In Caroti v. Vuletic, 2026 ONCA 614, the Ontario Court of Appeal clarified an important point of trust law: a resulting trust does not require fraud, wrongdoing, or unjust enrichment. Instead, it can arise simply because someone contributed money toward the purchase of property with the expectation of having an ownership interest in it.
Link to What is a Resulting Trust? What is a Resulting Trust?
A resulting trust is a legal mechanism that recognizes that a person may have a beneficial ownership interest in property even though someone else holds legal title. Unlike a constructive trust which is imposed by the court as a remedy for unjust enrichment or other wrongdoing, a purchase money resulting trust arises when a party pays money towards the purchase of property, in circumstances where it is presumed that the party intended to acquire a beneficial interest in it.
Link to Failed Investment Scheme Failed Investment Scheme
The case arose from a failed plan to develop a farm property into a residential development. Two of the individual defendants raised approximately $1 million from multiple investors to acquire and develop the farm property. The two defendants purchased the farm property for $1.3 million, financing the balance of the price. They did not contribute their own money to the purchase, yet they assigned lots to themselves, lived rent-free on the property, paid themselves salaries, and used the money to pay for their personal expenses. Over the following decade, investors were asked to contribute additional funds for the development of the property. The two defendants led investors to believe that the project was proceeding towards completion, but they ultimately abandoned the development project and sold the property for $15.4 million, financed in part through a vendor takeback mortgage. They did not pay the investors any of the sale proceeds.
Different groups of investors sued the two individual defendants, the corporations they controlled, and associated individuals for breach of contract, civil fraud, breach of fiduciary duty and conspiracy. Eleven of the investors entered into settlement agreements with the defendants which contemplated payment from the preserved sale proceeds that were paid into court during the course of the dispute.
Link to Trial Judge’s Ruling against the Settling Parties Trial Judge’s Ruling against the Settling Parties
When the remaining lawsuits proceeded to trial, the non-settling parties succeeded and obtained remedies including constructive trusts and findings from the Court that they held resulting trust interests.
The trial judge heard a motion to determine the distribution of the sale proceeds that had been paid into court because there was not enough money to pay out in full both the settling parties and the parties that went to trial. The settling parties requested judgment in the amounts of their respective settlements, but the trial judge concluded that the settling parties were not entitled to a share of the sale proceeds that had been paid into court because they did not have an equitable interest in those funds.
Link to The Ontario Court of Appeal Decision The Ontario Court of Appeal Decision
The Court of Appeal disagreed and set aside the trial judge’s order. The Court emphasized that the settling investors did not need to prove fraud, unjust enrichment, or any other wrongdoing to establish a purchase money resulting trust. They only needed to show that:
- they contributed money;
- the money was intended to be used to acquire the property; and
- the circumstances supported the presumption that they intended to obtain a beneficial interest in the property.
These requirements were met because the investors had provided funds for the acquisition and development of the property, and the evidence supported the conclusion that it was intended as an investment. The Court of Appeal also rejected the trial judge’s decision which concluded that the settling parties had given up these interests by settling. Rather, the settlements provided that their claims would only be relinquished once the settlement amounts were actually paid and until then the settling parties’ original claims were preserved, including their resulting trust claims. One of the factors considered by the Court was the public policy considerations that favour settlements in order to reduce the strains placed on our overburdened court system.
As a result, the Ontario Court of Appeal ordered a distribution waterfall where:
- All investors who participated in the appeal would get their investments back with interest.
- The trial parties would be paid their trial costs and the punitive damages they were awarded.
- The trial parties and settling parties would receive the balance of their entitlements to the sale proceeds with interest on a pro rata basis.
Key Takeaway
Caroti v. Vuletic confirms that resulting trusts are ownership-based remedies that arise when someone contributes funds toward the acquisition of property with the intention of obtaining an interest in it. Even where legal title is held by someone else, a contributor may still be able to assert an ownership interest and recover from the property itself or its sale proceeds.
With thanks to Hannah Beltran for her assistance with this article.