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The Gift that Stopped Giving

In 1996, Kismet Enterprises Ltd. (“Kismet”) owned approximately 2 acres of land in Nanaimo, British Columbia. In April, 1996, Kismet leased the property to Rascal Trucking Ltd. (“Rascal”). Rascal began operating a topsoil processing facility on the property.

Rascal’s topsoil operation generated significant complaints from the neighbourhood. As a result, the City of Nanaimo (the “City”) passed resolutions declaring that the facility was a nuisance and authorizing the City to remove the topsoil if neither Kismet nor Rascal did so. The City subsequently removed the topsoil and lodged the costs incurred (approximately $110,000) against the property as tax arrears. Rascal brought an action challenging the City’s authority to pass these resolutions but in 2000, the Supreme Court of Canada ruled in favour of the City.

Rascal’s lease included provisions that required it to hold Kismet harmless from any and all liabilities resulting from Rascal’s operations on the property. However, Rascal did not reimburse Kismet or the City for the cost of removing the top soil.

Kismet determined that as a result of the tax arrears and existing mortgage to CIBC there was no equity left in the property. It stopped making mortgage payments and in December, 1997, CIBC began foreclosure proceedings. Throughout the foreclosure proceedings, Hans Heringa, the principal of Rascal, tried in a number of ways to acquire the property but was ignored by CIBC.

CIBC eventually sold the property to Edward Nishi for $237,500. Before selling the property to Mr. Nishi, CIBC paid the tax arrears owing to the City.

Rascal assisted Mr. Nishi in buying the property by providing $85,000 in cash and assuming responsibility for paying $25,000 on the mortgage. Mr. Heringa acted as guarantor of the mortgage. Subsequent to Mr. Nishi’s purchase of the property, Rascal contributed another $25,679.74 to the mortgage. In the result, Rascal’s total contribution towards purchase of the property was $110,679.74, the exact amount of the tax arrears lodged on the property by the City due to Rascal’s topsoil activities.

Mr. Heringa sent Mr. Nishi several faxes containing offers to acquire an interest in the property on different terms. None were accepted. In November of 2008, Rascal commenced an action claiming a one-half undivided interest in the property.

The court noted that it was relevant that Mr. Heringa and Cidalia Plavetic, the principal of Kismet, had a long-standing business and personal relationship. Ms. Plavetic and Mr. Nishi were common law partners and had lived on the property since 1997.

Rascal lost its claim at trial. However, the British Columbia Court of Appeal allowed Rascal’s appeal. It held that a presumption of resulting trust arose because of a gratuitous transfer between unrelated parties. It held that there was no issue of a gift because it was the intention of the person who advanced the funds and not the intention of the recipient that was relevant.

Mr. Nishi appealed that decision to the Supreme Court of Canada. In a recently released decision, the Supreme Court (Justice Rothstein writing for the majority) allowed Mr. Nishi’s appeal based on the factual findings of the trial judge that no resulting trust was created in this case.

Purchase Money Resulting Trust

The court held that a purchase money resulting trust is a species of gratuitous transfer resulting trust, where a person advances a contribution to the purchase price of property without taking legal title. Gratuitous transfer resulting trusts presumptively arise any time a person voluntarily transfers property to another unrelated person or purchases property in another person’s name.

The court found that Rascal’s contribution to the purchase of the property was made without consideration and because Rascal and Mr. Nishi were not related, the legal presumption of resulting trust applied. This is because in such circumstances, equity presumes bargains rather than gifts. In the context of a purchase money resulting trust, the presumption is that the person who advanced purchase money, intended to assume the beneficial interest in the property in proportion to his or her contribution to the purchase price.

However, the presumption of resulting trust, can be rebutted if the recipient of the property proves, on a balance of probabilities, that the person who advanced the funds intended a gift. The relevant intention is the intention of the person who advanced the funds at the time of the contribution to the purchase price. Therefore, for Mr. Nishi to rebut the presumption, in this case, he needed to prove that Rascal intended to make a gift at the time that Rascal made a contribution to the purchase price in May 2001.

Justice Rothstein held that the trial judge was correct to conclude that the presumption was rebutted in this case. In May 2001, Mr. Heringa indicated that the contribution to the purchase price and his intention to pay $25,000 of the mortgage was made “without any conditions or requirements” and these instructions are irrevocable. A contribution to the purchase price without any intention to impose conditions or requirements is a legal gift.

Justice Rothstein found that in their full context, the trial judge’s reasons confirmed that he understood that Rascal’s intention at the time of the advance was to make a legal gift, i.e. to contribute to the purchase price without taking a beneficial interest in the property. Rascal’s contribution was motivated by recognition of the cost that it had imposed on Kismet, the company owned by Mr. Heringa’s friend, Ms. Plavetic. In addition, it was clear from the May 2001 facts, that Rascal’s stated intention was to make the advance without any conditions such as obtaining a beneficial interest in any portion of the land.