Prior Unregistered Trust Takes Priority Over Creditor

Unregistered Trust Agreement and Creditors

Colantonio v Don Park and Mercedes Benz 2013 ONSC involves a dispute between an estate and a creditor with respect to an unregistered trust agreement, and the priority between the two competing claims.

A mother and father purchased a house in 1965, and when the father died in 2003 the mother became the sole owner. The mother shortly thereafter executed a transfer of title in the house to her two sons. Each son was to have an undivided 50% interest in the house while their mother reserved a life interest to herself.

Their mother also signed a declaration of trust which establish that her sons were her bare trustees but she retained the right to have the sons transferred title back to her.

This trust agreement was not registered on title to the house.

In 2006 one son applied to lease an expensive car and claim that he lived at the house and owned the house free and clear. That son subsequently died and the following year the estate agreed to reconvey title to the house back to the mother, so that she could sell the house to fund her assisted living.

At that time it was discovered that the car dealership had executions against the deceased son, which prevented the transfer of clear title being conveyed back to the mother.

The mother brought application, supported by the two estates, for a declaration that she was the legal and beneficial owner of the house.

The court agreed with the mother and found that the evidence of the car lease had little bearing on the determination of the parties interests.

The information in the application did not reflect the sons intentions nor those of her mother as settler of the trust.

The fact that the mother did not provide a motive in creating the trust was not fatal to finding that the trust existed.

The mother made sworn statements that she did not intend that her sons become beneficial owners of the house. When the mother made the sons bare trustees in 2003, she was not yet prepared to give away her house.

In fact the mother intentionally preserve beneficial interest in the house about the sons could not lose it.

The mother intended to convey the house to her sons in trust to herself. The fact that one son mispresented his interest in the house could not undermine his mother’s intention to the property. That sons information was false.

In Young v. LeMon (1985), 3 C.P.C. (2d) 163 (Ont. Dist. Ct), the Ontario District Court held that an un­registered trust agreement takes priority over an execution creditor where the trust instrument was created prior in time to the creditor’s Writ of Fi Fa. This court has recently reiterated the point in Michaud v. Coreslab Struc­tures (Ont.) Inc., 2012 ONSC 355 (Ont. S.C.J.), at para 59, where it stated (quoting Anger and Honsberger, Law of Real Property):

An execution creditor can sell the lands of his debtor under execution but the land to be sold is subject to the charges, liens and equities to which it was subject in the hands of the debtor. Hence, it has been repeatedly held that if there is an unregistered interest outstanding against the lands at the time that execution is lodged with the sheriff, the unregistered interest is entitled to priority over the execution. In other words the execu­tion creditor stands in no better position than his debtor.

It is long established that, “[i]n order to create a trust, there must exist what is commonly referred to as a certainty of intention.” Erb v. R. [1999 CarswellNat 2435 (T.C.C. [General Procedure]), 1999 CanLii 203, at para 27. As explained in Eileen E. Gillese, The Lawof Trusts (1997), at p. 39:

To satisfy the certainty of intention requirement, the court must find an intention that the trustee is placed under an imperative obligation to hold property on trust for the benefit of another. Certainty of intention is a question of construction; the intention is inferred from the nature and manner of the disposition considered as a whole. The language employed must convey more than a moral obligation or a mere wish as to what is to be done with certain property. The language used need not be technical, so long as the intention to create a trust can be found or inferred with certainty.

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