Constructive Trusts

AuthorEILEEN E. GILLESE
Pages123-144
123
CHA PTER 7
CONSTRUCTIVE TRUSTS
A. INTRODUC TION
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 i ntention. 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 constr uctive trusts are found to exist have their
roots in both English and American law. The English tendency is to
treat constructive trusts as ari sing 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 part icipate, 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 ha s
been requested and found to be warra nted. In Canada, a good example
of the constructive tr ust imposed to remedy unjust enrichment can be
found in the caselaw relati ng to cohabitation property disputes.1
Many legal academics view al l constructive trust s as a remedy for
a cause of action based on unjust enrichment or breach of conf‌idence
or f‌iduciar y 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 constr uctive trusts w ill be found to exist or be
imposed. We do know that the construct ive trust exists a s a cause of ac-
tion based on the English approach. We also know th at the constructive
trust as a remedi al device has been accepted by Can adian courts. There-
fore, rather than debating the general pr inciples underlying constructive
trusts, I w ill examine both ways in which the constructive tr ust has
been used. Before turning to these, an example is in order.
EXAMPLE: A real estate agent advise s his client not to purchase a certai n
property and then purcha ses 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 t rust. 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 li able to disgorge the prof‌it
made to the client. The basis of the action is bre ach 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 i mposed, title to property must be
vested in the (constructive) trustee. Often, the circumstances that give
rise to the constr uctive trust give ris e to other remedies. It is important
to understand which remedy is appropriate in which ci rcumstances. 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 impre ssed 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 exa mple 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.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT