Bank of Montreal v. Pricewaterhousecoopers Inc.

Bank of Montreal v. Pricewaterhousecoopers Inc. Court Supreme Court Date 2021-04-13 Citation 2021 NSSC 145 Docket HFX495844 Judge/Registrar/Adjudicator Jamieson, Darlene (Honourable Justice) Document Type Decision Decision Content SUPREME COURT OF Nova Scotia (In Bankruptcy and Insolvency) Citation: Bank of Montreal v. Pricewaterhousecoopers Inc., 2021 NSSC 145 Date: 20210413 Docket: HFX495844 Registry: Halifax IN THE MATTER OF the Receivership of Destiny Homes Incorporated Between: Bank of Montreal Applicant v. Pricewaterhousecoopers Inc., in its capacity as Trustee in Bankruptcy for Destiny Homes Incorporated Respondent and Steven Raycroft and Heather Raycroft Other Parties DECISION Judge: The Honourable Justice Darlene A. Jamieson Heard: April 13, 2021, in Halifax, Nova Scotia Oral Decision: April 13, 2021, in Halifax, Nova Scotia Counsel: Stephen Kingston and Hilary Gilroy for the Applicant Maurice Chiasson QC for the Respondent Matthew Moir and Nicole Power for the Other Parties By the Court (Orally): [1] The Fourth and Final Report of the Receiver, Pricewaterhousecoopers Inc. (“PWC”) in the Receivership of Destiny Homes Incorporated (“Destiny Homes”) filed with the court on November 17, 2020, states at page 5 that the Receiver received a trust claim on April 20, 2020, on 84 Everlina Lane from Stephen Raycroft and Heather Raycroft (“the Raycrofts”). The report states: The Receiver and its independent legal counsel, based upon the review of the documents received and related correspondence thereon, are of the view the Raycrofts have not provided sufficient evidence in proving their Trust Claim. [2] It further states: The Receiver understands the Raycrofts do not agree with the Receiver’s conclusion on the trust claim and may contest the proposed distribution. The Receiver has not received formal opposition or notice in this regard… [3] There was an appearance before Justice Campbell where the claim being advanced by the Raycrofts was raised. On November 26, 2019, Justice Campbell granted an Order approving the activities of the court appointed receiver, PWC, along with its accounts and those of its counsel to the date of the Order. In relation to the Raycrofts’ claim, the Order provides: PWC shall retain $300,000 pending further order of this court to address the constructive trust claim of Steven and Heather Raycroft and any associated professional fees incurred by PWC and its counsel. [4] The Order further provided that the hearing of the “constructive trust claim” would take place today. Justice Campbell further ordered distribution of the remaining funds as set out in the Fourth and Final Report, other than the holdback funds of $300,000 which are the subject of this dispute. [5] The motion before me is to determine whether the Raycrofts have a trust interest in the property and if so, whether the trust interest attaches to the proceeds of the sale of the property in priority to the Bank of Montreal (“BMO”) mortgage. [6] On this Motion, BMO filed the affidavit of Mr. Scott Theriault, Senior Relationship Manager employed by the Bank of Montreal. The Raycrofts each filed an affidavit. Background [7] In 2018 the Raycrofts wanted to downsize their family home. Mr. Greg Hammond, the president of Destiny Homes, suggested they consider the Windgate Estates development in Windsor Junction. Mr. Hammond contacted Powder Mill Developments Limited (“Powder Mill”) and provided the Raycrofts with a list of its available lakefront lots. The Raycrofts decided to retain Destiny Homes to build their new home at this location. [8] On December 10, 2018, Destiny Homes entered into an Agreement of Purchase and Sale with Powder Mill (the “Powder Mill Agreement”) to purchase the land, on which the Raycroft home would be built, for a price of $269,900 plus HST. [9] On January 11, 2019, Destiny Homes entered into an Agreement of Purchase and Sale with the Raycrofts (the “Raycroft Agreement”) for construction of their home on “lot 10 Windgate Farms (to be renamed unit 6 legally)” (“the property”) at a price of $882,602 plus HST. Attached to the Raycroft Agreement, when provided to them, was the agreement of Purchase and Sale between Powder Mill and Destiny Homes dated December 10, 2018. The Raycrofts say they did not review it at the time, and were not aware of the Powder Mill Agreement until after Destiny Homes went into bankruptcy. However, Mr. Raycroft acknowledges in his Affidavit that each page of the Powder Mill Agreement is initialed by them. The Raycrofts at the time were represented by legal counsel. [10] Although the Raycroft Agreement does not set out expressly that the purchase money would remain in trust pending completion of the