A Primer on Real Estate Issues in Estate Litigation

This paper provides a high-level outline — the “Coles notes”— on frequently encountered real estate issues in estate litigation, specifically, claims arising from proprietary estoppel, the doctrine of part performance, unjust enrichment and the imposition of resulting trusts. It also briefly reviews a pre-judgment remedy, i.e. the certificate of pending litigation, which regularly arises in such proceedings.

The information below is not intended to provide an exhaustive analysis of the governing legal principles associated with each legal doctrine. Its purpose is to offer a primer, highlighting the most pertinent points for quick reference when faced with, or pursuing, a proprietary claim involving estate assets.

Proprietary Estoppel

If you practice in the field of estates long enough, you’ll inevitably come across a claim against an estate for proprietary estoppel.

Proprietary estoppel is an equitable doctrine that is invoked when someone relies, to their detriment, on assurances relating to land which are now being reneged on. It is the only form of estoppel that can be used as a cause of action.

In Canada, proprietary estoppel is restricted to claims in interests in land only, although the issue of whether it ought to extend to other assets, such as chattels, insurance policies, intellectual property, investments and other property continues to be debated.^[1]

The most recent iteration of the elements necessary to establish a claim for proprietary estoppel – the “modern approach” – is found in the Supreme Court of Canada’s 2017 decision in Cowper-Smith v. Morgan:^[2]

1. a representation or assurance is made to the claimant which causes the claimant to expect that s/he will enjoy some right or benefit over the property;
2. the claimant relies on that expectation by doing or refraining from doing something, and his or her reliance is reasonable in the circumstances; and
3. the claimant suffers a detriment as a result of his or her reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on their word.^[3]

The other iteration of the test for proprietary estoppel often seen in case law both pre- and post- Cowper- Smith contains the same elements, albeit worded differently:

1. the owner of the property induces, encourages or allows the claimant to believe that s/he has or will enjoy some right or benefit over the property;
2. in reliance upon his or her belief, the claimant acts to his or her detriment to the knowledge of the owner; and
3. the owner then seeks to take unconscionable advantage of the claimant by denying him or her the right or benefit which s/he expected to received.^[4]

Reliance by a claimant may be express or inferred. It must also be reasonable.^[5] While proof of detriment generally involves expenditures, sacrifices etc., it may also include countervailing benefits.^[6]

A successful claim of proprietary estoppel attracts a remedy of the “minimum relief necessary to satisfy the equity.” The remedy must be proportionate to the detriment to the claimant.^[7] Remedies may include the imposition of a constructive trust or other proprietary remedy, a monetary award,^[8] specific performance of the promise^[9] or other equitable solutions.^[10]

Historically, the test for proprietary estoppel required representations or assurances by the owner of the land in question. However, in Cowper-Smith v. Morgan, the Supreme Court of Canada held that proprietary estoppel can apply even if the promisor had no ownership interest in the property at the time when the claimant detrimentally relied on the promise. This ruling comes with a caveat: the person making the promises/representations must, at some point, acquire a sufficient interest in the land. Otherwise, proprietary estoppel will not arise.

A review of the facts in Cowper-Smith v. Morgan illustrates the application of this new principle. Arthur and Elizabeth Cowper-Smith had a daughter, Gloria, and two sons, Max and Nathan. Arthur died in 1992. Prior to his death, Arthur explained to his children that his and Elizabeth’s estates would be divided equally between them.

In June 2001, Elizabeth made dramatic changes to her estate planning. She transferred title to the family home and all her investments into joint ownership with Gloria. Pursuant to a “Declaration of Trust”, Gloria would hold her interests in the house and the investments as bare trustee, with Elizabeth as the sole beneficiary. However, Gloria would ultimately be “entitled… absolutely” to both the property and the investments upon her mother’s death. While Elizabeth also executed a will which divided the estate equally amongst her children, she did not make any changes to the Trust Declaration nor the joint ownership of assets with Gloria.

Despite the existence of the Trust Declaration, Gloria assured her brothers that the arrangement was to simplify the administration of Elizabeth’s estate and that each of Max and Nathan would nevertheless receive a one-third share.

In about 2005, when Elizabeth could no longer live on her own, Max and Gloria discussed options for their mother’s care. They came to an agreement that Max would give up his life in England and move into the family home to take care of Elizabeth and the property. In exchange, Max would be reimbursed for various expenses, have the use of their mother’s car, be able to live in the house permanently and eventually acquire Gloria’s one-third interest in the property for fair market value.

Years later, Gloria began to back away from her promise to Max. In 2011, approximately eight months after Elizabeth’s death and while Max was still living in the home, Gloria announced her plans to rely on the Declaration of Trust and to put the house up for sale. Litigation ensued.

