Resulting and Constructive Trusts: Damages and Vesting Orders

Damages and Vesting Orders in Lieu of Constructive Trust

The Ontario Superior Court of Justice in McLean v. Danicic et al. discussed an application by a common law wife for a declaration of a constructive trust over two properties owned by the respondent, who is the common law husband, because of unjust enrichment. The wife was awarded damages and vesting orders over the two properties so as to secure the debt, considering the respondents’ history of failing to comply with court orders and his strenuous efforts to defeat the applicant’s claim.

The fighting couple, Traci McLean and Darko Danicic began a romantic relationship in the summer of 1998 and were living together by Christmas. Traci got an engagement ring from Darko and they were working intensely to renovate a property bought by Darko just before he met Traci.

A lot was purchased by Darko and was placed in his name, but he and Traci built a cottage on it to live happily in love for five years. During the last year or so the fights began, Traci was diagnosed with thoracic outlet syndrome in 2002, and the couple finally separated in 2003. Traci complained that her inability to do hard physical work for renovating the property was the reason for the break up. She stated that Darko complained that she was “dragging him down” and that he refused financial help. Since the beginning of 2003, Traci borrowed money from her parents so as to pay the costs of half of the monthly mortgage payments and bills. Meanwhile, Darko became verbally and emotionally abusive towards Traci and she moved out in October of that year. An application was brought by Traci in 2005 after attempts to negotiate a settlement with Darko to recognize her contribution to the increase in value of the two properties was entirely unsuccessful. She claimed unjust enrichment and the imposition of a constructive trust and/or in personam relief through a monetary award in recognition of her contribution to the value of the two pieces of property held by Darko. She wanted compensatory support and a vesting order relating to the subject properties; damages for pain and suffering and an order restraining Darko or anyone on his behalf from harassing, molesting or annoying her, her counsel and their law firm, along with costs on a full indemnity basis and pre-judgment interest. The Court was in no doubt that Darko had benefited from Traci’s contributions to the property and could not see any juristic reason allowing him to retain these benefits.

Towards remedy, the Court said in paragraph 66:

“Although the imposition of a constructive trust representing an interest in the property or properties is generally a stronger remedy than an in personam monetary award, that may not be true in the present case. The reason for this is the fact that there is some evidence that Mr. Danicic depreciated the value of the assets since the date of separation.”

Traci was denied access to the properties and the Court found that there was no way to gauge the extent to which these claims were true or to adequately assess the value of the property. Further, in reference to the fact that the mortgagee of one of the properties was in the process of exercising its power of sale rights against the property, the Court stated at paragraph 67:

“ …an in rem remedy, may prejudice third-party creditors. This is a case in which there is some indication that there may be such creditors and it would be unfair, in my view, to render a decision that could prejudice them unduly. I conclude that a constructive trust would not be appropriate in these circumstances.”

Traci was awarded $76,124.63 in quantum meruit damages based on the claim of 9,515 hours she worked, calculated at a minimum wage rate. She was also given $200,000, the Court reasoning at paragraph 90:

“[I]t is hard to imagine a stronger case than this for the imposition of full recovery costs on the basis of bad faith…”  Lastly, the Court granted vesting orders in favour of Traci, authorizing the vesting of title in her so that she could sell the properties to settle the amounts owing to her by Darko pursuant to s. 100 of the Courts of Justice Act which states, “A court may by order vest in any person an interest in real or personal property that the court has the authority to be disposed of, encumbered or conveyed.”

Explaining the nature and purpose of a vesting order, the Court at paragraph 106 stated: “A vesting order …has a dual character. It is on the one hand a court order allowing the court to effect the change of title directly, and on the other hand a conveyance of title vesting an interest in real or personal property in the party entitled to the interest under the order…” And at paragraph 107 and 108: “A person taking title by way of a vesting order must take the property subject to any existing executions against it. In this case, a vesting order is necessary to ensure compliance with the respondent’s obligations in light of his past conduct…”

The Court reasoned that despite the fact that a mortgagee was in the process of enforcing a debt against one of the properties, the vesting order would enable Traci to make improvements to the property with a view to settle the amounts owing to her by Darko, and ordered her to return to Darko any amount in excess of the amount of the debt.

Protect your rights. For more information about resulting and constructive trusts, as well as the legal rights and obligations of Canadian trustees, contact the lawyers at Levy Zavet PC (Levy Zavet) in Toronto, Ontario.