Loan From Mom or a Partial Real Estate Interest? The Court of Appeal for Ontario Clarifies the Doctrine of Purchase Money Resulting Trust

Published on: June 2024 | What's Trending

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The Court of Appeal for Ontario recently released its decision in Bradshaw v Hougassian, 2024 ONCA 425, a matter involving the doctrine of purchase money resulting trust, centered around whether a house owned by the son of the deceased was an estate asset.

The Court of Appeal upheld the trial decision, finding that the mother’s estate had a beneficial interest in 26% of the value of the house owned by the son, and provided a summary and clarification of the doctrine of purchase money resulting trust.

With house prices astronomically high, and the increasing trend of parents providing financial assistance to help adult children purchase a home, it remains important for families to properly document their intentions around the parents’ support to the home-buying adult child. Failure to properly document a loan or a gift to a family member can have unintended consequences, such as estate disputes and/or estates being found to have an interest in a property which the adult child might have assumed was theirs alone.

The Facts

In 1980, Jack Hougassian (“Jack”) purchased a house in Cambridge, Ontario for $38,500. He and his mother, Violet Manoushag Hougassian (“Violet”) both signed the agreement of purchase and sale, but only Jack went on title as the legal owner. At the time, Jack was a 22-year-old university student, but had saved money from summer jobs and contributed $8,000 of the purchase price, with Violet contributing $10,000, and the remaining $20,500 being financed through a mortgage in Jack’s name, which Violet guaranteed.

A few months after closing, Violet left her husband and moved with her children to the newly purchased house, where she lived for the rest of her life until she died in 2018. Violet paid the mortgage and utility bills for the first year, after which Jack covered all payments, eventually paying off the mortgage in full.

Jack became a successful businessman and provided generous financial support to Violet during her life. Violet excluded Jack from her Will, not because of any disaffection, but rather because of Violet’s recognition that Jack was well-accomplished financially and his sisters were not.

The central dispute was whether the $10,000 contribution from Violet had been a loan to Jack, or whether she intended the payment to give her an equity share in the house. Jack maintained it was a loan that had been repaid within one year. The trial judge rejected Jack’s evidence, applied the doctrine of purchase money resulting trust, and found the Estate had a 26% share of the value of the property, based on Violet having contributed 26% of the original purchase price.

The Appellate Decision

The Court of Appeal dismissed Jack’s appeal and provided a helpful summary of the doctrine of purchase-money resulting trust.

A purchase money resulting trust can arise when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property. There is a rebuttable presumption that the parties intended for the person who advanced funds to hold a beneficial interest in the property in proportion to that person’s contribution. Following the Supreme Court of Canada’s decision in Pecore v Pecore, this presumption applies to transactions involving parents and adult children.

Appellate Ground 1 – Test for Purchase Money Resulting Trust

Jack argued that it was the Estate’s burden to establish that Violet had acted in a manner consistent with having an ownership interest in the property throughout the time that she lived there, and the trial judge erred by ignoring this precondition.

The Court of Appeal disagreed, finding that the doctrine of purchase money resulting trust focuses on the parties’ intentions at the time the purchase money is advanced. Evidence about how a claimant conducts themselves afterwards may be relevant, but only to the degree that it sheds light on what they intended when they advanced the money.

The Court noted that the requirement to have acted as a purchaser means nothing more than not intending the advance of money to be either a gift or a loan. Once the trial judge found that Jack could not establish that Violet made a loan to him, there was no need to consider whether Violet had acted as a purchaser in any other sense. Following the Supreme Court of Canada decision in Nishi v Rascal Trucking Ltd., the Court of Appeal stated it was not necessary to distinguish loans from gifts in the resulting trust analysis. The presumption of resulting trust will be rebutted if the person who contributed the purchase money did not intend to acquire a beneficial interest in the property, which can be established by demonstrating that the money advanced was meant as either a loan or a gift.

The burden of proof was also considered. Was it the claimant’s burden to prove the money advanced was not a loan, or was the onus on the opposing party to prove the money advanced was either a loan or a gift? Here, the onus was on Jack to rebut the presumption by demonstrating Viola had intended either a loan or a gift. The trial judge was entitled to find, as he did, that Jack failed to meet this test, as it would not have made sense for Violet to loan money to Jack in 1980, given their respective financial and life circumstances at the time, which included Jack already having enough money to cover the down payment, and Violet needing the money for herself.

Appellate Ground 2 – Corroboration Requirement in s. 13 of the Evidence Act

Jack also challenged the trial decision that the corroboration requirement in s. 13 of the Evidence Act, RSO 1990, c. E.23 applied to his evidence. This section provides that in an action by or against the heirs, next of kin, executors, administrators or assigns of a deceased person, an opposite or interested party shall not obtain a verdict, judgment or decision on his or her own evidence in respect of any matter occurring before the death of the deceased person, unless such evidence is corroborated by some other material evidence.

Jack argued that s. 13 had no application to him because he was not an heir under Violet’s Will, and was not being sued as one of the “heirs, next of kin, executors, administrators or assigns”.

The Court of Appeal clarified that s. 13, applied to actions by or against persons who fall into the listed categories. While Jack was not being sued in his capacity as a person listed in s. 13, his sister was suing him in her capacity as executor of Violet’s estate, which made Jack an opposite or interested party to whom the corroboration requirement applied.

Additionally, the trial judge did not accept Jack’s evidence, not merely because it was uncorroborated, but because it was implausible. This was not a situation where the trial judge would have found in Jack’s favour, but for the corroboration requirement.