In the recent decision of the Court of Appeal for Ontario in Caroti v. Vuletic, 2026 ONCA 614, the Court set aside a post-trial distribution order that had denied a group of settling investors any share of more than $11 million in preserved sale proceeds arising from a failed real estate development. In doing so, the Court provided a detailed explanation of the distinction between constructive trusts and purchase money resulting trusts, concluding that the motion judge had incorrectly treated the two doctrines as operating in a similar manner.
Background
The case arose from a failed real estate development project involving numerous investors who contributed funds toward the purchase of a farm property that was intended to be subdivided and developed.
Some investors proceeded to trial and successfully established claims for fraud, breach of contract, breach of fiduciary duty, and conspiracy. Other investors settled their claims before trial for lesser amounts. However, none of those settlement amounts were ever paid.
The property was ultimately sold to a third-party developer for a substantial profit, and a portion of the proceeds was preserved by being paid into court. When those funds were later distributed, the motion judge awarded the entire amount, approximately $11.3 million, to the investors who had proceeded to trial. The settling investors received nothing on the basis that they had no remaining equitable claim to the proceeds.
Constructive Trusts: A Remedial Doctrine
The Court explained that constructive trusts are purely remedial. They are not based on the parties’ intentions but may be imposed by a court as a remedy for unjust enrichment. A constructive trust does not arise automatically and requires judicial intervention.
In reaching this conclusion, the Court relied on Rawluk v. Rawluk, in which the Supreme Court of Canada recognized that although a constructive trust may be declared to have arisen at an earlier point in time, judicial declaration remains necessary before the remedy becomes available.
Because the settling investors had not advanced unjust enrichment claims and had not obtained constructive trust remedies at trial, the Court agreed that they could not benefit from the constructive trusts awarded to the trial investors.
Purchase Money Resulting Trusts: A Different Legal Foundation
The Court emphasized that resulting trusts are conceptually distinct from constructive trusts.
Relying on Rathwell v. Rathwell, the Court noted that resulting trusts are rooted in intention, although that intention is inferred or presumed from the surrounding circumstances rather than expressly stated.
A purchase money resulting trust arises where a person contributes funds toward the acquisition of property in circumstances that support the inference, or legal presumption, that the contributor intended to acquire a beneficial interest in the property. The Court relied on Nishi v. Rascal Trucking Ltd. and its recent decision in Lalli v. Lalli in explaining this principle.
Unlike a constructive trust, a purchase money resulting trust arises automatically by operation of law when the necessary conditions are met. The Court quoted Oosterhoff on Trusts for the proposition that a resulting trust is not created by a judicial declaration. Rather, the trust already exists, and the court’s declaration merely recognizes an existing equitable interest.
The Motion Judge’s Errors
The Court identified three related legal errors that led the motion judge to conclude that the settling investors had no purchase money resulting trust claim to the preserved funds.
First, the motion judge incorrectly treated resulting trusts as though they required a court declaration before becoming effective. The Court rejected that approach and reaffirmed that purchase money resulting trusts arise automatically once the legal requirements are satisfied.
The Court noted that it was undisputed that all of the investors had contributed funds toward the purchase of the property and that those contributions were not intended as gifts or loans. The developers themselves acknowledged that the investors were entitled, at a minimum, to the return of their contributions with interest. Those facts were sufficient to establish purchase money resulting trusts in favour of both the settling investors and the investors who proceeded to trial.
Second, the Court held that the motion judge incorrectly concluded that the settling investors required the factual findings made at trial in order to establish their proprietary claims. The Court explained that, unlike a constructive trust claim, a purchase money resulting trust does not require proof of wrongdoing, fraud, breach of fiduciary duty, or unjust enrichment. The relevant inquiry is whether the claimant provided funds toward the acquisition of the property in circumstances giving rise to a beneficial interest.
Disputes concerning the precise amount invested or the valuation of the investors’ interests could affect the quantification of those interests, but they did not undermine the existence of the resulting trusts themselves.
Third, the Court held that the settling investors had not abandoned their proprietary claims by entering into settlement agreements. Because the settlements had never been performed and the promised payments were never made, the settling investors remained entitled to elect either to enforce the settlements or pursue their original claims.
The Court distinguished Fanelli v. Fanelli-Bruno, where a settlement had been completed. In contrast, the settling investors in Caroti had never received the consideration promised under their settlements. As a result, they had not unequivocally relinquished their proprietary claims in favour of contractual rights under the settlement agreements.
The Result
The Court concluded that the settling investors’ purchase money resulting trusts arose when their funds were advanced and used to acquire the property. Those interests came into existence by operation of law and were not dependent upon a judicial declaration.
The Court further explained that the existence of the resulting trusts did not depend on the factual findings made at trial. The trial primarily affected the extent of the investors’ claims, not whether proprietary interests existed in the first place.
At the same time, the Court preserved the distinction between the proprietary claims of the settling investors and the remedies obtained by the trial investors. While the settling investors shared in the resulting trust claims, they could not benefit from findings of misconduct, punitive damages, or constructive trust remedies established through the efforts of the investors who proceeded to trial.
Key Takeaway
The decision provides a useful reminder that resulting trusts and constructive trusts serve different functions and arise in different ways.
A constructive trust is a remedial device imposed by a court, typically in response to unjust enrichment or other equitable wrongdoing. Judicial intervention is required before the remedy exists.
A purchase money resulting trust, by contrast, is grounded in a presumed intention arising from a contribution toward the acquisition of property. It does not require proof of wrongdoing and does not depend on a court order to come into existence. Once the necessary conditions are met, the trust arises automatically by operation of law, and a court’s role is simply to recognize and enforce an interest that already exists.
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