construction, that is what the Raycrofts say they believed, and they understood Destiny Homes had agreed to in their agreement. [11] The amounts paid by the Raycrofts are not in dispute. Pursuant to the Raycroft Agreement, the Raycrofts paid a total of $310,385 toward the stated purchase, they paid $308,385 in trust to Cox & Palmer and $2,000 directly to Destiny Homes. In addition, the Raycrofts paid a further $20,000 directly to Destiny Homes, which they say was to be kept as a deposit towards the construction project and enrolled in the Atlantic New Home Warranty deposit protection plan (although they say it never was so enrolled). [12] In total, they paid $330,385 toward the purchase and development of the property. Of this amount, they say $310,385 was towards the purchase price for the land. [13] The deed to Destiny Homes from Powder Mill was registered on May 9, 2019, and Destiny Homes obtained a mortgage on the property in favour of the BMO in the amount of $950,000. The mortgage secured indebtedness from four Destiny Homes construction projects, including the Raycrofts’ home. [14] The Raycrofts say they did not believe they were paying any land purchase monies to Destiny Homes’ lawyers. They say they understood the money would be held in trust by Powder Mill’s lawyers at Cox & Palmer until the project was completed. They say if the contract with Destiny Homes was not fulfilled for any reason, they expected the land purchase payments would be returned to them. (Mr. Raycroft’s affidavit at paras. 19, 20, and 23). They say: We understood that we were paying the money into a lawyer’s trust account in order to secure our title to the Property, that the money would be held and protected by its trust status pending completion of the project by Destiny Homes. At no time did we conceive that we were paying over $300,000.00 in order for Destiny Homes to acquire title to the Property. (para. 23) [15] At the time they entered the Agreement of Purchase and Sale, the property was intended to be registered as a condominium unit, but had not yet been registered. The property was subsequently registered as a condominium unit on April 26, 2019. [16] Construction of the Raycrofts’ home began in the spring of 2019 and continued into the fall. In or around the fall of 2019 they first learned Destiny Homes was in financial difficulty. [17] The Raycrofts say it was in the fall of 2019 that they were advised that title to the property had gone into Destiny Homes’ name. Until that point, they understood themselves to be the legal owners of the property. They say they met with their legal counsel in the fall who advised that Cox & Palmer had released the money for the purchase of the property and to their surprise title had gone into Destiny Homes’ name. [18] On November 28, 2019, Destiny Homes entered bankruptcy. PWC was appointed Trustee in Bankruptcy on February 6, 2020. [19] After the bankruptcy, the Raycrofts claimed a trust interest in the first $310,385 of the proceeds of sale of the property. A letter of April 20, 2020, was sent by their legal counsel to PWC stating the Raycrofts had a trust interest in the property in the bankruptcy of Destiny Homes – that the property was subject to a purchase money resulting trust in favour of the Raycrofts. [20] On August 15, 2020, the Raycrofts purchased the property from the bankruptcy estate for $320,000, plus HST of $48,000. All parties agree that after the receiver’s expenses, there remains a total of $219,452 net proceeds of sale. [21] Those proceeds stand in place of the property as regards to claims against the property. It is the entitlement to these remaining funds that is in dispute. The Raycrofts say they have a purchase money resulting trust over the funds in priority to the mortgage. BMO claims that it is entitled to the funds because its recorded mortgage takes priority over the Raycrofts’ unrecorded equitable interest. The Position of the Parties [22] In their brief, the Raycrofts argue that their payments toward the purchase price gave rise to a trust interest by way of purchase money resulting trust. A presumed trust arises when one party pays the purchase price (or part of the purchase price) for property but does not receive title. The Raycrofts cite several authorities regarding purchase money resulting trusts, including Nishi v. Rascal Trucking Ltd., 2013 SCC 33. [23] The Raycrofts submit that they, not Destiny Homes, are the beneficial owners of all of the proceeds of sale, net of the receiver’s costs, because they advanced the entirety of the purchase money used to acquire the land from Powder Mill. [24] Although the Raycrofts had argued in their pre-hearing brief that the Land Registration Act, S.N.S. 2001, c. 6, (“LRA”) specifically s. 