Max and Nathan were successful both at trial and at the Court of Appeal in setting aside the Declaration of Trust as the product of Gloria’s undue influence. By the time the matter reached the Supreme Court of Canada, the only issue to be decided was whether proprietary estoppel operated to enforce Gloria’s promise (such that Max could purchase Gloria’s 1/3 share in the property), and if so, the appropriate remedy.

The Supreme Court had no difficulty finding that Gloria made assurances to Max and that he relied on these assurances to his detriment. The question was whether his reliance was “reasonable.” Gloria argued that his reliance could not have been reasonable as she did not own an interest in the property when the promises were made. The Court disagreed:

…That Gloria did not own an interest in her mother’s property at the time of Max’s reliance is not dispositive in itself. An equity arises when the claimant reasonably relies to his detriment on the expectation that he will enjoy a right or benefit over property, whether or not the party responsible for that expectation owns an interest in the property at the time of the claimant’s reliance. Proprietary estoppel may not protect that equity immediately. It may not protect the equity until considerable time has passed. If the party responsible for the expectation never acquires a sufficient interest in the property, proprietary estoppel may not arise at all; where there is proprietary estoppel, there must be an equity, but not vice versa. When the party responsible for the expectation has or acquires a sufficient interest in the property, however, proprietary estoppel attaches to that interest and protects the equity. [Citations omitted.]^[11]

Notably, the Court recognized that proprietary estoppel could not protect Max’s reasonable reliance at the time Gloria made her assurances as she did not then own an interest in the property. Proprietary estoppel only attached to Gloria’s share of the house once she received it as part of the distribution of her mother’s estate.^[12]

In the result, the Court ordered Gloria to sell her interest in the house to Max as the “minimum necessary to satisfy the equity in Max’s favour.” The appropriate sale price was the fair market value in 2011, when their mother passed away, and not in 2017.^[13]

Proprietary Estoppel vs. Promissory Estoppel

There are two primary differences between proprietary estoppel and promissory estoppel:

1. proprietary estoppel may be utilized as both a sword (a stand-alone cause of action) and a shield. Promissory estoppel can only be used as a defence.
2. proprietary estoppel arises only from promises in respect to an interest in land;

Otherwise, the elements to the two equitable doctrines are the same: 1) a promise or assurance 2) reliance and 3) detriment.^[14]

The most frequently cited definition of promissory estoppel was first set out by the Supreme Court in Maracle v. Travelers Indemnity Co. of Canada^[15]:

The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position.^[16]

While the above iteration of the test for promissory estoppel does not specifically reference detrimental reliance, it is well accepted that detrimental reliance is an essential element of the doctrine.^[17]

Part Performance

Part performance is another equitable doctrine used to enforce an oral agreement pertaining to the disposition of an interest in land. Specifically, it provides a mechanism to circumvent section 4 and section 9 of the Statute of Frauds^[18] which render an agreement pertaining to land unenforceable unless it is in writing or, as in the case of section 9, it is contained in a will.

Writing required for certain contracts

4. No action shall be brought to charge any executor or administrator upon any special promise to answer damages out of the executor’s or administrator’s own estate, or to charge any person upon any special promise to answer for the debt, default or miscarriage of any other person, or to charge any person upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them, unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party. R.S.O. 1990, c. S.19, s. 4; 1994, c. 27, s. 55.

Declarations or creations of trusts of land to be in writing

9. Subject to section 10, all declarations or creations of trusts or confidences of any lands, tenements or hereditaments shall be manifested and proved by a writing signed by the party who is by law enabled to declare such trust, or by his or her last will in writing, or else they are void and of no effect.^[19]

By way of example, in the context of estate litigation, the doctrine of part performance has been relied upon to enforce oral agreements for the inheritance of properties in exchange for services, acts and/or benefits.^[20]

The party seeking to invoke the doctrine of part performance must (a) must establish the existence of an oral agreement respecting land, and (b) must demonstrate sufficient acts of part performance to take the oral agreement outside the Statute of Frauds.^[21]

The following principles guide the determination of whether acts of part performance take an alleged agreement outside of the operation of the Statute of Frauds:

• the acts of part performance may be the acts of both parties, and are no longer limited to the acts of just the plaintiff;^[22]
• the acts of part performance must be “unequivocally referable in their own nature to some dealing with the land.”^[23] Put another way, the conduct must not only unequivocally refer to the property in question,  it “must also, in and of itself, indicate that there had been ‘some dealing with the land.’”^[24]
• in determining whether acts of part performance are referable to some dealing with the land, a contextual approach must be taken, “having regard to the way reasonable people carry on their affairs”^[25]

