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Severance of Joint Account by Conduct

Severance of Joint Account by Conduct

In  Zeligs v Janes 2016 BCCA 280 the BC Court of Appeal upheld a trial decision finding that a joint bank account was severed when one of the joint tenants withdrew funds from the joint account for her sole using a power of attorney that benefitted herself.

In doing so the joint tenant automatically severed the joint fund, and converted it into a tenancy in common thus extinguishing the right of survivorship.

The court quoted from the leading case of Pecore v Pecore 2007 SCC 17 and pointed out that parties may hold legal title to property in one form of co-ownership while holding equitable title in another.

For example, a mother and daughter may be joint tenants in law and tenants-in-common in equity, with respect to jointly held property by virtue of a trust or an act of  severance.

If the mother dies first, the daughter assumes full legal title by right of survivorship, but the mothers equitable interest, being held in common, passes to her estate and the daughter holds legal title, as trustee for the beneficial owners, namely herself and her mother’s estate.

Equity leans against joint tenancies with the legal maximum being that “equity is the equality”.

Equity often treats persons who are joint tenants at law, such as business partners are unequally contributing co-owners, as tenants in common.

A testamentary disposition cannot sever a joint tenancy. Bergen v Bergen 2013 BCCA 492 at para.40.

When a joint tenancy was severed the joint tenancy is converted into a tenancy in common, and the right of survivorship is extinguished. In consequence each affected co-owner becomes entitled to a distinct share rather than an undivided interest in the whole.

Severance is typically affected in one of three ways:

  1. By one person acting unilaterally upon his or her own shares, so as to destroy the four unities ie selling the property;
  2. By mutual agreement, such as a written contract;
  3. By any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common-for example, conduct which demonstrates all tenants mutually dealt with their interests as several. Other possible modes of severance include bankruptcy, partition or an order made under matrimonial property legislation.

A partie’s conduct may provide an evidentiary basis from which an agreement can be inferred.

The question of whether a parties conduct has severed the joint tenancy or not, in the absence of agreement, it would be unjust to permit a party to assert survivorship rights, because of the parties mutual treatment of their interests.

Ascertaining whether a joint tenancy has been severed is a factual question, often determined on the basis of reasonable inferences. It requires the application of a legal standard to the facts as found by the trial judge.

Individuals may hold legal title to the debt that is a bank account in joint tenancy, but hold the beneficial interest between themselves quite differently. In particular, each party may be entitled, in equity to a specific share the funds on deposit, or to none  at all, depending on their intentions, the contributions and trust principles.

In Edwards v . Bradley (1956) OR 225 (CA) , the court stated the beneficial interest in the money does not necessarily follow the legal title to the right to withdraw or demand payment”.

Accordingly, although as a practical matter an account balance may fluctuate or even be drained the one joint owner, the others may have a claim in equity to the withdrawn funds are the property they purchased.

The account holder who reaches the bank first cannot by that means defer jointly own funds to the purchase of investments upon which the other joint owner will have no claim. See waters on Trust at 439-440

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