The Law of Constructive Trusts

The Law of Constructive Trusts in Ontario

A constructive trust is a legal concept that arises when one person holds property or assets that they are not legally entitled to, but which they obtained through some sort of unfair or dishonest means. In such cases, a court may order that the property be transferred to the person who is truly entitled to it.

In Ontario, the law of constructive trusts is governed by the provisions of the Trusts and Conveyancing Act and the common law. The act sets out the legal framework for the creation and operation of trusts, including constructive trusts. The common law, on the other hand, provides the principles and precedents that guide the application of the law in individual cases.

A constructive trust can be created in several different ways, including through fraud, misrepresentation, breach of fiduciary duty, or unjust enrichment. In each case, the person who holds the property must have obtained it through some sort of improper means, and the person who is entitled to the property must be able to prove their entitlement.

One common scenario in which a constructive trust may arise is where one person holds property that they obtained through fraud or misrepresentation. For example, if a person obtains a property by falsely representing that they have a valid title to it, a court may order that the property be transferred to the person who was actually entitled to it.

Another scenario in which a constructive trust may arise is where one person holds property that they obtained through a breach of fiduciary duty. For example, if a person holds property that they obtained while acting as a trustee or agent for another person, and they used their position to obtain an unfair advantage, a court may order that the property be transferred to the person who was actually entitled to it.

In addition to fraud, misrepresentation, and breach of fiduciary duty, a constructive trust may also be created through unjust enrichment. This occurs when one person holds property that they are not legally entitled to, and which they obtained through some sort of unfair means, such as keeping property that they were not entitled to keep or retaining a benefit that they were not entitled to retain.

Petkus v Becker is one of the leading cases on constructive trusts. The case was heard in the Ontario Court of Appeal and dealt with the question of whether a constructive trust could be imposed in a situation where one person held property that they were not legally entitled to, but which they had obtained through some sort of unfair means.

The specific facts of the case involved a property that had been jointly owned by two people, Petkus and Becker. After a disagreement between the two, Becker transferred her interest in the property to a third party, who was unaware of the ongoing dispute. Petkus argued that the transfer was invalid and that a constructive trust should be imposed on the property in favor of her.

The court found that a constructive trust could be imposed in the circumstances of the case. The court found that Becker had breached her fiduciary duty as a joint owner of the property by transferring her interest in the property without Petkus's consent, and that this breach was sufficient to trigger the imposition of a constructive trust. The court also found that the third party who had received the transfer of the property was not a bona fide purchaser for value and was therefore not entitled to the property.

The case of Petkus v. Becker is significant because it confirms the principle that a constructive trust can be imposed in cases where one person holds property that they are not legally entitled to, but which they obtained through some sort of unfair means. The case also highlights the importance of considering the rights of all parties involved when transferring property, particularly where there are ongoing disputes.

In conclusion, the law of constructive trusts in Ontario provides a legal framework for addressing cases where one person holds property or assets that they are not legally entitled to, but which they obtained through some sort of unfair or dishonest means. Whether through fraud, misrepresentation, breach of fiduciary duty, or unjust enrichment, a court may order that the property be transferred to the person who is truly entitled to it.

Call (613)230-5787 to speak to an LMS Lawyer about how a constructive trust might have implications for you.

Russell Molot

Counsel to the Firm and Trusts and Estates Lawyer