Ormos v Ormos – Oral agreements and when to “trust” your family

In 2017, a de facto couple were seeking to purchase a family home and enlisted the help of the defendant (the first plaintiff’s father), to purchase the property with loaned monies in his name, due to his higher borrowing capacity. In exchange, the plaintiffs paid the defendant’s personal debts and were assured that all proper-acquisition related costs would be covered. In 2018, following a family falling out, the defendant announced his intention to sell the property.

The issue before the court concerned the nature of the agreement – was it an agreement that the property was to be an investment property for the defendant to rent to the plaintiffs? Or was it an agreement that the property was to be held on trust for the plaintiffs until such time as they had sufficient finances to transfer the property to themselves?

Background

The substance of the defendant’s submissions was that the only agreement between himself and the plaintiffs was their written tenancy agreement.

The plaintiffs, however, alleged that there were a number of other oral agreements to the effect that:

1. the plaintiffs agreed to loan the defendant $76,987.55 to pay off his personal debts, to be repaid by the defendant in the form of monthly interest repayments of $860;
2. with the increased borrowing capacity enabled by the plaintiff’s payment of the defendant’s personal debts, that the defendant purchased the property in his name; and
3. that the plaintiffs were entitled to the possession as the primary decision-makers and cost-bearers of the property.

Loan and Interest Agreements

The Court considered a number of factors which weighed in favour of the existence of the abovementioned loan and interest agreements forwarded by the plaintiffs.

Firstly, the plaintiffs were in a financial position to cover the personal debts of the defendant as a gift, and in fact, the second plaintiff had taken out a $32,000 personal loan to contribute to reducing the defendant’s debts.

Secondly, the defendant explained the payments as being a “unilateral transfer by him, as and when he saw fit… as a gift to help the first plaintiff and her family move and settle into the property”. Aside from the fact that the defendant never informed his daughter of him considering the regular payments as being “gifts”, the timing of the payments were highlighted by the Court – having stopped directly after the family fallout and the announcement of the intention to sell the property.

Thirdly, the Court was not persuaded by the defendant’s argument that he had determined the amount of the monthly repayments of $860 entirely at random.

Accordingly, the Court ordered the defendant repay to the plaintiffs the entirety of the loan along with interest.

Mortgage Agreement

The plaintiffs were able to provide sufficient evidence that they were desirous of purchasing the property as they were familiar with the area and had been searching regularly for a property in the area. Contrastingly, the defendant had substantial personal debts and balances due in relation to other properties and was not financially equipped to make regular mortgage repayments. The Court considered it would not make commercial sense for the plaintiffs to agree to rent the property from the defendant as he contended and noted that he had not declared rental income in his tax returns during the relevant period.

Resulting trust

The Court firstly advanced the presumption of resulting trust in relation to the defendant’s full assumption of mortgage liability. Where a party assumes mortgage liability, this liability is generally regarded as a direct contribution to the purchase price that gives rise to a resulting trust, in this case, in favour of the defendant. However, having regard to evidence of the actual intentions of the parties, gleaned from the context at the time and the relationship between the parties, the Court determined to rebut this presumption in favour of the plaintiffs and found that there was a clear intention to confer a beneficial interest on the plaintiffs.

Constructive trust

The Court also considered the parties’ conduct (including postdating the purchase) as evidence from which a common intention to hold the property on constructive trust could be founded. The Court considered the:

• assurances as to acquisition-related expenses;
• conduct of the parties following the agreement;
• the payment of the defendant’s personal debts and of the deposit for the sale by the plaintiffs; and
• repairs and other work undertaken on the property by the second plaintiff as being evidence of a common intention as to the plaintiff’s beneficial interest.

Final takeaways

The case serves as an apt reminder of the equitable principles of resulting and constructive trusts in the context of familial purchases, and the many factors that can be taken into consideration in inferring an intention to confer beneficial interest. It is an important reminder to ensure agreements, even with family members, are committed to in writing wherever possible.

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Authored by:

Daniel Maroske, Partner