45, does not apply to trusts that arise by operation of law, they abandoned that argument, and the parties agree that the relative priority is to be determined pursuant to ss. 49(1) and 4(4). [25] The Raycrofts say that the issues on this motion can be narrowed to whether BMO obtained its interest through fraud and the questions that arise under s. 4(4) of the Act: (a) Did the bank have actual knowledge of the Raycrofts’ interest that was not registered or recorded? (b) Did the bank have actual knowledge that its transaction with Destiny Homes was not authorized by the Raycrofts? (c) Did the bank know, or ought it to have known, that the transaction would prejudice the interest that was not registered or recorded? [26] The Raycrofts argue that having knowledge of the material facts giving rise to the trust constitutes “actual knowledge” under s. 4(4). They say Mr. Scott Theriault, Destiny Homes’ contact person at the bank, was aware, from being in possession of the Agreement of Purchase and Sale between Destiny Homes and the Raycrofts, that the Raycrofts were paying the purchase price for the land and not taking title. [27] The Raycrofts point to an Ontario decision, Bank of Montreal v. Smith, [2008] O.J. No. 2353 and two Nova Scotia cases, Fort Garry Trust Co. v. Sutherland (1980), 59 N.S.R. (2d) 34 and Robertson v. McCarron [1975], 71 N.S.R. (2d) 34, which both pre-date the Nova Scotia LRA, and argue that the knowledge requirement in s. 4(4) is met by the fact that BMO had possession of the two Agreements of Purchase and Sale, and would have known, even on a tertiary review, that the Raycrofts were putting up the purchase price but not receiving title. [28] They also indicate that Mr. Theriault needed to satisfy himself of certain terms under the agreement for his own banking purposes. They say that the Court must not set an impossible standard that allows a bank to be wilfully blind to information it possesses. [29] BMO, on the other hand, says the Raycrofts cannot establish actual knowledge without evidence that Mr. Theriault reviewed the agreement in detail, noted that the Raycrofts were funding the purchase of the property, recognized that the Raycrofts may have an unrecorded equitable interest in the property as a result, and had knowledge the Raycrofts had not authorized the mortgage. BMO says the Raycrofts have put no such evidence before the court. Sections 49(1) and 4(4) of the Land Registration Act and Actual Knowledge [30] The legislative purpose of the LRA is set out in s. 2, which states in part: 2 The purpose of this Act is to (a) provide certainty in ownership of interests in land; (b) simplify proof of ownership of interests in land; … [31] In addition, s. 49(1) of the Act states: Duties of registrar 49 (1) A recorded interest shall be enforced with priority over a prior interest where the subsequent interest was (a) obtained for value; (b) obtained without fraud on the part of the owner of the subsequent interest; (c) obtained at a time when the prior interest was not recorded; and (d) recorded at a time when the prior interest was not registered or recorded. [32] The BMO mortgage meets the provisions of s. 49(1), with the only issue being whether under s. 49(1)(b), it was “obtained without fraud”. Fraud, as counsel have noted, has a particularly special meaning for the purposes of the Act. Section 4(4) states: (4) A person obtains an interest through fraud if that person, at the time of the transaction, (a) had actual knowledge of an interest that was not registered or recorded; (b) had actual knowledge that the transaction was not authorized by the owner of the interest that was not registered or recorded; and (c) knew or ought to have known that the transaction would prejudice the interest that was not registered or recorded. [emphasis added] [33] Section 4(4) is conjunctive and all items in the list must be present for there to be fraud – each and every condition in the list must be satisfied. [34] In relation to the phrase “ actual knowledge” found in section 4, I refer in part to the Registry 2000, Land Records Reform, "Discussion Paper on a Land Registration Act for Nova Scotia" (Halifax: Land Records Reform Office, January 2000), where the following is stated about fraud under s. 4: Fraud A person engaging in a transaction with an owner of a parcel is not shielded from an unregistered or unrecorded interest affecting the parcel in question when he or she has actual notice of that (unauthorized) interest. The Land Registration Act differs from traditional Land Titles legislation in this respect. [p. 5] [35] The meaning of “actual knowledge” for the purposes of s. 4(4) was considered in CitiFinancial Canada East Corporation v. Touchie, 2010 NSSC 149. In