What is a Resulting Trust?

“I don’t care who paid for the property – it’s in my name.”  But that’s the middle of the story – let’s start at the beginning.

Situations arise where legal  title may be in one person’s name, but the courts presume there was a decision to create a trust so that the equitable or beneficial ownership really belongs to another.  Let’s take a look at the recent  British Colombia Supreme Court  case of  Borkenhagen v. Kessler¹.  It is a worthwhile read for those interested in area of estates and trusts because it reviews the basic tenets of resulting and constructive trusts.

Mr. and Mrs. Borkenhagen purchased a rental property which they agreed to rent to Mr. Borkenhagen’s elderly aunt, Mrs. Kessler. The terms of the agreement were that the aunt would pay a modest rent, approximately equivalent to the rent that she was paying in her previous apartment, and the aunt could remain at the rental property for as long as she liked. Prior to the purchase of the rental property, it was discovered that the bylaws and strata had a restriction requiring anyone who lived in the unit to be an owner and over the age of 55. Neither of the plaintiffs was over the age of 55 and as such the aunt was the only one that could satisfy the requirements for ownership. It was decided that all three parties would go on title to the property as joint owners. The relationship between the parties soured, the aunt severed the joint tenancy and asserted that she was the legal and beneficial owner of 1/3 of the rental property. The plaintiffs on the other hand, sought a declaration that they were the sole and legal beneficial owners of the property.

The parties each relied on Kerr v. Baranow², which dealt with the issue of unjust enrichment and the “common intention” resulting trust.  A resulting trust is created when title to a property is in the name of a party that did not provide any value for the property, and that party is then required to return the property to the true owner³. The Court determined that the focus of analysis with respect to a resulting trust is the actual intention of the transferor, in this case, the plaintiffs. On the review of the evidence, the Court found that the plaintiffs’ intent was that their aunt would occupy the rental unit as a renter and not as an owner. The aunt did not contribute to the purchase price of the rental property and did not assume any of the normal obligations associated with ownership.  The purpose of the aunt’s title was simply to satisfy the strata requirements. The Court found that in this instance, there had been a gratuitous transfer and the presumption of a resulting trust had not been rebutted. As such, the Court found that the aunt held her 1/3 interest in trust for the plaintiffs, reaffirming that the concept of a resulting trust stems from the idea that people make bargains – not gifts.

The Court arrived at the same result when applying the principles of unjust enrichment and constructive trusts. A constructive trust is imposed when there has been unjust enrichment, regardless of the intention of the parties. Unjust enrichment occurs when there has been (1) an enrichment to the defendant; (2) a corresponding deprivation to the plaintiffs; and (3) there is an absence of any juristic reason for the enrichment. The Court found a constructive trust in favour of the plaintiffs based on the fact that the plaintiffs had paid all of the purchase money, and that the aunt did not have any obligations that an owner would normally have, such as paying property taxes. Therefore the aunt would be unjustly enriched if she was allowed to retain her 1/3 interest in the property.  The Court did find that there was an agreement between the parties which permitted the aunt to remain at the property until she wished to leave, but it did not amount to a juristic reason for the enrichment nor the defendant’s acquisition of title to the property.