Constructive Trusts
| Author | Eileen E. Gillese, Martha Milczynski |
| Pages | 113-132 |
113
CHAP TER 7
CONSTRUCTIVE TRUSTS
A. INT RODUCTION
A constructive trust is a relationship created and imposed by operation
of law and in the interests of good conscience. Unlike express trusts,
the constructive tr ust is not related to intention. There is no defini-
tion of a constructive trust and there is no general theory that explains
constructive tr usts. In part, t his is because the recognized situations
in which constructive tr usts are found to exist have their roots in both
English and American law. The English tendency is to treat construc-
tive trusts a s arising in situations of misconduct; where there is mis -
conduct, there is a cause of action based on the misconduct, and it is
the cause of action that is s een to lead to the imposition of a constr uc-
tive trust. These s ituations of misconduct include gains by fiduciaries
and those withi n the rubric of “strangers to a t rust” — third pa rties
who participate, in some way, in a trustee’s wrongdoing.
The Americans, on the other ha nd, view constructive trusts a s rem-
edies to prevent unjust enrichment. Like any other remedy, the con-
structive tr ust is ordered by the court in t hose situations when it has
been requested and found to be warranted. In Canada, a good example
of the constructive tr ust imposed to remedy unjust enr ichment can be
found in the case law relating to cohabitation property di sputes.1
Many legal academics view a ll constructive trusts as a remedy for a
caus e of action based on u njust enr ichment or breach of c onfidence or fi-
1See Pettkus v. Becker, [1980] 2 S.C.R. 834.
THE LAW OF TRUSTS114
duciar y duty. However, no si ngle theory or princ iple explains a ll the situ-
ations in which constructive trusts w ill be found to exist or be imposed.
We do know that the constructive trust exists as a cause of action based
on the English approach. We also know that the constructive trust as a
remedial device ha s been accepted by Canadian courts. Therefore, rather
than debat ing the gener al principles underlyi ng constr uctive tr usts, we
will examine both the ways in which the constructive trust has been
used. Before turning to these headings, an example is in order.
EXAMPLE: A real estate agent advi ses his client not to purcha se 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 t he client have a remedy?
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 wit hout full and frank di sclosure
and the concurrence of the client. He is l iable 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 impose a constructive
trust on the propert y, 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 property. 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.2
For a constructive tru st to be imposed, title to proper ty must be vest-
ed in the (constructive) trustee. Often, the c ircumstances that give rise to
the constructive tr ust give rise to other remedies. It is import ant to under-
stand which remedy is appropri ate in which circumst ances. A plaintiff is
entitled 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. More-
over, double counting is not permissible. In the ex ample given above, if
the property had been i mpressed with a constructive tru st and the client
had not had to compensate the agent for the purchase pr ice th at 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 tracing, accounting, and
compensation. The following example will highlight the situations in
which each remedy is most appropriate:
2 A clear illu stration of this example i n the case law is Soulos v. Korkontzilas,
[1997] 2 S.C.R. 217, discussed below.
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