CitiFinancial, Bryson, J. (as he then was) explained the difference between “constructive notice” and “actual notice”: [40] At common law, constructive notice was a means by which equity constrained the favoured position of a bona fide purchaser for value without notice. If such a person had knowledge of facts which, if investigated, would have given actual knowledge of a prior interest, or that person wilfully abstained from inquiry to avoid notice, the court would constructively impose that knowledge on such a purchaser so that he could not say he had no knowledge of that prior interest: Anger and Honsberger, Law of Real Property, 3rd Ed., 30.30 10(a). In contrast, actual notice was defined as knowledge of the prior claim itself. Actual knowledge did not require knowledge of the instrument, but merely of the claim embodied in the instrument, (Robertson v. McCarron [1975], 71 N.S.R. (2d) 34, (N.S.T.D. ) ¶ 72. However, some cases have blurred the line or distinction between actual and constructive notice. In Grant v. Gillingham (1942) 1 D.L.R. 421, (N.S.S.C.), the court held that the purchaser who knew that a third party was in possession of the land he was buying had actual notice of the possessor’s interest, and took subject to it. It is clear that in such a case the purchaser would not know precisely what the possessor’s interest was without further investigation, which is typically characteristic of constructive notice. [41] Uncertainty of application of the doctrine of notice may have led the legislature to define fraud in the Act and to exclude the common law definitions of notice and constructive notice. There are two ways that s. 4 does this. First of all, in s-s. 3, the Act says what a purchaser is entitled to assume as against an unrecorded interest: A person who engages in a transaction with a registered owner of an interest that is subject to an interest that is not registered or recorded at the time of the transaction, other than an overriding interest, in the absence of actual knowledge of the interest that is not registered or recorded, (a) may assume without inquiry that the transaction is authorized by the owner of an interest that is not registered or recorded; (b) may assume without inquiry that the transaction will not prejudice that interest; and (c) has no duty to ensure the proper application of any assets paid or delivered to the registered owner of the interest that is subject to the transaction. From the foregoing, it is obvious that absent actual knowledge of an unrecorded interest, a purchaser may make broad assumptions and is relieved of any obligation to make inquiry. This implies that a purchaser may well have some knowledge of a possible unrecorded third party interest in the lands in question. But the legislation makes it clear that such a purchaser has no obligation to make any inquiries. The onus is plainly placed upon the person with an unrecorded interest to either record or provide actual knowledge to a potential purchaser. There is no onus on the purchaser to ascertain anything. Short of actual knowledge, registration and recording are everything. [42] Then s-s. 4 provides a positive definition of “fraud” by discussing “actual knowledge.” That sub-section says: A person who obtains an interest through fraud if that person, at the time of the transaction, (a) had actual knowledge of an interest that was not registered or recorded; (b) had actual knowledge that the transaction was not authorized by the owner of the interest that was not registered or recorded; and (c) knew or ought to have known that the transaction would prejudice the interest that was not registered or recorded. To establish fraud, s-s. (a) and (b) require both that the purchaser be personally aware of the unrecorded interest and that the owner of the unrecorded interest had not authorized the prospective transaction. The only element of “constructive notice” that might survive is the inferential knowledge that is imposed under s-s. (c) with the words “knew or ought to have known” that the transaction would prejudice the recorded interest. [emphasis added] [36] In defining constructive and actual knowledge, Bryson J. cited Anger and Honsberger, Law of Real Property, 3rd ed., at 30.30 10(a). That section of the text states: Notice may be actual and positive or constructive and implied. Actual notice is knowledge actually brought home to the party to be charged with it, either by their own admission or by evidence of witnesses. Actual notice must be express and direct and not merely arising out of the circumstances or facts that should put a party on inquiry. … [emphasis added] [37] I note as well that the definitions of actual and constructive knowledge adopted by Bryson, J. are