The Purchase Money Resulting Trust
Without question, the best way for a transacting party to protect its interests is by entering into a binding and enforceable written contract with its counterparty. That said, there are presumptions, or rules of substantive law, that courts have developed to provide remedies to parties in relationships lacking such formalization. One such vehicle is the purchase money resulting trust.
The Supreme Court of Canada in the important decision of Nishi v Rascal Trucking Ltd. describes the trust as follows:
“A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of a property, but does not take legal title to that property. Where the person advancing funds is unrelated to the person taking title, the law presumes 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. This is called the presumption of resulting trust. The presumption can be rebutted by evidence that at the time of the contribution, the person making the contribution intended to make a gift to the person taking title.”
The Alberta Court of Appeal in the very recent decision of Singh v. Kaleremphasized that it is the intention of the claimant (i.e. the party claiming under the trust) at the time of the advance of funds that counts. Post-transaction evidence is relevant only if it shows what the claimant’s intention was at the time of the transaction.
The claimant does not need to furnish evidence of its intention when it advanced the money. The resulting trust is indeed a presumption, which must be rebutted by the counterparty.
In Singh, the claimants contributed the majority of the cash-to-close for the purchase of a property decades ago. The counterparties, who had legal title to the property, paid the deposit and the balance of the cash-to-close and also secured a mortgage. Despite the advice of their lawyer to reduce their agreement to writing, the parties (who were friends and business partners in other ventures) did not do so. The Court found that the counterparties were trustees of the property for the benefit of the claimants in accordance with the latter’s share of the purchase price. At law, the parties become tenants in common according to their respective interests.
The key takeaway is that the resulting trust is a legal relationship or vehicle that affords a remedy to a party who advances money towards the purchase of a property even though that party does not have an agreement with its counterpart. Of course, the problem with a party’s reliance on the resulting trust lies in the fact that litigation will likely be required to actually enforce on that resulting trust in the event that the counterparty decides to renege on the ostensible agreement that was originally struck. Entering into binding and enforceable contracts saves a lot of headache (not to mention time and money).
Invitation for Discussion:
Our litigation lawyers are skilled in transactional law. If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact Mohamed Amery or one of the lawyers in the Business Litigation Group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.