Case Comment: Cameron (Re) (2011) 108 O.R. (3d) 117

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1 April 2013 Trusts & Estates Law Section Case Comment: Cameron (Re) (2011) 108 O.R. (3d) 117 Vince De Angelis Is a spouse s acquisition of her late spouse s interest in their jointly owned matrimonial home by way of survivorship a transfer at undervalue that can be set aside under s. 96 of the Bankruptcy and Insolvency Act (the BIA )? 1 The bankrupt estates of Dr. Cameron and Dr. Shaul were the subject matter of the decision in Cameron (Re). 2 The creditor in each case, the Bank of Nova Scotia (the Bank ), gave a loan to each debtor to run his medical practice. The loan was not secured against the matrimonial home. Neither wife guaranteed the loan or was a party to the loan agreement. The debtors died. At the time of death, all payments to the Bank were current and the debtors were not insolvent. Money was owed on the loans. Because the debtors and their respective wives owned their matrimonial homes as joint tenants, on the debtors death the wives each became the sole owners of their homes by right of survivorship. As it turned out, the debtors assets in each case were insufficient to meet their obligations to the Bank. Within two months of each debtor s death, the Bank moved for a Bankruptcy order against each estate. The estates were adjudged bankrupt. On a motion against each estate, the Bank sought to set aside the automatic vesting of the matrimonial homes on the basis that they were transfers at undervalue under s. 96 of the BIA. 3 Section 96 reads: Transfer at undervalue 96. (1) On application by the trustee, a court may declare that a transfer at undervalue is void as against, or, in Quebec, may not be set up against, the 1 R.S.C. 1985, c. B-3. 2 (2011) 108 O.R. (3d) 117 ( Cameron ). 3 The trustee in bankruptcy was unable or unwilling to pursue an action in either case to try to claw back the debtor s former interest in his matrimonial home under s. 96 of the BIA. In each estate, the Bank obtained an order under s. 38 of the BIA to pursue a claim against the surviving spouse for recovery of the debtor s former joint interest in the matrimonial home into his bankruptcy estate.

2 2 trustee or order that a party to the transfer or any other person who is privy to the transfer, or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor if * * * (b) the party was not dealing at arm s length with the debtor and Establishing values (i) the transfer occurred during the period that begins on the day that is one year before the date of the initial Bankruptcy event and ends on the date of the Bankruptcy, or (ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial Bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (i) begins and a) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or b) the debtor intended to defraud, defeat or delay a creditor. (2) In making the application referred to in this section, the trustee shall state what, in the trustee s opinion, was the fair market value of the property or services and what, in the trustee s opinion, was the value of the actual consideration given or received by the debtor, and the values on which the court makes any finding under this section are, in the absence of evidence to the contrary, the values stated by the trustee. Meaning of person who is privy (3) In this section, a person who is privy means a person who is not dealing at arm s length with a party to a transfer and, by reason of the transfer, directly or indirectly, receives a benefit or causes a benefit to be received by another person. The first question Mesbur J asked was whether the widows becoming sole owners of their matrimonial homes by way of survivorship constituted a transfer of property within the meaning of the BIA. This required an analysis of the concepts of joint tenancy and the right of survivorship. She noted that as long as a joint tenancy has not been severed, then on the death of one of the joint tenants, the surviving joint tenant automatically becomes the owner of the whole property.