consistent with the statements at pp. 522-523 of Bruce Ziff, Principles of Property Law, 7th ed, (Toronto: Thomson Reuters Canada, 2018): In equity, notice may be (i) actual, (ii) constructive, or (iii) imputed. Actual notice means a real knowledge of the circumstances. The reading of the relevant document is the paradigm form. The test of actual knowledge is a stringent one: it appears that an examination of document X, which refers to document Y, does not normally amount to actual notice of Document Y. In addition, knowing that a party is in possession of the property is not generally treated as actual notice of the interest under which that possession is enjoyed. Information conveyed by rumour is also not adequate. … Analysis [38] Under the LRA the burden of proving fraud lies upon the person making that allegation (CitiFinancial Canada East Corp. v. Touchie, Supra) and that burden is on the Raycrofts. [39] In Nova Scotia an interest is obtained by fraud where there was actual knowledge of an unregistered or unrecorded interest and actual knowledge that the transaction was not authorized by the owner of that interest, and actual or constructive knowledge that the transaction would prejudice the unregistered or unrecorded interest. The First Requirement of Section 4(4) (a) Was there actual knowledge of an unregistered or unrecorded interest? [40] The Raycrofts say BMO had actual knowledge that the purchase money for the property, which went to Powder Mill, came entirely from them. They say BMO had the benefit of both the Raycroft Agreement and the Powder Mill Agreement for context, and they say this amounts to actual knowledge. They say that BMO having possession of the material facts giving rise to the trust constitutes actual notice of the trust, and that Mr. Theriault was in possession of all of the material facts – specifically that the Raycrofts were paying the purchase price for the land and not taking title. [41] Mr. Scott Theriault of BMO says Destiny Homes was a bank customer, and its credit facilities included a re-advanceable demand loan to assist with the construction of single-family and semi-detached residential housing. Mr. Theriault says Destiny Homes agreed to provide BMO with a first charge All‑Indebtedness Mortgage, to be recorded as a first charge against the property in the maximum principal amount of $950,000. [42] Mr. Theriault said he was contacted in March of 2019 by Destiny Homes regarding financing for Lot 10, later renamed Lot 6. Mr. Hammond provided the Agreement of Purchase and Sale of December 10, 2018, between Destiny Homes and Powder Mill; the Agreement of Purchase and Sale dated January 11, 2019, between Destiny Homes and the Raycrofts for a purchase price of $882,602 plus HST; a residential appraisal report of March 25, 2019, appraising the land at $310,000 and as if complete at $950,000; and also an estimate of land/subdivision cost totaling $950,000. [43] Mr. Theriault said that some of the documentation was similar to other loan documentation Destiny Homes provided previously. He said the Agreement of Purchase and Sale between Destiny Homes and the ultimate purchasers was relevant to his calculation of the loan advances as it enabled the project to qualify as presold rather than ‘on spec’. [44] On May 14, 2019, Mr. Theriault wrote to Mr. Craig Berryman of Cox & Palmer providing mortgage instructions. Mr. Berryman responded on May 22, 2019, enclosing the executed and recorded Mortgage, together with his opinion letter, which stated at para. 3: 3. The Mortgage dated May 21, 2019 has been executed by the Corporation in favour of Bank of Montreal, in the principal amount of $950,000 and will be recorded at the land registration office in Halifax. It will be a valid first charge against the subject property and will be a binding obligation of the Borrower, enforceable in accordance with the Mortgage terms. [45] BMO advanced funds to Cox & Palmer in trust, to be disbursed in accordance with the mortgage instructions – the amounts advanced at designated intervals were $201,500; $69,665.65 and $26,250. [46] Mr. Theriault said at no time during the financing was he aware of any trust or other claim by the Raycrofts with regard to the property. He said in his affidavit: 21. In advancing funds to Destiny in connection with the property, I relied upon the accuracy of the legal opinion provided by Cox & Palmer and understood that the Bank’s All-Indebtedness Mortgage was recorded as a first charge against the Property and was enforceable in accordance with its terms. 22. From my point of view, the only unusual aspect of this financing was the change from “Unit 10” to “Unit 6”, but I understood from the legal opinion that this did not affect the enforceability of the Bank's Mortgage. 