, the discussions between the family members continued from June 2018 and progressively deteriorated while Philip continued to live at 619 Clinton St. The discussions about 619 Clinton St. deteriorated because the fate of that property was intertwined with discussions about: (a) protecting any family wealth transferred to Philip from encroachment from an equalization payment should he marry or be exposed to financial responsibilities as a common-law spouse; (b) treating his sister fairly in the allocation of family wealth; and (c) resolving Philip’s ambitions to succeed his parents in the retail clothing business, which discussions became acrimonious.
[53] For present purposes, it is not necessary to detail the state of the familial and business relationship between Philip and his parents between June 2018 and April 2021 save to make the following findings of fact:
a. After the closing of the Clinton St. property, nothing came of the instructions given to Terence S. Dineen to draft a trust agreement.
b. After the closing of the Clinton St. property, Philip moved into the property. He continues to live there. The basement, which is two-bedroom unit with a separate entrance, was rented from July 2018 to June 2019 to Robert Levinson, who is a friend of Antonio. Then, the basement apartment was rented to Leandra until late July 2020. Philip re-leased the basement in late July 2020.
c. After the closing of the Clinton St. property, Philip received the rental income and paid the expenses for 619 Clinton St. including mortgage payments. I cannot make a precise determination of the financial incomings and outgoings for the property.
d. After the closing of the Clinton St. property, the elder Zappacostas paid as much as $180,632.49 for improvement to the property including renovations to the basement, kitchen, laundry rooms, and furnishings. However, I cannot make a precise determination of the sums they paid.
e. In the autumn of 2019, Philip announced that he planned to go his own way and no longer work at or for the family’s clothing business.
f. There is correspondence for the period after Philip announced his plans to depart the retail business. This correspondence reveals that there were ongoing negotiations about the fate of 619 Clinton St. It appears that the parties reached a tentative deal that Philip would move out and transfer title of the property to his parents and be paid what was characterized as a gift deed, the funds from which he could use to purchase a new principal residence.
g. In anticipation of moving into 619 Clinton St., Antonio and Bernadette made two lump sum payments towards the RBC mortgage in December 2019 and January 2020, totaling $331,304.00, to bring the mortgage balance down and reduce the penalty for early payment of the mortgage before the end of its five-year term. Philip submitted that these payments to reduce the mortgage were more gifts by his parents. Not true. The payments were made at a time when Antonio and Bernadette thought there was a deal that Philip would move out and they would move into 619 Clinton St. as their retirement home.
h. When Philip reneged on the tentative agreement and the furniture movers were called off, Antonio and Bernadette sued Philip and Philip sued Antonio.
D. Discussion and Analysis
[54] The parties bring competing Partition Act applications.
[55] Section 2 of the Partition Act states that a joint tenant or tenant in common may be compelled to make or suffer partition or sale. The general principles to determine when partition and sale should be granted were laid down in Davis v. Davis,[^3] where the Court of Appeal stated:
There continues to be a prima facie right of a joint tenant to partition of sale of lands. There is a corresponding obligation on a joint tenant to permit partition or sale, and finally the Court should compel such partition or sale if no sufficient reason appears why such an order should not be made.
[56] In cases after Davis, [^4] the Partition Act has been interpreted to mean that the court has a very limited discretion to refuse an application for partition or sale. Only in exceptional circumstances will a joint tenant or tenant in common be denied his or her request that the property be partitioned or sold. The court's discretion to refuse partition and sale is narrow, and there must be malicious, vexatious or oppressive conduct in relation to the request for partition or sale to justify the refusal to grant partition and sale, and specifically the reasonableness of the positions taken by the parties as they relate to the partition and sale.[^5]
[57] In Greenbanktree Power Corp. v. Coinamatic Canada Inc.,[^6] the Court of Appeal confirmed that the court's discretion to refuse to grant partition or sale is limited to circumstances of malice, oppression, and vexatious intent. The court stated that a narrow interpretation of the discretion makes commercial sense by enhancing predictability. However, the court added that hardship might rise to oppression. The case law shows that malicious, vexatious, or oppressive conduct that would bar a remedy is more than unreasonably refusing to accommodate the wishes of the other co-owner.[^7]
[58] The onus is on the party resisting partition or sale to demonstrate sufficient reasons for refusal.[^8]
[59] In the immediate case, the parties respectively are using their competing Partition Act applications to determine their ownership interests in the property. Both sides take the position that they are the 100% beneficial owners of the property.
[60] Based on my findings of fact, however, I find that the arrangement between the parties was in the nature of a joint venture between Antonio and Bernadette on the one side and Philip, and that 619 Clinton St. was an asset of this family enterprise that was to be divided 50:50 between the joint venturers.
[61] Antonio, Bernadette, and Philip are not lawyers and they did not document their transactions, but there were no gifts and no loans. The legal substance of each transaction was that the parents and their son together purchased property for the family’s trading in real estate business. The son contributed his status as having a principal residence and by taking out a mortgage on each property. The parents contributed purchase monies that were, along with the growth in the equity of the property, rolled forward into the next transaction.
