The Ontario Court of Appeal released the decision today in Schwartz v. Schwartz, dealing with the transfer of a matrimonial home where a third-party had issued a writ of seizure and sale for the home.
The couple were married on July 8, 1986, and purchased the matrimonial home in October 1992 in both their names. The title was transferred to the wife on January 31, 2000 as part of an estate rollover from the husband’s father to his two sons. The title was again transferred back to the name of the husband exclusively on March 6, 2006, which the wife claimed was done due to the threat of potential trademark infringement litigation.
Section 14 of Ontario’s Family Law Act states:
14. The rule of law applying a presumption of a resulting trust shall be applied in questions of the ownership of property between spouses, as if they were not married, except that,
(a) the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants…
The wife started her divorce application on May 7, 2009, and claimed an interest in the matrimonial home through a constructive or resulting trust. The wife claimed that the husband was only holding the matrimonial home in trust for her, and she consequently had a beneficial interest in it.
However, prior to the title being transferred back to the husband, he had applied for unsecured credit on behalf of his company and agreed to personally guarantee the indebtedness. He indicated on this application that he was an owner of the house, even though the title was in his wife’s name.
When the loan was defaulted upon, summary judgement was obtained on January 22, 2009 for $500,000, the creditor soon attempted to enforce its writ of seizure and sale against the matrimonial home, which by this time was in the husband’s name. The wife then brought two motions in the divorce proceedings, which included numerous forms of relief including:
- a declaration of her interest in the matrimonial home through a constructive or resulting trust interest, or an order to have the issue determined at trial
- an order staying the writ of seizure and sale
- an order for exclusive possession of the matrimonial home
- an order setting aside the transfer of the matrimonial home from her to her husband in 2006
Justice H.K. O’Connell of the Ontario Superior Court of Justice presided over the first motion, and noted the lack of independent legal advice and possibility of undue influence:
41 There is nothing before the court to intimate that the lawyer who drew the transfer suggested that any independent legal advice be sought. I find that he was under a duty to refer Mrs. Schwartz for independent legal advice.
42 It is axiomatic, as far as I am concerned, that had he done so, there was a very real possibility if not a certainty, that no transfer would have occurred. As Mr. Greenstein argues, this transfer does not constitute a gift at law. For it to be a true gift one would start with the premise that both party’s eyes were “wide open”. The reality is one party had his eyes fully eyes focused; the other was blinded by the actions of the first. I find further that the use of the word “gift” in the originating affidavit of the applicant is not fatal to the argument. It was not a gift as legally defined. Indeed the applicant pleads that it was a gift but then states that [the husband] holds the property in trust for her. Both cannot ride together.
43 Leaving aside what counsel who drafted the transfer knew, and there is clearly no evidence that he was aware of Mr. Schwartz’s deception on [the creditor] and the [wife], independent legal advice would clearly have fully informed the applicant of the risks involved in the transfer, including the fact that the home could very well be seen as having been gifted away. Independent legal advice was essential here. It was not given nor was Mrs. Schwartz referred for same. That, in and of itself, vitiates the transfer in these circumstances. I would go further and find that the timing of the visit to the lawyer was orchestrated to get Mr. Schwartz what he wanted, and what he needed, namely title — free and clear. It was timing that worked to the manifest prejudice of the applicant.
44 Mr. Zeitz referred the court to two cases in relation to independent legal advice. He asserted that they assist in defeating the argument that independent legal advice was required in these circumstances. The cases are Ascu Community Credit Union Ltd. v. Dunster, (1990), 75 O.R. (2d) 490 (Ont. Ct. Gen. Div. per: Stortini J.) and Marvco Colour Research Ltd. v. Harris,  2 S.C.R. 774.
45 In Ascu, the court stated that “mere lack of independent legal advice does not invalidate a guaranty in the absence of proof of non est factum, unconscionability, fraud misrepresentation, or undue influence.” In Marvco the court noted that “simple justice demanded that the party able to prevent the loss through the exercise of reasonable care should bear that loss when the only other alternative would be for the innocent appellant to bear it”. As is made clear in Marvco however the circumstances of each case must be looked at.
46 In Bank of Montreal v. Duguid, (2000), 47 O.R. (3d) 737, the Court of Appeal for Ontario stated:
- As a general proposition, a party may set aside a transaction where that party was induced to enter into the transaction by anther’s undue influence. Thus, where a husband induces his wife to enter into a transaction by means of undue influence, the wife will be entitled to set aside the transaction as against her husband.