3 3 To create and maintain a joint tenancy there must be, and continue to be, what are described as the four unities : unity of title: the joint tenants must take under the same instrument; unity of interest: each joint tenant s interest in the property must be identical in nature, extent and duration to that of the other joint tenant or tenants interest; unity of possession: each joint tenant is entitled to undivided possession of the whole of the property; and, unity of time: the interest of each joint tenant must vest at the same time. 4 When one joint tenant dies, his or her interest in a property is extinguished, and the rights of the remaining joint tenant or tenants are correspondingly enlarged. The enlarged interest immediately vests in the remaining joint tenant or tenants. 5 The Bank argued that the automatic vesting was a transfer as contemplated by the BIA. It pointed to the definition of transfer in Black s Law Dictionary 6 to support its view. Black s provides three definitions of the term transfer : a) Any mode of disposing of or parting with an asset or an interest in an asset, including the payment of money, release, lease or creation of a lien or other encumbrance. The term embraces every method direct or indirect, absolute or conditional, voluntary or involuntary of disposing of or parting with property or with an interest in property; b) Negotiation of an instrument according to the forms of law. The four methods of transfer are by endorsement, by delivery, by assignment, and by operation of law; c) A conveyance of property or title from one person to another. 7 Mesbur J held that on the death of a joint tenant, the deceased does not dispose of an asset. Rather, the interest of the deceased joint tenant is extinguished altogether, leaving nothing to transfer or negotiate. Therefore, the methods of transfer in the circumstances itemized in the Black s definition had no application in this case. 8 4 Cameron p. 123, cf Harry D., Anger, A.H. Oosterhoff and W.B. Rayner, Anger and Honsberger Law of Real Property, 2nd Ed., Vol. 1, (Aurora, Ont.: Canada Law Book Inc., 1985) at page 788 ( Anger ). 5 Ibid, cf Anger at page 793. The decision also refers to Re White, 1928 CarswellOnt 29 (SCO in Bankruptcy); Simcoff v. Simcoff, 2009 CarswellMan 357 (Man. C.A.) and Fuller v. Fuller, 2010 CarswellBC 2555 (B.C.C.A.). 6 7th edition (St. Paul, MN: West Publishing, 1999). 7 Cameron, ps. 123 and Ibid.

4 4 Mesbur J also held that the passing of rights, duties or powers on succession do not include survivorship. Assets that vest in a surviving joint tenant do not form part of a deceased s estate. They do not devolve on succession. 9 The Bank argued that the concept of expression unius est exclusion alterius (implied exclusion) was applicable. It suggested that had Parliament intended to exempt the right of survivorship from being subject to the BIA s remedial provisions, it would have done so specifically. The Bank referred to ss. 70(1) which, it suggested, codified a separate mechanism for exempting transactions from the BIA s remedial provisions. Subsection 70(1) of the BIA reads: Every bankruptcy order and every assignment made under this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, legal hypothecs of judgment creditors, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or the creditor s representative, and except the rights of a secured creditor. Mesbur J held that ss. 70(1) did not apply to this case because: a) the widows were not creditors of their late husbands, and their right to survivorship could not be described as a judicial or other attachment. b) their late husbands interests in their former matrimonial homes vested in them prior to bankruptcy, and were not property of the bankrupt. 10 Mesbur J went on to hold that even if she had found each automatic vesting to be a transfer, the Bank would still have to show that they were transfers made at undervalue. She held that the Bank had not established undervalue. The right of survivorship was something the couples acquired when they took title to their matrimonial homes. Key to her finding in this regard was that, in both cases, the establishment of the joint tenancy occurred long before the Bank lent any money to either bankrupt, and long before either of them died. 11 Furthermore, she held that when they acquired their matrimonial homes as joint tenants, each joint tenant acquired his or her right of survivorship. Each couple provided equal consideration: the right of survivorship offset against each party s risk of predeceasing the other and with his or her interest in the property becoming extinguished by virtue of death Ibid. 10 Ibid., p Ibid. 12 Ibid.

5 5 Interestingly, Mesbur J referred to the Family Law Act 13 as further support of her finding that some form of consideration passed from each party, namely that marriage is an economic partnership. The roles of the partners in a partnership are to acquire assets, earn income, raise children and run the household. All of these roles were deemed to be of equal value, entitling each partner to an equal share of the net value of assets acquired during the marital partnership: 14 As I see it, regardless of what each of the spouses contributed in money to acquire their matrimonial homes, the law presumes that each widow contributed as much as her husband to that acquisition, whether by way of money, or money s worth. Part of what each acquired was the hope of surviving and becoming the sole owner of the whole. Each acquired an inchoate right to sole ownership at the time the property was acquired with their equal, joint efforts. That inchoate right crystallized at the moment of the other joint tenant s death. 15 She therefore concluded that the widows acquisition of the whole of their properties was not at undervalue as contemplated by s. 96. Next, the Bank argued that the widows held their deceased husbands former interests in their matrimonial homes in trust for the bankrupt estates based on unjust enrichment. Before a court can impose a constructive trust, it must find that there has been an enrichment, a corresponding deprivation, and the absence of any juristic reason for the enrichment. 16 Mesbur J held that: 1. the automatic vesting of title in a survivor did not enrich the survivor. Again, repeating the argument above with respect to consideration passing when establishing the right of survivorship, Mesbur J reasoned that the parties each acquired their inchoate rights of survivorship at the time the property was acquired and not at the date of death. It was part of what each had from the beginning. Mutual consideration passed between the spouses in the sense that each acquired the chance of acquiring the whole by way of survivorship, and each risked the fact that he or she might predecease the other, and thus lose his or her right to the whole. Further, the widows and their late husbands provided equal consideration for their actual acquisition and maintenance of their respective matrimonial homes R.S.O.1990, c. F Cameron, pgs. 125 and Ibid., p Ibid cf. Sorochan v. Sorochan [1986] 2 S.C.R. 38; Pettkus v. Becker [1980] 2 S.C.R. 834; Bukvic v. Bukvic [2007] O.J. No Ibid. p.127.