[62] For 619 Clinton St. Antonio was a registered owner and liable under the mortgage taken out to finance the purchase of the property. The family’s money was used to pay a large portion of the purchase price and Antonio and Bernadette made substantial payments to pay down the mortgage on the property and increase the equity on the property. In all these circumstances, the allocation of ownership is 50:50 between Antonio and Philip for 619 Clinton Street.
[63] From a legal perspective, Philip’s 50% ownership interest can be explained as being the result of his own contribution to the purchase of the property by his taking out a mortgage with RBC. That ownership interest, however, is subject to a resulting trust recognizing the contribution made by the family business represented by Antonio and Bernadette.
[64] A resulting trust arises when title to a property is placed in a party's name, but that party gave no value for acquisition of the property.[^9] In Kerr v. Baranow,[^10] at para. 12, Justice Cromwell stated that it has been settled law since at least 1788 that the trust of a legal estate “results” to the person who advances the purchase money for a property. At paragraph 16 of his judgment for the Supreme Court of Canada, Justice Cromwell stated at para. 16:
- [I]t is widely accepted that the underlying notion of the resulting trust is that it is imposed "to return property to the person who gave it and is entitled to it beneficially, from someone else who has title to it. Thus, the beneficial interest 'results' (jumps back) to the true owner": [A. H. Oosterhoff, et al., Oosterhoff on Trusts: Text, Commentary and Materials, 7th ed. (Toronto: Carswell, 2009)], at p. 25. There is also widespread agreement that, traditionally, resulting trusts arose where there had been a gratuitous transfer. [...]
[65] In Hamilton v. Hamilton,[^11] at paragraph 39 of the judgment, the Ontario Court of Appeal described the presumption that there is a resulting trust when a person contributes to the purchase of property but places title in the name of another that does not contribute as follows:
- A presumption of a resulting trust arises in favour of persons who contribute financially to the purchase of property but do not take title in their own name, and do not intend to give a gift of the entire beneficial interest in the property to the registered or recorded title holder. Equity presumes that the non-titled party does not intend a gift when he contributes to the purchase price of a property. The non-titled party is treated as the equitable holder of the beneficial interest; the extent of his or her beneficial interest is proportionate to the financial contribution made to acquire the property. The presumption of a resulting trust is rebuttable on a showing by the title-holder that the non-titled party intended the title-holder to have the property for his or her own benefit. The presumption of a resulting trust is also rebuttable on a showing that the transfer to the titled party was not gratuitous.
[66] A resulting trust applies to contributions provided at the time of purchase and subsequent contributions may be taken into consideration in determining whether there is a constructive trust based on principles of unjust enrichment.[^12]
[67] The resulting trust can be rebutted by the title holder proving that the payment was a gift[^13] or a loan.[^14] The presumption of advancement (i.e., of a gift) by parents to adult children was abolished by the Supreme Court in Pecore v. Pecore.[^15] Thus, a gratuitous transfer by a parent to an adult child may trigger a resulting trust.
[68] In Kerr v. Baranow, the Supreme Court stated that where there is a gratuitous transfer, the actual intention of the transferor is the governing consideration.[^16] Whether a party has rebutted the presumption of a resulting trust by showing that intention of the transferor was to make a gift or a loan is a question of fact to be determined on the whole of the evidence.[^17] The onus of demonstrating that a gift or a loan was intended is on the person receiving the transfer.[^18]
[69] There is a rebuttable presumption of a resulting trust when a parent gratuitously transfers property to an adult child, and in considering whether the presumption is rebutted, the court may consider: (a) evidence of the transferor's intention after the transfer; (b) the wording of the transfer documents; (c) control and use of the property; (d) the terms of any power of attorney; and (e) the tax treatment of the property.[^19] The evidence necessary to rebut the presumption depends on the facts of the case and evidence of the parent's post-transfer conduct is admissible, so long as it is relevant to the parent's intention at the time of the transfer.[^20]
[70] In the immediate case, Antonio and Philip are registered owners of the legal title to the property and Antonio and Philip are both mortgagors registered on title. In the immediate case, there is a resulting trust that encumbers Philip’s interest in the property. Antonio and Philip are 50:50 owners of the property, and they each are entitled to partition and sale of the property.
E. Conclusion
[71] For the above reasons: (a) I declare that Antonio and Philip are 50:50 owners of 619 Clinton St.; (b) I order that 619 Clinton St. be sold pursuant to the Partition Act; (c) I order that if the parties cannot agree about the arrangements for a sale of 619 Clinton St., then the sale procedure shall be referred to an associate justice of this court; (d) I order that the proceeds of the sale of the property be paid into court; (e) I order that if the parties cannot agree about the taking of the accounts of income, occupation rent, and expenses with respect to 619 Clinton St. based on a 50:50 ownership, this accounting should be referred to the associate justice; (f) I order that after adjusting for the taking of accounts, the net proceeds of the sale should be divided 50:50 between the elder Zappacostas and Philip; and (g) I make no order as to costs of the Application and the Cross-Application.