23. At no time during this financing was I aware of any trust or other claim by Mr. or Ms. Raycroft as regards to the property. [47] Adopting and applying the definition of actual knowledge set out by Bryson J. in Citi Financial and Touchie, Supra, I find that there is no evidence that BMO had actual knowledge of a purchase money resulting trust in favour of the Raycrofts. There is no evidence to refute Mr. Theriault’s evidence that for his purposes, the relevance of the Raycroft Agreement to him was simply to the calculation of the loan advances as it enabled the project to qualify as presold rather than on spec. [48] Even if Mr. Theriault had carefully read the Agreement of Purchase and Sale between the Raycrofts and Destiny Homes in detail, and noted that the Raycrofts were required under the agreement to advance deposits required by the developer to “complete the land purchase” on January 30, 2019, he would not necessarily have concluded that Destiny Homes used the money advanced by the Raycrofts to pay Powder Mill for the land. Paragraph 2 of the Raycroft Agreement says: Deposits required by developer to complete land purchase to be provided by the client as per developers purchase and sale agreement with Destiny (addendum D). Land purchase and sale agreement to be attached as addendum D. [49] Destiny Homes could have paid Powder Mill for the land with its own funds and held the Raycrofts’ funds in trust, as the Raycrofts themselves expected. In addition, one could question whether para. 2, quoted above, means all monies required for the purchase of the land, or just those stated to be “deposits.” Further, pursuant to the mortgage, Destiny Homes received a first mortgage draw on May 24, 2019, of $201,500 being 65% of the appraised land value, as Mr. Theriault says this was an entitlement on the purchase of the property. What was ultimately happening with regard to any deposits provided by the Raycrofts to Destiny Homes, and what happened with the money from the mortgage draw BMO provided to Destiny Homes, was not information relayed to BMO. In addition, there is simply no evidence of willful blindness on the part of BMO, so I need not enter into an analysis as to whether this could influence an actual knowledge inquiry under s.4(4). [50] Although the agreement between Destiny Homes and Powder Mill states at clause 18 that the offer is conditional on Destiny Homes entering into a “builder’s contract with client” within ten business days, nowhere does the agreement refer to Destiny Homes paying Powder Mill with funds advanced by the client. While it could be argued that the agreements, when taken together, disclosed the possibility, or even the probability, of a trust interest in favour of the Raycrofts, that is not sufficient to amount to actual knowledge of an unrecorded trust interest under s. 4(4)(a). As Bryson J. noted in Citi Financial and Touchie, at para. 41: From the foregoing, it is obvious that absent actual knowledge of an unrecorded interest, a purchaser may make broad assumptions and is relieved of any obligation to make inquiry. This implies that a purchaser may well have some knowledge of a possible unrecorded third party interest in the lands in question. But the legislation makes it clear that such a purchaser has no obligation to make any inquiries. [51] In addition, it is important to note that the Raycrofts themselves, having the benefit of counsel at the time, concluded that the deal they had with Destiny Homes meant they were paying monies for the land purchase which would be held in trust by Powder Mill's lawyers pending Destiny Homes completion of the project. Further, if the contract with Destiny Homes was not fulfilled they expected return of the land purchase payments (para. 20 of Mr. Raycroft’s affidavit). Yet they assert that Mr. Theriault and BMO should have arrived at a very different understanding. [52] Given my finding above and the fact that section 4(4) is conjunctive, there is no need for me to also consider the remaining requirements of fraud under section 4(4), however, I intend to do so. The Second Requirement of Section 4(4) (b) Was there actual knowledge that the transaction was not authorized by the owner of the interest that was not registered or recorded? [53] Regardless of my finding under s. 4(4)(a), I am also satisfied that there is simply no evidence that Mr. Theriault had actual knowledge that the Raycrofts had not authorized Destiny Homes to take title and enter into the mortgage. The legislation makes it clear that Mr. Theriault was entitled pursuant to s. 4(3) of the LRA to “assume without inquiry” that the transaction was authorized by the owner of any unrecorded interest and would not prejudice that