March 22, 2010 By: Marta Siemiarczuk
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Constructive trust issues come up often in family law. But while the case law often doesn't consider the test in any great depth anymore, the B.C. Court of Appeal had just such an opportunity recently by clarifying or at the very least giving us a much-needed reminder of how to assess the criteria for "absence of a juristic reason" with respect to the enrichment of one party by another.

In Harraway v. Harraway, Colinda and Matthew Harraway received approximately $30,000 from his mother, Constance Fournier, to purchase a farm that became their matrimonial home. A year later, Fournier received a large personal injury settlement and paid down a further $65,000 on their mortgage. At that time, however, she was put on title to the property, sharing a one-third interest with each spouse, presumably to secure her loan or investment as she later argued it was.

Although the facts aren't clear, it appears Fournier advanced approximately $150,000 in total to the couple with respect to the farm property. In addition to being on the title, Fournier had both spouses sign promissory notes. Eventually, the parties separated, which brings us to the constructive trust claim.

Following the separation, mortgage arrears prompted foreclosure proceedings on the farm property. Fournier came to the rescue and paid off all of the arrears. She then had herself added to the matrimonial proceedings, seeking a constructive trust interest in the farm property. Her son supported her claim.

What is interesting in how this all played out is the fact that there were several promissory notes in favour of Fournier, that she was already on title with a one-third interest, and that her son actually claimed $95,000 as a date-of-separation debt to his mother on his financial statement related to the funds she had advanced to him and his wife.

Notwithstanding the promissory notes, the trial judge found the spouses were unjustly enriched without any juristic reason for the enrichment because the lack of specificity of the terms in the purported loan documents made it impossible to enforce them. As a result, the trial judge awarded Fournier an 80-per-cent interest in the farm as a constructive trust remedy. Presumably, this was based on a calculation of the equity in the home versus how much Fournier had actually put into it.

The appeal court swiftly overturned the remedy, although it confirmed there was in fact an unjust enrichment. Writing for a unanimous court, Chief Justice Lance Finch proceeded to review the analysis to take once a judge determines an enrichment and a corresponding deprivation have occurred. In order to make the prima facie case, litigants must show that the enrichment didn't occur as a result of a contract, a disposition of law, a donative intent or another valid common law, equitable or statutory obligation.

The evidence seemed overwhelming that the funds advanced were loans and that all the parties worked on that assumption. The appeal court confirmed, however, that notwithstanding that intention, there was an unjust enrichment because the loan documents were too vague to be enforceable. Instead of maintaining the constructive trust interest of 80 per cent, however, the court gave Fournier what appeared to be a remedy on the basis of contractual obligations, granting her judgment for $154,000 and going as far as removing her from the title to the property.

While the analysis of constructive trust claims was very useful, at the end of the day, the result seems a bit surprising given all of the facts. It seems Fournier may have been better off not bringing her constructive trust claim but instead remaining as a one-third interest holder in the property as now she has a judgment with no security to ensure enforcement of its terms.

Marta Siemiarczuk is a lawyer practising family law litigation and collaborative family law at Nelligan O'Brien Payne LLP in Ottawa. She can be reached at marta.siemiarczuk@nelligan.ca

[This article is reprinted with permission and first appeared in the March 2010 issue of The Law Times.]

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Family Law