Proprietary Estoppel: Are Promises Enforceable?

The equitable doctrine of proprietary estoppel can bind a person to their word. For example, if a sister promises her brother that he can acquire the interest she will inherit in their mother’s house if he moves back home to care for their aging mother, and the brother acts on that promise to his detriment, the brother may have an equitable claim to the property. Equity enforces promises that the law does not. The doctrine of proprietary estoppel avoids the unfairness or injustice that would result to one party if the other were permitted to break her word and insist on her strict legal rights.
The Supreme Court of Canada recently clarified the test for proprietary estoppel and moved away from strict requirements that constrain a court’s ability to do justice. One of the most significant aspects of the decision in Cowper-Smith v. Morgan, 2017 SCC 61 is the Court’s conclusion that proprietary estoppel may prevent the inequity of unrequited detriment where a claimant has reasonably relied on an expectation that he will enjoy a right or benefit over property, even when the party responsible for that expectation does not own an interest in the property at the time of the claimant’s reliance. In other words, ownership at the time the representation or assurance was relied on is not a requirement of a proprietary estoppel claim.

Facts in Cowper-Smith v. Morgan

This litigation arose out of an arrangement between siblings to provide care for their aging mother. Gloria assured her brother Max that if he moved back into the family home to care for their mother, he would be able to acquire Gloria’s share of that property after their mother’s death. The question was whether equity — and specifically the doctrine of proprietary estoppel — could bind Gloria to her word. The mother’s will provided that her estate would be divided equally between her three children. The siblings had clearly understood for well over a decade that their mother’s estate, including the Victoria, BC house in which she lived, would be divided equally among them upon her death.
Max and Gloria negotiated for an extended period before Max uprooted his life in England and returned to Victoria, BC to care for their mother. Gloria promised unequivocally that Max would be able to acquire her share of the property if he did so. She made that commitment, among others, with the purpose of enticing him back to the family home. Prior to the mother’s death, title to the house was transferred so that it was held jointly by the mother and Gloria; Gloria assured her brothers that this was to simplify the administration of their mother’s estate. It was only after their mother’s death that Gloria changed her position and asserted that she was entitled to all of her mother’s assets, the house included.
The trial judge (2015 BCSC 1170) concluded that all the elements of proprietary estoppel were established: the sister promised the brother that he would be able to purchase her eventual interest in their mother’s property; the brother reasonably relied on the expectation that he would be able to do so; and, because of the detriment the brother suffered as a result of his reliance, it would be unfair and unjust in the circumstances to permit the sister to resile from her promise.

Was it reasonable to rely on the promise?

On appeal, Gloria argued — and the British Columbia Court of Appeal majority accepted (2016 BCCA 200) — that Max’s reliance was not reasonable because Gloria did not own an interest in the property at the time her brother relied on her promise. The Supreme Court of Canada allowed Max’s appeal, agreeing with the trial judge that proprietary estoppel operated to enforce Gloria’s promise. Writing for the majority, McLachlin C.J. (as she then was), held that an equity arose in Max’s favour when Gloria made the promise that he reasonably relied on it to his detriment (emphasis added):

[35] […] With respect, the conclusion reached by the Court of Appeal majority conflates proprietary estoppel with the equity to which it gives effect. 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: […]. Ownership at the time the representation or assurance was relied on is not a requirement of a proprietary estoppel claim.

That Gloria did not have an interest in the property at the time her brother relied on her promise did not negate her obligation to keep her promise. The equity in Max’s favour could not have been protected by proprietary estoppel at the time it arose, because Gloria did not then own an interest in the property. However, proprietary estoppel would attach to Gloria’s interest in the property as soon as she obtained it from the estate. In the result, Gloria as executor was ordered to transfer a one-third interest in the property to each of the estate beneficiaries so that her promise to Max could be fulfilled.

Certainty of interest and reasonableness of reliance

How can there be reasonable reliance upon a promise to convey an interest in property made by one who does not have such an interest or whose interest is uncertain? In a proprietary estoppel claim, where the equity is said to have arisen when the claimant relied on an expectation that he would enjoy some right or benefit over property, it may be that the party responsible for the expectation had such a speculative interest in the property that the claimant’s reliance could not have been reasonable. But whether this is so will depend on context. Reasonableness is circumstantial. This approach to assessing certainty — and thus the reasonableness of reliance — permits equity “to mitigate the rigours of strict law” (per McLachlin C.J. at para. 28). In the Cowper-Smith case, it was sufficiently certain that Gloria would inherit a one-third interest in the property for her assurance to be taken seriously as one on which Max could rely.

What is the appropriate remedy to enforce the promise?

Requiring Gloria to sell her interest in the house to Max was necessary to satisfy the equity in Max’s favour. That gave rise to another question: at what price? Max submitted that he should be entitled to purchase Gloria’s share for $223,333.33, which reflects the property’s 2011 appraised value of $670,000.00. Gloria argued that she should be ordered to sell to Max at the property’s current fair market value, which was higher by the time the matter was before the courts. McLachlin C.J. concluded that had events unfolded as Max reasonably expected them to, Gloria would have given up her interest in the property in early 2011 (a few months after their mother’s death) in exchange for its fair market value at that time. Gloria would have had the benefit of those funds during the intervening years and her mother’s estate would have been relieved of the cost of maintaining the property, increasing the residue in which Gloria and her siblings were to share equally. Max was therefore entitled to purchase Gloria’s interest in the property for $223,333.33, plus an amount equal to the post-judgment interest that would be payable on a judgment in that amount issued on February 2, 2011. Upon his acquisition of Gloria’s interest in the property, Max was ordered to account to the estate for the amount of any expenses incurred by the estate in maintaining the property since February 2, 2011.

Take home point: Promises can be enforced using proprietary estoppel

Proprietary estoppel operates to enforce a promise. The obligation to keep a promise is not negated by the fact that the person making the promise did not have an interest in the property at the time the other party relied, to their detriment, on the promise. What matters is what one party induced the other to expect and whether, in all of the circumstances, reliance on the assurance was reasonable.