TRUSTS AND INDEFEASIBLE TITLE UNDER THE TORRENS LANDHOLDING SYSTEM

Posted: March 19, 2020 | Last Updated: March 19, 2020
Written by: Edward D. Brown

Edward D. (Ned) Brown
Pitblado LLP
March, 2020

Assume the following fact scenario. "X" is the owner of a parcel of real estate (the "Realty"). "X" has three children and has become estranged from two of them, but maintains good relations with the third child. Fearing that the estranged children may make claims to the Realty upon "X"'s death ("X" rewrites her will to exclude her estranged children consequent upon the estrangement), "X" transfers title to the Realty to her third child. At the time of the transfer of title, "X" makes it abundantly clear, both by written statements contained in letters or other communications made to the transferee, and perhaps as well, by way of statements made to third parties, that her intention to transfer title was not to provide any meaningful ownership of the Realty to the transferee, but rather to protect the Realty from the estranged children's possible claims. When attending upon her lawyer to arrange for the transfer of title, "X" could have explained to that lawyer that her intention was that the transferee child was to hold title, in effect, for the benefit of (i.e., in trust for) "X", and working with that lawyer, could have documented - by a written declaration of trust - that understanding. A caveat could have been registered against the title in the transferee child's name giving notice of the fact that the registered owner held the property as a trustee (probably a "bare" trustee) for "X". But none of that happened.

Subsequently, the transferee child and "X" become estranged, and thereafter, the transferee child takes the position that the Realty was transferred to her by "X" with the intent of placing complete ownership of the Realty in the transferee child. "X" argues to the contrary. The legal concepts being argued by the transferee child and "X" are the following:

  1. the transferee child take the position that, pursuant to Sections 59(1) and 58(1) of the Manitoba Real Property Act (the "MRPA"), because she holds title under the MRPA, the unregistered trust alleged to exist by "X" cannot be enforced against the title in the transferee child's name; and
  2. "X" argues that in the circumstances, a trust resulting from the above-described scenario was imposed on the transferee child with respect to her holding what would otherwise be an indefeasible title. In other words, her position was that a "resulting trust" had arisen and should be recognized and enforced by the Court against the transferee child's title to the realty.
     

The above scenario is substantially drawn from the facts before the Manitoba Court of Appeal in the Hyczkewycz v. Hupe (2019 MBCA 74, judgment issued March 7, 2019 (hereinafter, the "Hupe Case")).

Of particular interest to this writer and the subject of a large portion of the judgment in the Hupe Case, is the Court's review and analysis of Manitoba's version of the Torrens landholding system as reflected in the provisions of the MRPA. The core question appears to have been whether or not the concept of indefeasibility of title, as specified in the MRPA, can co-exist with the concept of the imposition (typically by the Courts) of trusts which are not expressly created, documented and registered against a land title.

In the Hupe Case, Mary Hyczkewycz ("Mary") transferred title to her property (actually, several properties) to her daughter Sharon ("Sharon") with a view towards "insulating" her property from potential claims of her two estranged sons.  Sharon's position was that:

  1. subject to specified certain exceptions found in Sections 58(1), 59(1), 59(1.2), 59(2) and 62 of the MRPA (the "Core Ownership Rules"), the MRPA (Section 59(1)) specified that Sharon had a title which was, except for any interests registered against it, "good against all the world"; and
  2. the (resulting) trust that Mary argued should be imposed on Sharon's titled ownership was not one of the specified exceptions.

Mary's position was that the title holding/ownership regime provided for under the Core Ownership Rules had to be read subject to the power of a Court to declare/confirm the existence of trust/trustee obligations on a title holder, and in the circumstances, Sharon should be declared to hold her title subject to such a trust.

The Court agreed with Mary.  In particular, the Court concluded that, notwithstanding the provisions contained in the MPRA, when enacted, the MPRA had not specifically excluded the application of unregistered trusts against a title holder, and that absent such specific exclusion, by common law and equity - especially equity - such trusts could be imposed on a title holder, depending on the circumstances of the parties (the underlining here is the writer's made for the purpose of emphasis).

It is the writer's understanding that the Court's thinking was that in Mary's and Sharon's situation, a non-registered trust could and should be imposed on Sharon's title.  Mary had communicated to Sharon (and others) her intent to transfer title to Sharon solely for the purpose of protecting the property from her estranged sons' potential claims.  With that knowledge, Sharon was not entitled to deny that she held her title in trust for Mary.  But the situation could have well been different if Sharon had sold and transferred her title to a third party for value with the third party being unaware that Sharon's titled ownership really belonged to Mary.  Such a transferee would acquire title free of the trust imposed on Sharon.  In other words, the trust bound Sharon, but would not have bound a third party transferee from Sharon who gave value and who wasn't aware of the fact that Mary never intended to personally benefit Sharon when she transferred the Realty to Sharon.

This is a striking example of how equity operates "in personam", that is, between parties based on their respective communications, knowledge and declarations.

 

Edward D. (Ned) Brown has extensive experience in Corporate and Commercial law. Ned is focused on the areas of lending and secured transactions, banking law, subdivisions and commercial real estate development.