Constructive Trusts

• Author: EILEEN E. GILLESE
• Pages: 123-144

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CHAPTER 7

CONSTRUCTIVE TRUSTS

A. INTRODUCTION

A constructive trust is a relationship created and imposed by oper-

ation of law and in the interests of good conscience. Unlike express

trusts, the constructive trust is not related to intention. There is no

def‌inition of a constructive trust, and there is no general theory that

explains constructive trusts. In part, this is because the recognized

situations in which constructive trusts are found to exist have their

roots in both English and American law. The English tendency is to

treat constructive trusts as arising in situations of misconduct; where

there is misconduct, there is a c ause of action based on the misconduct,

and it is the cause of action that is seen to lead to the imposition of a

constructive trust. These situations of misconduct include gains by f‌i-

duciaries and those within the rubric of “strangers to a trust” — third

parties who participate, in some way, in a trustee’s wrongdoing.

The Americans, on the other hand, v iew constructive tr usts as rem-

edies to prevent unjust enrichment. Like any other remedy, the con-

structive trust is ordered by the court in those situations when it has

been requested and found to be warranted. In Canada, a good example

of the constructive trust imposed to remedy unjust enrichment can be

found in the caselaw relating to cohabitation property disputes.1

Many legal academics view all constructive trusts as a remedy for

a cause of action based on unjust enrichment or breach of conf‌idence

or f‌iduciary duty. However, no single theory or principle explains all

1 This area is c onsidered in Section C(2), below in this chapter.

THE LAW OF TRUSTS124

the situations in which constructive trusts will be found to exist or be

imposed. We do know that the constructive trust exists as a cause of ac-

tion based on the English approach. We also know that the constructive

trust as a remedial device has been accepted by Canadian courts. There-

fore, rather than debating the general pr inciples underlying constructive

trusts, I will examine both ways in which the constructive trust has

been used. Before turning to these, an example is in order.

EXAMPLE: A real estate agent advises his client not to purchase a certain

property and then purchases it for himself, without the client’s knowledge.

He later sells the property and ma kes a prof‌it. Does the client have a remedy?2

He does — in the form of a constructive trust. The real estate agent

owed a f‌iduciary obligation to the client, which he breached when he

purchased the property for himself without full and frank disclosure

and the concurrence of the client. He is liable to disgorge the prof‌it

made to the client. The basis of the action is breach of f‌iduciary obliga-

tion, or that area of law, discussed more fully below, which requires

f‌iduciaries to disgorge prof‌its made by virtue of their position. If the

agent still held the property, the court would generally impose a con-

structive trust on the property, thereby requiring the agent to hold the

property for the benef‌it of the client. The client would, of course, have

to pay the agent the purchase price th at the agent had paid for the prop-

erty. If, as in the example above, the agent no longer had the property,

the client could claim the prof‌it by way of an action for accounting.

For a constructive trust to be imposed, title to property must be

vested in the (constructive) trustee. Often, the circumstances that give

rise to the constructive trust give rise to other remedies. It is important

to understand which remedy is appropriate in which circumstances. A

plaintiff is ent itled to ask for alternative forms of relief, but relief must be

requested in order for it to be given, so it is necessar y to know what to ask

for. Moreover, double counting is not permissible. In the example given

above, if the property had been impressed with a constructive trust, and

the client had not had to compensate the agent for the purchase pr ice that

the agent had paid, there would be double counting in favour of the client.

The remedies that are most often usefully considered as alterna-

tives to the remedy of a constructive trust are accounting, equitable

compensation, and tracing. The following example will highlight the

situations in which each remedy is most appropriate:

2 This example is b ased on Soulos v Korkontzilas, [1997] 2 SCR 217, discussed in

Section C(1), below in this chapter.