Occasionally, a court will refer to a four-part test to establish part performance, an element of which requires the oral agreement to be one “for which the law would grant specific performance if it had been properly evidenced in writing.”^[26] This four-part test appears to presuppose the establishment of part performance on the availability of specific performance as a remedy; in other words, the doctrine cannot be invoked where damages are adequate or where the contract is incapable of specific performance.^[27]

While the authorities regularly award specific performance as a remedy to part performance, the availability of specific performance as a pre-condition to part performance is not a universally applied, or recognized, rule. A review of jurisprudence illustrates that the Court has on a number of occasions approached the question of an appropriate remedy as if it were faced with a case of a breach of contract and has awarded damages instead of specific performance, recognizing that specific performance is generally reserved to cases where the property in question is unique, peculiar or special.^[28]

Finally, it is noteworthy that where the oral agreement involves a promise/agreement to bequeath the assets upon death, specific performance of the agreement does not equate to an obligation to convey the subject properties beyond the terms of the will. In Cowderoy v. Sorkos Estate,^[29] the Court of Appeal held that the deceased’s promise to bequeath the subject properties ought to be enforced by deeming the bequest in the deceased’s will.^[30] Accordingly, these assets formed part of the Sorkos Estate, and were thus subject to the Estate’s debts and liabilities.

Unjust Enrichment

The doctrine of unjust enrichment is intended to remedy situations where one party unfairly profits or benefits at the expense of another. For example, claims of unjust enrichment in relation to real property have been recently advanced against or on behalf of estates in the following situations:

• a son seeking a beneficial interest in his mother’s home on the basis that he was promised the property by his mother in exchange for looking after her and the house. The son made both monetary contributions to the maintenance of the home and provided domestic services to his mother over a period of 30 years;^[31]
• an action by a son for a proprietary remedy in a large cattle ranch owned by his late father. The son claimed, inter alia, that his father’s estate was unjustly enriched by a lifetime of the son’s work on the farm for inadequate compensation, on the promise that he would one day received half of the ranch;^[32]
• an action by grandsons seeking an interest in a farm and cottage owned by their grandfather on the basis that they were promised these lands in exchange for upkeep, maintenance and preservation of these properties as well as personal services to the deceased, without any compensation;^[33]
• a sibling seeking an equitable right to continue to occupy a camp property owned by his brother, or an order transferring the property to him, on the basis that for almost seven decades he contributed to the upkeep and improvement of the property;^[34]
• a common-law spouse seeking an interest in the home occupied by her and her late spouse, by way of a constructive trust or resulting trust. Her late spouse died intestate;^[35]
• an individual seeking a proprietary interest in a cottage owned by a late friend on the basis that she exclusively used, maintained, enlarged and improved the value of the cottage over a period of 15 years;^[36]
• a claim by an estate seeking, inter alia, a remedy based in unjust enrichment pertaining to benefits received by the deceased’s son in an alleged improvident transfer of farm land from father to son;^[37] and
• an estate trustee seeking occupation rent against a beneficiary who refused to leave the deceased’s home and refused to pay rent.^[38]

The test for unjust enrichment is well-settled. To establish unjust enrichment, the person advancing the claim must prove three things:

1. an enrichment of or benefit to the defendant;
2. a corresponding deprivation of the plaintiff; and
3. the absence of a juristic reason for the enrichment (such as a contract, a disposition of law, donative intent, or other common law or statutory or equitable obligation).^[39]

In Kerr v. Baranow,^[40] the Supreme Court of Canada clarified the elements of unjust enrichment:

38.    For the first requirement — enrichment — the plaintiff must show that he or she gave something to the defendant which the defendant received and retained. The benefit need not be retained permanently, but there must be a benefit which has enriched the defendant and which can be restored to the plaintiff in specie or by money. Moreover, the benefit must be tangible. It may be positive or negative, the latter in the sense that the benefit conferred on the defendant spares him or her an expense he or she would have had to undertake.
39.      Turning to the second element — a corresponding deprivation — the plaintiff’s loss is material only if the defendant has gained a benefit or been enriched. That is why the second requirement obligates the plaintiff to establish not simply that the defendant has been enriched, but also that the enrichment corresponds to a deprivation which the plaintiff has suffered (citations omitted).
40.      The third element of an unjust enrichment claim is that the benefit and corresponding detriment must have occurred without a juristic reason. To put it simply, this means that there is no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff, making its retention “unjust” in the circumstances of the case.

