May 27, 2016

ONTARIO COURT OF APPEAL SUMMARIES (MAY 16-20, 2016)

Andrade v. Andrade, 2016 ONCA 368 (CanLII)

[Simmons, van Rensburg and Hourigan JJ.A.]

Counsel:

Gavin MacKenzie and Patrick T. Summers, for the appellant

John J. Longo and Pamela Miehls, for the respondent

Keywords: Real Property, Beneficial Ownership of House, Resulting Trust, Pecore v. Pecore, Ascertaining Intention, Public Policy, Tax Treatment

Facts: At issue in this appeal is the beneficial ownership of a house that has been in the Andrade family for over 40 years. The house was purchased in 1974. Luisa Andrade lived there until her death in 2014. Legal title was originally taken in the names of two of Luisa’s children, Henrique (Henry) and Maria Jesus. Five years later, title was transferred to Henry and his brother Joseph. Henry and Joseph remained on title thereafter as the legal owners of the house. Joseph died in March 2007. In May 2007, Joseph’s widow, Manuela Andrade, transferred his half interest in the house into her own name. In 2009, she brought an action against Henry and Luisa seeking a declaration that she was the beneficial owner of a half interest in the house, and an order for partition and sale. Luisa counterclaimed for a declaration that she was the beneficial owner of the house and an order that Manuela and Henry transfer all of their right, title and interest in the house to her. In 2011, Henry transferred his half interest to Luisa. In 2014, a few months before the trial commenced, Luisa died. The action continued against her estate and Henry. Manuela was successful at trial. Luisa’s estate appealed.

Issues:

(1) Did the trial judge make a palpable and overriding error in concluding that Luisa had no money of her own, and in holding that, without a financial or other legally cognizable contribution of her own, there was no equity in favour of Luisa?

(2) Did the trial judge err in failing to find that Luisa, at the time of her death, was the beneficial owner of the house by way of resulting trust?

(3) Did the trial judge err in invoking public policy as a further reason to reject Luisa’s ownership claim?

Holding: Appeal allowed.

Reasoning:

(1) Yes. The trial judge made a palpable and overriding error of fact when he concluded that, at the time of the purchase and until she died, “Luisa had no money of her own”. In reaching this conclusion the trial judge made a number of errors. First, the trial judge erred in characterizing the money given to Luisa by her children and used by Luisa to pay for the house as the children’s money. The money her children earned, once given to Luisa, became her money, even if it was expected to be used for the support of the family, including to pay the mortgages. In finding that Luisa had no money of her own, the trial judge conflated “income from paid employment” and “money”. He confused the question of whether Luisa had money with the source of her money, which at least in the early years was the paid employment of her adult children. The trial judge referred to the fact that expenses in relation to the house were paid from rent generated by the house. Implicit in his decision is that the rent did not belong to Luisa, yet the evidence shows that Luisa was the only person who advertised for and negotiated with tenants, and collected their rent which was deposited into her bank account. In all of these circumstances, the rent generated by the house was also Luisa’s money. In addition to rent, Luisa received old age security benefits commencing in 1990 and, in 2003, she received a settlement. The trial judge did not consider these sources of Luisa’s money. Accordingly, the trial judge erred in concluding that Luisa had no money of her own and that she had not contributed to the purchase of the house. His rejection of the resulting trust claim was explained on the basis that Luisa never owned the house and never paid for it in the first place, and the fact that “Luisa had no money of her own”.

(2) Yes. The trial judge erred in failing to find a resulting trust in favour of Luisa. “A resulting trust arises when title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner”: Pecore v. Pecore, 2007 SCC 17. Once it is accepted that Luisa had money of her own, and that it was her money that was used to purchase the house and to pay down the mortgages, then a purchase money resulting trust could arise. Luisa borrowed the deposit and paid it back, and she serviced the mortgages using money from her own bank account. Although they signed the mortgages, there was no evidence that the legal title holders considered themselves responsible for making any of the payments. Luisa borrowed their “names”, not their money. All of this is consistent with Luisa having advanced the purchase price of the property.

The trial judge mischaracterized the claim. The relevant time for ascertaining intention is the time of the acquisition of the property, when the funds were advanced. The question was not whether the legal title holders intended to create a trust for Luisa. Rather, the question was Luisa’s intention. Evidence of Luisa’s intention at two points is important – in 1974 when the property was first acquired, and in 1979, when Joseph went on title. It was Luisa who, in 1974, decided to buy a house where she and her children would live. As the trial judge noted, both Maria Jesus and Henry testified that the reason title was taken in their names was that, with the exception of Maria Luisa who was already married, they were the only two family members of age who had sufficient income to potentially qualify for a mortgage. There was no evidence at all that Luisa intended to confer beneficial ownership on any of her children. As for the circumstances in 1979, there is no dispute that Joseph went on title at the time of a mortgage renewal, and at his mother’s direction. There was no evidence to suggest a change in Luisa’s intention – that is, to give Joseph a beneficial interest in the property. All of the circumstances are consistent with a change in legal title, but not with a gift of half the property to Joseph. Although the house was in her children’s names, Luisa’s intention was not to benefit the title holders to the exclusion of her other children by giving them a property interest in the house. While the parties’ income tax returns treated the house in a way that was consistent with legal title, they did not reflect the reality of how the property was handled – Luisa collected and kept the rents, paid the expenses in relation to the house, and treated the house as its owner. Therefore, Luisa was the beneficial owner of the house by way of resulting trust.

(3) Yes. The trial judge cast the net too broadly in concluding that it would be against public policy to recognize Luisa’s estate as the beneficial owner of the house when she had received tax credits on the basis that she was not the beneficial owner. There was no evidence that Luisa put the property into the names of her children so as to avoid taxes or to obtain a tax benefit. The evidence was to the contrary – the children took legal title because Luisa did not have paid employment and could not qualify for a mortgage. In the present case, Luisa’s estate does not seek to profit from the manner in which her tax filings were arranged. Rather, it seeks equitable relief in relation to Luisa’s interest in the family home. Her tax filings are not fundamental to that cause of action. They are relevant evidence, but are not in any way dispositive of her claim. The trial judge erred in treating the fact that Luisa claimed tax credits as dispositive of her trust claim for public policy reasons alone. While her tax treatment of the property, considered in isolation, was evidence inconsistent with her beneficial ownership, her actual intention in relation to the property was a question of fact to be determined based on the whole of the evidence.

The information contained in our summaries of the decisions is not intended to provide legal advice and does not necessarily cover every matter raised in a decision. For complete information or for specific advice, please read the decision or contact us.