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Real Estate - Agreement of Purchase and Sale - Constructive Trust

Simcoe Vacant Land Condominium Corporation No. 272 v. Blue Shores Developments Ltd. (Ont CA, 2015)

In this case the Court of Appeal expounded on the principle that, on the execution of an Agreement of Purchase and Sale, a trust arises in favour of the purchaser:
[46] The common law has long recognized that a valid contract for the purchase and sale of land gives rise to a trust relationship, with the purchaser acquiring a beneficial interest in the property: Jessel M.R. summarized this principle in Lysaght v. Edwards (1876), 2 Ch. D. 499 at p. 506:
[I]t appears to me that the effect of a contract for sale has been settled for more than two centuries … [T]he moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold, and the beneficial ownership passes to the purchaser…
See also Anne Warner La Forest, Anger and Honsberger Law of Real Property, 3d ed., loose-leaf (Toronto: Canada Law Book, 2014), ch. 11 at p. 52; Anthony Duggan, "Constructive Trusts from a Law and Economics Perspective" (2005) 55 U.T.L.J. 217, at p. 218.

[47] The trust relationship, known as “equitable conversion”, has been described as “[p]ossibly the oldest, and certainly the most frequent, use of the constructive trust”: Robert Chambers, "Constructive Trusts in Canada" (1999) 37 Alta. L. Rev. 173, at p. 186.

[48] This court described the qualified nature of the trust that arises from an agreement of purchase and sale in Buchanan v. Oliver Plumbing & Heating Ltd., 1959 CanLII 141 (ON CA), [1959] O.R. 238 at pp. 242 and 244 (C.A.):
The relationship created by such a contract does not entail all the obligations of an ordinary trusteeship. The vendor is not a mere dormant trustee; he is a trustee having a personal and substantial interest in the property, a right to protect, and an active right to assert that interest if anything is done in derogation of it …


[T]he trusteeship is not from the beginning an absolute one, for it is recognized that the vendor has a personal and substantial interest in the property which he is bound to protect.
[49] This principle also applies to condominiums, as Finlayson J.A. observed in Peel Condominium Corp. No. 505 v. Cam-Valley Homes Ltd. (2001), 2001 CanLII 24035 (ON CA), 53 O.R. (3d) 1, at para 43:
The developer does not hold the condominium property in trust for the purchaser of the unit, it holds the title to the unit in trust for the prospective purchaser who has executed an agreement of purchase and sale to purchase a unit. The developer's good faith obligation, or duty, is to carry out the terms of the agreement and deliver whatever title the contract between the parties calls for. This obligation or duty is circumscribed by the documentation required by the Condominium Act. The purchaser, for his or her part, has an equitable interest in the unit by virtue of the agreement that is signed; an equitable interest that equity will enforce by specific performance. However, there is no overarching fiduciary duty arising out of the relationship of a vendor and purchaser as such. [Emphasis added.]

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