47 The court refers to undue influence falling into two categories: actual undue influence and presumed undue influence. I find that either of these categories is applicable. Of course if actual undue influence is shown to exist, there is no need to presume it. Here the relationship between the Schwartz’s was one of Mr. Schwartz being the financial anchor of the household. Coupled with that factor are my findings set out above. Combined with the total absence by the applicant of the deception perpetrated by the [husband] on [the creditor], intertwined with the particular significant absence of any notion of independent legal advice, undue influence is clearly present. [Footnote: In Mantella v. Mantella,  O.J. No. 1337, 2006 CanLII 10526 (Ont. S.C.) Justice Corbett stated: “Further, even if undue influence is a necessary aspect of the test of unconscionability the inequity of the bargain is surely evidence from which a court may infer undue influence.”] The inequity here was manifest. This is precisely why independent legal advice was required.
48 I underline again that both the applicant and respondent attended at the office of the solicitor for the respondent, together, and imparted instructions that lead to the completion of a transfer on the same day. No counsel, much less one who may not be familiar with the intricacies of family law, would have allowed this to happen, nor should it have happened. Counsel who prepared and filed the transfer was Mr. Schwartz’s long time business solicitor. I cannot in any way be satisfied that in the absence of independent legal advice the applicant had the intention to truly gift her interest. Frankly, that would be, as Mr. Greenstein suggested in submissions, “ludicrous.”
Justice O’Connell set aside the transfer, and did not accept the arguments presented by the wife,
55 There was nothing in it for the wife, save the prospect that somehow her future possible liability for trademark infringement would be defeated with the transfer. This is mere speculation. For a person in the shoes of the wife with few assets, and a significant historical contribution to the mortgage, and the care of the home, to simply gift away her ownership interest in the home, is an untenable theory.
For the sake of thoroughness, Justice O’Connell also addressed the trust issue and found that a trust relationship existed, given that the wife paid directly for the mortgage and maintained the house even after the transfer. He also focused on the representations of the husband to the creditor, and the fact that the wife did not know about the loan.
Although Rules 2.(2),(3) of the Family Law Rules, O. Reg. 114/99 provide some procedural flexibility, the lack of undue influence in the wife’s pleadings resulted in procedural unfairness to the creditor, and the Court of Appeal dismissed the Ontario Superior Court of Justice decision setting aside the transfer. The respective interests of the parties would have to be resolved through the trust issue.
The Ontario Court of Appeal found that the presumption of resulting trust under the Act was not rebutted by the transfer of the matrimonial home in 2006, and cited the recent Supreme Court of Canada decision in Kerr v. Baranow,
 …While traditional resulting trust principles may well have a role to play in the resolution of property disputes between unmarried domestic partners, the time has come to acknowledge that there is no continuing role for the common intention resulting trust. To explain why, I must first put the question in the context of some basic principles about resulting trusts.
 That task is not as easy as it should be; there is not much one can say about resulting trusts without a well-grounded fear of contradiction. There is debate about how they should be classified and how they arise, let alone about many of the finer points: see, e.g., Rathwell v. Rathwell, 1978 CanLII 3 (SCC),  2 S.C.R. 436, at pp. 449-50; [Waters’ Law of Trusts in Canada (3rd ed. 2005)], at pp. 19-22; P. H. Pettit, Equity and the Law of Trusts (11th ed. 2009), at p. 67. However, it is widely accepted that the underlying notion of the resulting trust is that it is imposed “to return property to the person who gave it and is entitled to it beneficially, from someone else who has title to it. Thus, the beneficial interest ‘results’ (jumps back) to the true owner”: [Oosterhoff on Trusts: Text, Commentary and Materials, 7th ed. by A. H. Oosterhoff et al. Toronto: Carswell, 2009], at p. 25. There is also widespread agreement that, traditionally, resulting trusts arose where there had been a gratuitous transfer or where the purposes set out by an express or implied trust failed to exhaust the trust property: Waters’, at p. 21.
Kerr also emphasized the importance of intention at the time of a conveyance where a gratuitous transfer is made. The court held that the motion judge could decide that the wife did not intend to gift her interest in the matrimonial home, and that this conclusion was reasonable based on the available evidence. Although a palpable and overriding error was not made in this regard, the court stated that Justice O’Connell should have proceeded further to establish the extent of the interest the husband held for his wife.
However, given the lack of information before the court on the trust issue, the Court of Appeal remitted the matter back to the Superior Court of Justice, emphasizing the statements in Thibodeau v. Thibodeau and Soulos v. Korkontzilas over equitable remedies when providing constructive or remedial trust relief, and the need for protecting the interests of creditors.
The Ontario Court of Appeal restrained the creditor from executing the writ of seizure and sale against the matrimonial home until the Superior Court of Justice could determine the extent of the wife’s interest in it.