Proprietary Estoppel: Some questions answered, others left for another day
The doctrine of proprietary estoppel can enforce a promise to transfer real property to a person who acts to his or her detriment based on the promise. In Cowper‑Smith v. Morgan, 2017 SCC 61, the court confirmed that proprietary estoppel can enforce a promise to transfer a property interest that the promisor does not have at the time of the promise. The decision raises other questions—such as whether proprietary estoppel can enforce a promise to transfer personal property—but leaves them unanswered.
The case arose from a dispute between two siblings, Gloria and Max. Their mother, Elizabeth, executed a will that divided her estate equally between Gloria, Max, and a third sibling. Later, Max agreed to move from England to Canada to care for Elizabeth, but only after Gloria agreed to sell Max her one-third interest in Elizabeth’s house after Elizabeth passed away. The relationship between Gloria and Max deteriorated. Gloria, as the sole executor of Elizabeth’s estate, said that she would sell the house on the open market.
The primary issue before the SCC was whether propriety estoppel enforced Gloria’s promise to sell her interest in the house to Max even though she did not have that interest at the time the promise was made. The court held unanimously that propriety estoppel could enforce Gloria’s promise, but divided on the issue of remedy.
Chief Justice McLachlin, for the majority, held that an equity was a precondition to propriety estoppel. An equity arises “when (1) a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over property; (2) the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and (3) the claimant suffers a detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word” (para. 15).
Here, Max’s reliance was reasonable despite Gloria’s lack of an interest in the house when the promise was made. McLachlin C.J. held that it was sufficiently certain that Gloria would inherit a one-third interest in the house because both Gloria and Max were aware of Elizabeth’s estate planning. Thus it was reasonable for Max to rely on Gloria’s promise to sell him the one-third interest she was set to inherit and Max had an equity.
The next issue was whether propriety estoppel would protect Max’s equity. Again, McLachlin C.J. held that Gloria’s lack of interest in the house when the promise was made was not a barrier. Instead, proprietary estoppel protected Max’s equity once Gloria acquired her one-third interest in the house.
But Gloria still did not have an interest in the house at the time of the SCC’s judgment; the estate had not been distributed. Gloria argued that, as executor, she was entitled to sell the house and then distribute the proceeds. McLachlin C.J. rejected that argument because Gloria was conflicted between her own interests as a beneficiary of the estate and her duties as the executor. She ordered Gloria to transfer the house to the siblings.
Finally, McLachlin C.J. held that Max could purchase Gloria’s one-third interest for what it would have cost in 2011 (when the estate should have been distributed) plus amounts for interest and upkeep. Chief Justice McLachlin focussed on satisfying Max’s equity, even though the propriety estoppel did not exist in 2011.
Justice Brown, concurring in part, held that the equity necessary to ground a propriety estoppel claim did not arise at the time of Max’s detrimental reliance, but rather would arise at the time Gloria acquires her interest in the house. Before that, Max had a merely personal equitable right. As a result, Brown J. held that Max should be entitled to buy Gloria’s interest based on current prices.
Justice Côté, also concurring in part, held that the court did not have the power to order Gloria to transfer the house to the siblings (and thus prevent her from selling it and distributing the proceeds).
This decision confirms that proprietary estoppel can apply even where the promisor does not own an interest in the property at the time of the promise, but it raises two other questions that the court leaves unanswered.
First, while McLachlin C.J. noted that English courts have allowed proprietary estoppel claims for personal property, she held that it was unnecessary to determine whether Canadian courts should follow suit.
Second, Brown J. raised the issue of how competing propriety claims will be resolved if, as McLachlin C.J. concludes, the equity necessary for a proprietary estoppel can exist before the promisor acquires an interest in the property. For example, Brown J. notes that English courts have concluded that “where a promise gives rise to a merely personal equitable right in favour of the claimant…the promisor’s subsequent acquisition of the right or benefit does not permit the claimant to assert an equity which takes priority over a third party’s proprietary right that was established in the meantime” (at para. 69). McLachlin C.J. held that determining whether Max’s equity was personal or proprietary was unnecessary, also leaving this issue for another day.
Cowper‑Smith v. Morgan, 2017 SCC 61
Judgment Rendered: December 14, 2017