Tag: Clean Hands Doctrine
In a decision released last week, the Ontario Court of Appeal in Andrade v Andrade set aside a judgment and issued a decision that established sole beneficial ownership in a house by way of resulting trust. This decision provides an interesting analysis of the source of funds used to purchase property and the effect this can have on a resulting trust claim. It also provides an interpretation of the public policy principle that prevents a party from taking one position for tax purposes and another in respect of a claim in litigation.
Luisa Andrade (“Luisa”), a widow and mother of seven children, immigrated to Canada in 1969. Luisa’s children each left school as teenagers and began working to support the family. The children continued to contribute their wages to the family until they left the family home.
The family home was purchased in 1974. Luisa signed the offer to purchase and borrowed a cash deposit of $1,000. The bulk of the purchase was financed with two mortgages. Legal title was initially placed under the names of two of Luisa’s children, Henry and Maria, because Luisa was not employed and could not obtain the mortgage on her own. Five years later, legal title was transferred to Henry and another one of Luisa’s children, Joseph. Joseph died in 2014 and his widow, Manuela, commenced a claim seeking a declaration that she was the beneficial owner of the house. Manuela was successful at trial.
The Court of Appeal held that the trial judge committed a palpable and overriding error in concluding that Luisa had no money of her own as it caused him to ignore the evidence of Luisa’s intention to remain the beneficial owner. This caused him to ultimately reject the resulting trust claim. The Court of Appeal noted that the trial judge confused the question of whether Luisa had money with the source of her money. This resulted in a mistaken characterization of the money that was given to Luisa by her children and used by Luisa to pay for the house as the children’s money. However, in accordance with the legal principles of a gift, once the money the children earned was given to Luisa, it became Luisa’s money, “even if it was expected to be used, and was in fact used, for the support of the family, including to pay the mortgages”. The Court of Appeal observed that there was no evidence that Luisa’s bank account was a trust account nor that the money was earmarked for a specific purpose. Furthermore, it was the testimony of all the children that the money they gave to Luisa was her’s to use as she saw fit.
Once the Court of Appeal found that Luisa did have money of her own, it went on to find that her intention was not to benefit the legal title holders to the exclusion of her other children.
On another note, the trial judge found that this was not an appropriate case to impose a trust due to public policy concerns. At various times, Luisa rented out the upstairs apartments of the house. Although Joseph and Henry never received any rent from the house, they declared the rental income and claimed expenses. Luisa, on the other hand, never paid rent yet she claimed a rental tax credit. Specifically, the trial judge was concerned that it would be against public policy to recognize Luisa’s estate (as Luisa had since died) as the beneficial owner of the house when she had received tax credits claiming that she was not the beneficial owner.
The Court of Appeal found that while the “clean hands” doctrine and considerations of illegal purposes may bar a claim, actions unrelated to a claim will not necessarily bar a remedy. In the case at hand, the evidence was not that Luisa placed the house in her children’s names for strategic tax purposes. Rather, Luisa had done so because she was unable to obtain the mortgage on her own. As the equitable relief sought by Luisa’s estate was in relation to Luisa’s interest in the family home, the Court of Appeal found that her tax filings were not fundamental to that cause of action.
Thank you for reading.