Many readers would be surprised to know that where you purchase real property with money provided from a third party there is a presumption that you are purchasing that property, or interest in that property, on behalf of the third person. This is called the doctrine of “purchase money resulting trust”. Until recently, there was some question as to whether this remained an existing legal doctrine in Canada. On June 13, 2013, the Supreme Court of Canada answered this question in Nishi v. Rascal Trucking Ltd.
In Nishi, the plaintiff was the principal of the previous owner of a piece of property. He attempted to negotiate with a prospective purchaser of the property whereby he would acquire an interest in the property. The purchaser did not agree and, finally, the plaintiff advanced funds “without any conditions or requirements”. After the property was purchased, the plaintiff asserted a one-half undivided interest in the property based on the doctrine of a purchase money resulting trust.
The Supreme Court of Canada found that the purchase money resulting trust doctrine remained in good standing in Canada. The court restated that a trust in favour of an individual providing purchase money for real estate existed but that it could be rebutted if the donor intended to make a gift to the person taking title. The party taking title had the onus of rebutting the presumption of a trust by showing the intention to make a gift. The admissible evidence would include “after the fact evidence” although the Court did note that such evidence needed to be carefully considered in light of the possibly self-serving changes in the donor’s intention.
In Nishi, the Court agreed that the plaintiff had advanced the funds “without condition” and this, along with other evidence, was sufficient to rebut the presumption of a resulting trust by showing a clear intention to make a gift to the person taking title. Accordingly, the Supreme Court of Canada reinstated the trial judge’s decision and dismissed the claim.
The lesson is to be careful about who provides you with purchase money when a real estate purchase is made. Clearly documenting any gifts could alleviate the need to litigate over this issue as memories fade or a party’s intention changes over time.