6 6 2. the estate was not deprived. The estate is entitled to the bankrupt s property, which vests in the Trustee at the date of the bankruptcy. However, in this case, the widows owned the whole of the properties prior to the date of bankruptcy: there was nothing to vest in the Trustee, and therefore no deprivation even if there were enrichment and deprivation, there was in fact a juristic reason for each. Referring to Harrison Estate v. Harrison, 19 Mesbur J found that the juristic reason was what the law dealing with joint tenancies required: if the law itself provides for the right of survivorship, then surely that is the juristic reason for it. 20 The Bank s final argument was that the equities favoured the creditors in cases such as these. It pointed out that upon bankruptcy, the property of the bankrupt vests in the trustee, thus breaking the four unities and transforming the joint tenancy into a tenancy in common. The Bank argued that if this would have been the result had each bankruptcy occurred prior to death, why should bankruptcy occurring after death preclude clawing back the vesting of title in the survivor when that vesting occurs within the one-year reviewable period? The Bank s position was that it would not be just and equitable to permit this result. As a consequence, the Bank took the position the equities favoured the Bank. 21 This argument was also dismissed due to timing. At the time of bankruptcy, the property was not owned by the bankrupts estates. In other words, there was nothing inequitable in depriving the creditors of property which never vested in the Trustee, because it was not owned by the bankrupts estates at the date of death and to which s. 96 of the BIA did not apply. If anything, the equities favoured the widows. Key to this finding was that the Bank lent money to their husbands long after the widows had acquired their right of survivorship in their matrimonial homes:...to deprive them of their property because the outcome would have been different had their husbands been insolvent, adjudged bankrupt and then died strikes me as completely inequitable The decision echoes that of Amherst Crane Rentals Ltd. v. Perring, 23 albeit with less tortuous reasoning in reaching a favourable conclusion for the beneficiary of the 18 Ibid CarswellOnt 6342 (S.C.J.) at para Cameron, pgs Ibid., p Ibid., pages 128 and CanLII (ONCA).

7 7 property at issue. In each case, the creditors sought to enforce their rights against the assets of the debtor after his death. Mesbur J s reasoning that the assets which vest in a survivor of a joint tenancy do not form part of the deceased s estate is in line with what we, as practitioners, advise clients and so this reasoning seems perfectly in line with our understanding of the concept of survivorship. What is troubling, however, is Mesbur J s analysis in coming to a decision that value was given for the right of survivorship. She noted that the matrimonial home was acquired long before the Bank had lent money to each debtor. She also attributed value to the roles each spouse plays within the partnership of marriage. Her conclusion that there was adequate consideration precluded a finding of an enrichment of the surviving spouse. It does lead one to ask whether or not the decision would have been the same had the joint tenancy been established after the Bank had lent the money, or if the joint tenants were not married at the time. In these circumstances, the creation of the joint tenancy may be vulnerable to attack under s. 96 of the BIA or a claim for constructive trust. To my knowledge, this decision has not been appealed or considered in any other case to date. This decision may be helpful in cases where: the joint tenants are spouses; the debtor spouse was not insolvent; and the debtor was not indebted to the creditor at the time the joint tenancy was established. In any other case, the outcome may not be so favourable to the surviving joint tenant. Vincent De Angelis, De Angelis Law Professional Corporation

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