Determination of an “absence of a juristic reason” involves a two-step analysis. The first is to consider the established categories of juristic reason. If none apply, the court may consider the reasonable expectations of the parties and moral and public policy considerations pertaining to whether an enrichment was in fact unjust.^[41]

There are two remedies generally applied where unjust enrichment has been made out – a monetary award (e.g. damages, a quantum meruit award) or, where a monetary award is inappropriate or insufficient, a proprietary award (e.g. constructive trust).^[42] In order to secure a constructive trust, the claimant must demonstrate a link or casual connection between the contributions made and the acquisition, preservation, maintenance or improvement of the disputed property. Where this link is established, a constructive trust interest proportionate to the contributions may be awarded.^[43]

Presumption of Resulting Trust

While a resulting trust is a remedy, the presumption of a resulting trust is often treated as a stand-alone cause of action. The following passage from Pecore v. Pecore^[44] describes this legal doctrine:

24. The presumption of resulting trust is a rebuttable presumption of law and general rules that applies to gratuitous transfers. When a transfer is challenged, the presumption allocates the legal burden of proof. Thus, where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended [citations omitted].^[45]

The presumption also applies where one or more people pay the purchase price of a property, the title to which is then placed in another’s name.

As indicated in the passage from Pecore v. Pecore, where the presumption of resulting trust is alleged, the Court’s role is to determine whether or not the transferor intended to make a gift.

Certificate of Pending Litigation

A claimant to an equitable interest in land will often seek leave to register a Certificate of Pending Litigation (“CPL”) against title to the land(s) in issue. A registered CPL will notify the public that the interest and/or title to the land is subject to a proprietary claim and will (hopefully) restrain all dealings with the subject land while the proceeding is pending, or until the CPL is vacated.^[46]

Section 103 of the Courts of Justice Act confers broad discretion on the court to direct the registration or discharge of a CPL and/or, depending on the circumstances, to impose appropriate terms:

Certificate of pending litigation

103 (1) The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office under subsection (2).  R.S.O. 1990, c. C.43, s. 103 (1).

Liability where no reasonable claim

(4) A party who registers a certificate under subsection (2) without a reasonable claim to an interest in the land is liable for any damages sustained by any person as a result of its registration.

Order discharging certificate

(6) The court may make an order discharging a certificate,
(a) where the party at whose instance it was issued,

(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,

(ii) does not have a reasonable claim to the interest in the land claimed, or

(iii) does not prosecute the proceeding with reasonable diligence;

(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or
(c) on any other ground that is considered just, and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.  R.S.O. 1990, c. C.43, s. 103 (6).

The test for leave to issue a CPL is the same test applied to discharge a CPL^[47]

In order to obtain a CPL, a party must establish a triable issue with respect to a “reasonable claim in an interest in land.”^[48] The test does not require demonstration that the plaintiff will likely succeed.^[49] A “reasonable claim to an interest in land” is determined through the examination of all the evidence before the court, including evidence adduced after cross-examination, albeit without deciding disputed issues of fact and credibility.^[50]

Once a party establishes a triable issue to an interest in land, the court must then determine whether it is just and equitable, in the circumstances of the case, to grant or vacate the CPL.^[51]

Factors the court may consider on a motion to grant or vacate a CPL include:

1. Whether the plaintiff is a shell corporation;
2. Whether the land is unique;
3. The intent of the parties in acquiring the land;
4. Whether there is an alternative claim for damages;
5. The ease or difficulty in calculating damages;
6. Whether damages would be a satisfactory remedy;
7. The presence or absence of a willing purchaser of the land; and
8. The harm to each party if the CPL is or is not removed with or without security.^[52]

The above factors are not exhaustive and not all have to be considered or applied in the court’s exercise of its discretion.

A CPL is not to be used to secure a claim for damages; “it is intended to protect an interest in land in situations where other remedies would be ineffective.”^[53]

Closing Thoughts

The principles outlined in this paper scratch the surface of the doctrines of proprietary estoppel, part performance, unjust enrichment and resulting trust. The evolution of these doctrines in Canadian jurisprudence has a protracted history and the application of these doctrines is nuanced and fact specific.

The same set of facts may give rise to each of part performance, proprietary estoppel and unjust enrichment. In many cases, at least two of these doctrines, if not all three, are plead and pursued. However, depending on the facts of the case, some doctrines may prove to be more difficult to establish than others. For instance, the assurances being relied on in proprietary estoppel can be made through words or conduct, and do not have to be as precise as they would need to be in order to give rise to a binding contract or an equitable claim for part performance.^[54]

When faced with claims against estate property on the basis of the above noted equitable doctrines, it is important to make note of the evidential burden on the parties and the evidentiary issues that may arise. In most cases, the oral agreements, promises or assurances being relied upon have been made by a deceased person. Any evidence of what was said and the deceased’s intentions in this regard may be subject to the hearsay danger of unreliability. Likewise, the acts of performance or the detriment suffered by the claimant(s) may have only been observed by the deceased and the claimant. The availability of numerous independent witnesses to present corroborative evidence is frequently central to the success of such actions.

Alas, such is the art of advocacy.