“Good Conscience” Constructive Trust in Non-Agency Scenario

March 28, 2017 By Candace Cho

The most common basis for a constructive trust is unjust enrichment, but on some occasions, even where there is no unjust enrichment in the traditional sense, “good conscience” requires the imposition of a constructive trust to address wrongful conduct. “Good conscience” constructive trusts can be traced to Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, in which the Supreme Court of Canada imposed a constructive trust in circumstances involving an agent/principal relationship, despite that there was no unjust enrichment on the part of the principal. The Supreme Court of Canada reasoned that a constructive trust for breach of fiduciary relationship served not only to do the justice between the parties that good conscience requires, but also to hold fiduciaries and people in positions of trust to the high standards of probity that commercial and other social institutions require.

“Good conscience” constructive trust imposed despite no agent/principal relationship

The decision in Friskie v. Piovesan Estate, [1998] B.C.J. No. 1837 (S.C.) is significant because the remedy of a “good conscience” constructive trust was imposed in a non-agency situation using the Soulos v. Korkontzilas test. In Friskie v. Piovesan Estate a father promised his children that they would inherit an interest in property upon his death, but failed to adhere to his promise. Saunders J. found that good conscience required the imposition of a constructive trust over the father’s interest in the property, despite that there was no unjust enrichment in the traditional sense, and in a situation that was clearly not marked by an agent/principal relationship.

The facts

I discussed the facts in Friskie v. Piovesan Estate in detail an earlier post. Essentially, the children contended that they had transferred title in a property to their father in reliance on his repeated promises that they would inherit his interest in the property on his death. However, at the time of their father’s death, the children discovered that the property was registered jointly to the father and his second wife, thus putting the property out of their father’s testamentary reach. The issue was further complicated by the fact that, unbeknownst to the children, their father had prepared a new will several years after they transferred title to him; this new will left the children cash bequests with the balance of the estate to his second wife. The children brought a claim against their father’s estate and their father’s second wife on the basis that one-half of the property was impressed with a trust in their favour, either resulting or constructive.

Resulting trust found on the facts

Saunders J. was satisfied on a balance of probabilities that it was the implied or express intention of the father to share the property with his children, thus the evidence was sufficient to create a resulting trust. However, if she was wrong in concluding that the father intended his children to take his interest in the property upon his death, Saunders J. went on to consider the case from a constructive trust perspective.

No unjust enrichment

As noted above, the most common basis for a constructive trust is unjust enrichment. Pettkus v. Becker, [1980] 2 S.C.R. 834 established the three requirements for a constructive trust as a remedy for unjust enrichment: an enrichment; a corresponding deprivation; and an absence of any juristic reason for the enrichment. In Friskie v. Piovesan Estate, Saunders J. concluded that unjust enrichment was not established because the second condition was not met. In her view, there had not been a deprivation to the children of the nature required to constitute unjust enrichment. The deprivation they spoke of was the loss of their expectation that they would inherit their father’s interest in the property. Relinquishment of that expectation, in the court’s view, was not deprivation sufficient to amount to unjust enrichment.

Good conscience required the imposition of a constructive trust

Saunders J. was of the opinion that there was wrongful conduct on the part of the father such that good conscience required the imposition of a constructive trust. If the father did not intend to leave his property to his children when the transfers were signed, then the representations he made to induce the children to transfer the property to him would have been fraudulent; he knew his children were only relinquishing their interest in the property upon his commitment that they would share in the property when he died.

Application of the conditions for constructive trust from Soulos

Saunders J. applied the test established by Soulos v. Korkontzilas and determined that the four conditions for the imposition of a “good conscience” constructive trust were met:

An equitable obligation in relation to the father’s wrongful conduct;
A causal link between the father’s wrongful conduct and his acquisition of property;
A legitimate reason for the children to seek a proprietary remedy; and
The absence of factors that would render the imposition of a constructive trust unjust.

The first and second conditions were met because equity does not condone a fraud; if the father did not intend to keep his word when he persuaded the children to transfer their title to him, the children’s transfer of their interest would have been done as a result of his fraud. In that situation, that fraud gave rise to an obligation of the type that a court of equity will enforce.

As for the third condition, Saunders J. found that the children had a legitimate reason to seek a proprietary remedy, since a constructive trust would have the effect of severing the joint tenancy of their father and his second wife at equity by breaking their unity of interest in the property.

Lastly, there were no factors that would render the imposition of a constructive trust unjust in the circumstances of the case. The second wife knew of the commitments the father was making to his children and enforcing a trust obligation in the circumstances would be consistent with the intentions expressed in their marriage agreement and pre-transfer wills.

Take home point: “Good conscience” constructive trust may be imposed in non-agency scenario

The decision in Friskie v. Piovesan Estate is significant because it imposed a constructive trust based on the Soulos v. Korkontzilas test, but in a non-agency scenario. Saunders J. found that good conscience required the imposition of a constructive trust where a father had promised his children that they would have an interest in property upon his death, but failed to adhere to his promise. If the father did not intend to keep his word when he persuaded the children to transfer their title to him, the children’s transfer of their interest would have been done as a result of his fraud. Clearly this was not an agent/principal relationship, and yet the wrongful conduct was such that good conscience required the imposition of a constructive trust.