Constructive Trusts

• Author: Eileen E. Gillese, Martha Milczynski
• Pages: 113-132

113

CHAPTER 7

CONSTRUCTIVE TRUSTS

A. INTRODUCTION

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 trust is not related to intention. There is no def‌ini-

tion 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 tr usts are found to exist have their roots in both

English and American law. The English tendency is to treat construc-

tive trusts as 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 seen to lead to the imposition of a construc-

tive trust. These situations of misconduct include gains by f‌iduciaries

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 ha nd, view constructive trusts a s 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 case law relating to cohabitation property disputes.1

Many legal academics view all constructive trusts as a remedy for a

caus e of action based on u njust enr ichment or breach of c onf‌idence or f‌i-

1SeePettkus 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 debating the general principles underlying constructive trusts, 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 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?

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 impose a constructive

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 that 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 trust to be imposed, title to property 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 appropriate in which circumstances. 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 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 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:

2A clear illu stration of this example i n the case law is Soulos v. Korkontzilas,

[1997] 2 S.C.R. 217, discussed below.