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Real Estate

Resulting and Constructive Trusts: All About Constructive Trusts

The Constructive Trust

A constructive trust is formed by operation of law. It is considered an equitable remedy so as to prevent unjust enrichment, which is when the law imposes an obligation upon one party to hold specific property for another. The person so obligated becomes a constructive trustee towards the person to whom he owes performance of the obligation.  Although the application of the constructive trust has been treated as an equitable remedy to prevent unjust enrichment in Canada, recently, constructive trust has been applied as a remedy to wrongful acts in the absence of enrichment and corresponding deprivation on the basis of the good conscience doctrine. There are two situations described by the Supreme Court of Canada when a judge would decide whether good conscience requires the imposition of a constructive trust.  These two conditions are:

Ill-gotten property obtained by a wrongful act of the defendant, notably breach of fiduciary obligation or breach of duty of loyalty; and

Situations where the defendant has not acted wrongfully in obtaining the property, but would    be unjustly enriched to the plaintiff’s cost by keeping the property.

Any of these situations could be a cause for imposition of a constructive trust.

Unjust Enrichment

To impose a constructive trust as an equitable remedy in the event of an unjust enrichment, the Supreme Court of Canada set down the following conditions which apply to both family law as well as commercial law disputes:

1)  A money award would not be sufficient for the purpose; and

2) There is a link between a plaintiff’s contribution and the property over which the plaintiff is claiming a trust.

The Chief Cook and Bottle Washer

Linda Antrobus sued her parents, William and Joan Antrobus, as well as her three siblings, seeking a constructive trust over her parents’ property or compensation for the value of services she rendered to her family over the years in Antrobus v. Antrobus. Linda, 59, said that as a teenager, she worked to her bones at the family home, cooking and cleaning after the members of her household, taking care of her younger siblings, and helping her parents in their business operations. Such domestic responsibilities deprived her of the joy of participation in extracurricular activities at school. Thereafter, working as a legal secretary, she continued to help her parents on weekends, doing chores on their farm, managing their properties, and providing them with free legal services.  In fact, one of Linda’s friends confirmed that her father referred to Linda as “the chief cook and bottle washer”.

Initially, Linda did so out of a sense of responsibility but, after 1967, she did the work because of an agreement that her parents had made with her. They promised her their entire estate in exchange for her help, but after a fight in 1999, they executed the transfer of one of their residences into joint tenancy with their other three children in order to protect their interest in the property from Linda who was threatening legal action to gain title to the property. While testifying, Linda’s mother downplayed the role Linda had played in the family home and denied any agreement to make Linda the sole beneficiary of her estate. Linda’s siblings agreed that though she did more work in the home than they did, they denied that she did a disproportionate amount of work for their parents later in life. They averred that her position as the eldest daughter naturally grants her larger responsibilities to the family.

The Court found on a balance of probabilities that Linda had continued to work for her parents and siblings without compensation based on their promise that she would be the sole beneficiary of her parents’ estate and therefore allowed a part of the action. The Court agreed that Linda’s parents had received a benefit from the services that she rendered to them over the years and that Linda had suffered a consequent deprivation. The Court, however, did not see any connection between the services that Linda rendered to her parents and the property that Linda was now claiming as a constructive trust over. The Court’s conclusion was that monetary compensation would be sufficient, and after weighing the interests of both Linda and her siblings, the Court awarded Linda an amount that was roughly the equivalent of one quarter of the value of her parents’ net assets or $190,000 in damages.

Real Estate Agents as Fiduciaries

In Lee v. Chow, the Ontario Supreme Court of Justice ruled that real estate agents were not allowed to purchase property initially intended for their clients because such conduct was a breach of their duties as fiduciaries. Referring to Lac Minerals v. International Corona Resources Ltd., Wilson J. stated,” …there are certain relationships which are almost per se fiduciary such as trustee and beneficiary, guardian and ward, principal and agent, and that where such relationships subsist they give rise to fiduciary duties.”

The Court observed that the agency–principal relationship existing between the plaintiff and the defendant resulted in fiduciary duties on the part of the real estate broker. Yin Hang Lee, a retired Hong Kong businessman, engaged the real estate agent, Linda Chow, to assist him in purchasing a home. Mr. Lee was interested in purchasing a home in the range of $1,000,000, and over two weeks in November and December of 1987, the Lees exchanged a series of written offers and counter-offers with the vendors of a home. A week after an oral offer was made by Mr. Lee, Mrs. Chow and her husband made an offer to purchase the same at a slightly higher price. Subsequently, Mrs. Chow informed the Lees that she and her husband had purchased the home through their company Perfekta Enterprises Inc.

The Court was to decide whether a principal-agent relationship had been established between Mr. Lee and Mrs. Chow; whether fiduciary duties arose from that relationship; when such relationship would have terminated, and whether Mrs. Chow through her actions, had breached her fiduciary duties. The Court observed that Mrs. Chow was an agent and a fiduciary for the Lees during their two week negotiations with the vendors and as such the relationship demanded “trust, confidence, scrupulous good faith and candour”. The Court also determined that the relationship had not been terminated when the Chows submitted their own offer to purchase the property. The testimony of the Lees that they told Mrs. Chow that they were still interested in the property was regarded as more reliable than that of Mrs. Chow. Furthermore, Mrs. Chow’s duties towards the Lees had not terminated when the Chows made their own offer on the house. Thus, Mrs. Chow had breached her fiduciary duty by placing herself in a position of conflict with her principal, which she failed to disclose. Therefore, Mrs. Chow had deliberately deceived Mr. Lee by concealing from him that she and her husband had offered to purchase the property until after they had succeeded in doing so, and used the opportunity of acting for him to know the lowest price of the vendor.

A Declaratory Order was issued stating that the Chows were actually constructive trustees for the benefit of the Lees and that the Lees were the beneficial owners of the property. The property was given to the Lees for $920,000 and Mr. Lee was awarded legal costs.  Even though Robert Chow was not the plaintiff’s real estate agent, the Court said that he knew that his wife was misusing confidential information and that he was also a constructive trust.

Never act before you fully understand your rights and obligation. For more information about trusts, as well as the legal rights and obligations of trustees, contact the lawyers at Levy Zavet PC (Levy Zavet)in Toronto, Ontario.

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