interest. [54] In addition, it is important to note that the Raycrofts initialled each page of the Powder Mill Agreement, which states at para. 2 that the agreement is subject to the purchaser, Destiny Homes “being able to obtain approval for a first mortgage … 50% of purchase price…”. Anyone, including Mr. Theriault, reading the agreement in detail would see that Destiny Homes’ purchase of the land was conditional on a first mortgage, that this agreement was specifically attached to the Raycroft Agreement and was initialled by them. A logical conclusion would be they authorized the land purchase by Destiny Homes, including the referenced first mortgage noted in the Powder Mill Agreement. The fact that the referenced mortgage was for 50% of the land purchase, versus the ultimate mortgage amount of $950,000, does not assist the Raycrofts in establishing there was actual knowledge that the transaction was not authorized. [55] I find that in relation to s. 4(4)(b) there is no evidence that Mr. Theriault had actual knowledge that the Raycrofts had not authorized Destiny Homes to enter into the mortgage. In addition, the circumstances of the Powder Mill Agreement’s pages being initialled by the Raycrofts and specifically referencing a first mortgage, leads to a conclusion of authorization, not the reverse. The Third Requirement of Section 4(4) (c) Did BMO know or ought to have known that the transaction would prejudice the interest that was not registered or recorded? [56] I am not satisfied this third requirement of fraud is met. [57] The fact that Destiny Homes took title to the land and the Raycrofts advanced the funds for such a purchase does not in and of itself equate to prejudice to the Raycrofts. Destiny Homes was contracted to build a home for the Raycrofts with a value of approximately one million dollars. Destiny Homes’ financing the construction of the home by a mortgage would not necessarily lead to a conclusion of prejudice, as the Raycrofts were not providing all of the purchase monies for their home up front. [58] As indicated above, the Raycrofts have not met their burden of proving BMO obtained its interest by fraud. Purchase Money Trust [59] The Supreme Court of Canada in Rascal Trucking Ltd. v. Nishi, Supra, stated at paras. 1 and 2: 1 A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property. Where the person advancing the funds is unrelated to the person taking title, the law presumes that the parties intended for the person who advanced the funds to hold a beneficial interest in the property in proportion to that person's contribution. This is called the presumption of resulting trust. 2 …While rebutting the presumption requires evidence of the intention of the person who advanced the funds at the time of the advance, after the fact evidence can be admitted so long as the trier of fact is careful to consider the possibility of self-serving changes in intention over time. [60] On the evidentiary record before me, including but not limited to the e-mails from Mr. Hammond attached to Mr. Raycroft’s affidavit (for example, I refer to Exhibit E referencing the remaining funds required from the Raycrofts “to buy the land”, which numbers total $310,385), the Agreements, and also the cancelled cheque referring to “land deposit,” I find the Raycrofts funded Destiny Homes’ purchase of the land from Powder Mill leading to the presumption of a resulting trust. There was no evidence led by BMO to attempt to rebut this presumption of a resulting trust. [61] Such a resulting trust in the circumstances of the evidentiary record before me, is not enforceable in priority to BMO’s position as first ranking secured creditor pursuant to its mortgage. The Raycrofts have failed to prove BMO’s interest was obtained with fraud. [62] BMO’s mortgage is a "recorded interest", obtained without fraud. It provides an "estate or right in, over or under land recognized under law" as per the LRA, s. 3.1(g), and was recorded as an encumbrance against the property. [63] Although it is unfortunate that the Raycrofts find themselves in this very difficult situation and must bear the loss, there can be no other result in view of the legislation. The legislation sets a high bar for the holder of an unrecorded interest, one which the Raycrofts have failed to meet. Conclusion [64] I find that the Raycrofts have not met their onus to prove fraud in accordance with s. 4(4) of the LRA. For the reasons stated above, the purchase money resulting trust claimed by the Raycrofts, in the circumstances of the evidentiary record before me, is not enforceable in priority to BMO’s position as a first ranking secured creditor pursuant to its mortgage. [65] BMO did not seek costs and none are ordered. Jamieson, J.