Canada: A Rascal Of A Doctrine: The Elusive Definition Of Resulting Trust

The Supreme Court of Canada has recently granted leave to appeal from the judgment of the British Columbia Court of Appeal in Edward Sumio Nishi v. Rascal Trucking Ltd. This appeal focuses on the test for a resulting trust in the commercial context. The decision will be of interest to a broad range of business enterprises and commercial counsel.


The action arose out of a purchase of land by two business partners. Hans Heringa, a successful civil engineer and owner of Rascal Trucking Ltd. ("Rascal") developed a property located in Nanaimo, British Columbia, with Cidalia Plavetic, a realtor.

As a result of nuisance complaints due to Rascal's operations (soil processing), the city changed the zoning on the property. Rascal then ceased carrying on business on the property. The City liened the property in order to secure the cost of the removal of topsoil placed on it by Rascal. At that point, Ms. Plavetic concluded that there was no equity left in the property and ceased making payments on the mortgage placed upon the property.

The lending institution foreclosed on the property. Ms. Plavetic's partner, Mr. Nishi, placed a bid to buy the property following the foreclosure. Mr. Heringa advanced Mr. Nishi a portion of the funds for the bid.

Decisions Below

The issue to be determined at trial was whether Mr. Heringa had an interest in the property by virtue of advancing a portion of the funds for its purchase. Mr. Heringa testified that there was an agreement between him and Mr. Nishi to the effect that Mr. Heringa would own 50% of the property should Mr. Nishi's bid be accepted. The Court did not accept this testimony. Instead, the Court concluded that while Mr. Heringa was "pushing for an interest in the land," Mr. Nishi never accepted his terms, and his contribution to the purchase was free and clear of any conditions or requirements.

The next question before the Court was whether the contribution, nevertheless, created an equitable interest in the land, in favour of Rascal. As the Court stated, a presumption of resulting trust arises where one party contributes financially to the purchase of a property but does not take title. This presumption is rebuttable by the beneficiary of the payment showing that the payment was not intended to create a beneficial interest in the contributing party. The Court cited the Supreme Court's judgment in Stancio v. Stancio to the following effect:

"A resulting trust is presumed to arise when property is purchased with the money of one person but the conveyance is taken in the name of another, although there is no written evidence of the trust.
. . .A trust thus prima facie resulting from the payment or an obligation to pay the purchase price may always be rebutted by parol evidence on the part of the nominal purchaser. On the other hand, this rebutting evidence may in turn be contradicted by some sort of evidence on the part of the alleged beneficiary and the question to be decided may thus become a pure question of fact to be determined on the conflicting evidence alternatively adduced for these purposes."

The Court found that Mr. Nishi had satisfied the burden to rebut a presumption of the resulting trust. The money paid by Rascal was simply to satisfy a debt against the land which had been caused by Rascal.

The Court also rejected claims of a constructive trust, finding that Mr. Nishi had not been unjustly enriched by the funds paid by Rascal. Rather, the funds simply put Ms. Plavetic, her company and Mr. Nishi in the same position as if the nuisance caused by Rascal had never occurred.

On appeal, it was Rascal's central submission that, having found that Rascal's intention was to secure an interest in the land, it was an error to reject the resulting trust claim based on the absence of such an intention on the part of Mr. Nishi. Rascal relied on the Supreme Court's decision in Kerr v. Baranow, which stated that "in ... gratuitous transfer situations, the actual intention of the grantor is the governing consideration."

The Court of Appeal agreed with this principle. The Court of Appeal formulated the principle as follows: "In determining whether a resulting trust exists, the governing consideration is the actual intention of the transferor. ... In order to displace the presumption of resulting trust, the transferee must provide evidence o the transferor's contrary intention on the civil standard of proof. ... It is now clear that in Canada, a resulting trust is not concerned with the common intention of the parties; it is solely the intention of the grantor or transferor that governs the inquiry."

Furthermore, where one party contributes to the purchase of property, but the legal title to the property is put in another party's name, a resulting trust will frequently be found. Such "purchase money resulting trust" is a specific kind of a gratuitous transfer resulting trust. In order to take advantage of the trust, the claimant must show that he advanced the money as a purchaser, and not as a lender or creditor to the alleged trustee.

The Court of Appeal found that there could be "no doubt" that a presumption of resulting trust arose in the case. Mr. Nishi failed to displace the presumption on the basis that Rascal's advance was intended as a gift, since the trial judge specifically found it was not a gift. Despite Mr. Nishi's not entirely unreasonable belief that the amount was advanced in satisfaction of the harm caused by Rascal to the property due to Rascal's nuisance, the Court of Appeal "reluctantly" concluded that Mr. Nishi had not displaced the presumption of a resulting trust in favour of Rascal.

Significance of the Appeal

The appeal to the Supreme Court will settle the principles upon which a resulting trust is created. In particular, the Court will pronounce on whether, in gratuitous transfers of property, the intention of the transferee has any significance.

Should the Supreme Court side with the trial judge in this case, parties will need to explicitly document any gratuitous transfers, as both transferor's and transferee's intentions will be taken into account in determining whether a resulting trust in favour of the transferor is created.

On the other hand, if the Court of Appeal was correct in its interpretation, the transferee's intention will be irrelevant in all cases of gratuitous transfers, and only the transferor's contemporaneous intention will be determinative of whether a resulting trust is created.

The decision once again highlights the importance of proper documentation of gratuitous transfers and of documenting the parties' intentions in deals of this nature.

Case Information

Edward Sumio Nishi v. Rascal Trucking Ltd., 2012 CANLII 22045 (SCC)

SCC Docket No: 34510

Leave to Appeal Granted: April 26, 2012

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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