Perell, J.
Released: February 10, 2022
[^1]: R.S.O. 1990, c. P.4. [^2]: R.R.O. 1990, Reg. 194. [^3]: 1953 148 (ON CA), [1954] O.R. 23 (C.A.). [^4]: Steele v. Doucet 2019 ONSC 544; Garfella Apartments Inc. v. Chouduri 2010 ONSC 3413, [2010] O.J. No. 2900 (Div. Ct.); Akman v. Burshtein, [2009] O.J. No. 1499 (S.C.J.); Osborne v. Myette, [2004] O.J. No. 3383 (S.C.J.); Latcham v. Latcham, 2002 44960 (ON CA), [2002] O.J. No. 2126 (C.A.), affg. [2001] O.J. No. 5291 (Div. Ct.); Gartree Investments Ltd. v. Cartree Enterprises Ltd. (2002) 2002 49640 (ON SC), 22 B.L.R. (3d) 143 (Ont. S.C.J.) [Gartree No. 2]; Gartree Investments Ltd. v. Cartree Enterprises Ltd. [2000] O.J. No. 2078 (S.C.J.), affd. [2001] O.J. No. 1184 (Div. Ct.) [Gartree No. 1]; Fellows v. Lunkenheimer (1998), 21 R.P.R. (3d) 142 (Ont. Gen. Div.); Kalita v. Freskiw Estate, [1998] O.J. No. 5180 (Gen. Div.); Jakubiszyn v. Tekielak, [1991] O.J. No. 2362 (Gen. Div.); Silva v. Silva, 1990 6718 (ON CA), [1990] O.J. No. 2183 (C.A.); Hay v. Gooderham (1979), 1979 1690 (ON SC), 24 O.R. (2d) 701 (Div. Ct.). [^5]: Steele v. Doucet 2019 ONSC 544; Osborne v. Myette, [2004] O.J. No. 3383 (S.C.J.). [^6]: (2005), 2004 48652 (ON CA), 75 O.R. (3d) 478 (C.A.), affg. (2004), 2003 37762 (ON SCDC), 69 O.R. (3d) 784 (Div. Ct.); affg. (2002), 2002 49477 (ON SC), 59 O.R. (3d) 449 (S.C.J.). [^7]: Cogan v. Cogan, (2003), 11 R.P.R. (4th) 235 (Ont. S.C.J.); Peters v. Peters, [2000] O.J. No. 1849 (S.C.J.); Wilson v. Brown, [2000] O.J. No. 1121 (S.C.J.); Glick v. Carr, [1991] O.J. No. 1588 (Gen. Div.). [^8]: Afolabi v. Fala, 2014; Silva v. Bettencourt, [2002] O.J. No. 1878 (S.C.J.); Davis v. Davis, 1953 148 (ON CA), [1954] O.R. 23 (C.A.). [^9]: Dhillon v. Brar, 2019 ONSC 4066; Andrade v. Andrade, 2016 ONCA 368; Kerr v. Baranow, 2011 SCC 10; Pecore v. Pecore, 2007 SCC 17. [^10]: 2011 SCC 10. [^11]: 1996 599 (ON CA), [1996] O.J. No. 2634 (Ont. C.A.). [^12]: Steele v. Doucet 2019 ONSC 544; Dale v. Salvo, 2005 25893 (ON SC), [2005] O.J. No. 3111 (S.C.J.); Debora v. Debora, 2004 44791 (ON SC), [2004] O.J. No. 4826 (S.C.J.). [^13]: Kerr v. Baranow, 2011 SCC 10 at paras. 17-18; Pecore v. Pecore, 2007 SCC 17 at para. 24. [^14]: Dhillon v. Brar, 2019 ONSC 4066. [^15]: 2011 SCC 10 at para. 4. [^16]: See also Pecore v. Pecore, 2007 SCC 17 at paras. 43-44. [^17]: Schwartz v. Schwartz, 2012 ONCA 239; Pecore v. Pecore, 2007 SCC 17 at para. 44; Nussbaum v. Nussbaum 2004 23086 (ON SC), [2004] O.J. No. 3763 (S.C.J.). [^18]: Schwartz v. Schwartz, 2012 ONCA 239 at para. 51; Kerr v. Baranow, 2011 SCC 10 at para. 19. [^19]: Tayler v. Wayne, 2020 ONSC 5064; Kent v. Kent, 2020 ONCA 390; Re Foley, 2015 ONCA 382; Sawdon Estate v. Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101; Pecore v. Pecore, 2007 SCC 17. [^20]: Tayler v. Wayne, 2020 ONSC 5064; Re Foley, 2015 ONCA 382 at para. 27.