Executive Summary: Key Legal and Evidentiary Issues

• An unauthorized transfer of bare land from 1157386 Alberta Ltd to 2121892 Alberta Ltd for $1 was executed using the company's corporate seal by a person with no corporate authority.

• David Burns failed to comply with the Business Corporation Act when purporting to remove directors and appoint Mr. Moldenhauer, rendering those actions invalid.

• The land was subsequently sold to a bona fide purchaser for $300,000, and the proceeds were rapidly disbursed to non-arm's-length recipients controlled by or connected to Mr. Moldenhauer.

• A constructive trust was imposed over the proceeds on the basis of unjust enrichment and wrongful conduct, with 212 found to have breached its equitable obligation to 115.

• Downstream recipients were held liable under the doctrine of knowing receipt, as each failed to make inquiries that an honest and reasonable person would have made.

• Joint and several liability was confined to Mr. Moldenhauer and 212 only; remaining respondents were held severally liable limited to the discrete amounts each received.

Background and the Burns family trust

The dispute in 1157386 Alberta Ltd v 2121892 Alberta Ltd, 2026 ABKB 251, arose from a complex family and corporate backdrop. The Applicant, 1157386 Alberta Ltd ("115"), was a corporation incorporated under a family trust structure established in 2009 — the Burns Family Trust — which held the assets of David Burns. David and Crystal Burns, previously married, were engaged in a drawn-out divorce action. The Trust's trustees were David, his uncle Gregory Burns, and an individual named Ari Taud, and its beneficiaries included David, Crystal, and a long list of David's relations. Under the Trust, David had the authority to appoint trustees, but only while he remained "capable" (as defined by the Trust) and solvent; otherwise, that authority would pass to Gregory. The Trust incorporated 1451866 Alberta Ltd ("145"), which in turn incorporated 115. David was initially the sole director of both corporations but resigned as trustee and director in 2013, at which point David appointed Gregory and Cheryl as directors of 145 and Gregory as sole director of 115 — a position Gregory held throughout the relevant period.

The unauthorized land transfer

At the relevant times, 115 owned three properties: a residential property that was David and Crystal's former matrimonial home, bare land, and a property that 115 used as its office. In February 2023, a court order in the divorce action authorized Crystal Burns to sell the office. Shortly after, she changed the locks and removed 115's records, including its corporate seal — she did so without 115's knowledge or consent. As a result, 115 lost access to its records and corporate seal. In April 2023, Mr. Moldenhauer used 115's corporate seal to execute transfers of the matrimonial home and bare land from 115 to 2121892 Alberta Ltd ("212") — the consideration for the bare land was $1. 115 was unaware of either transfer.

The sale to a bona fide purchaser and disbursement of proceeds

In March 2024, the Registrar registered the transfer of the bare land and 115 learned of the attempts to transfer the matrimonial home. On April 3, 2024, in an urgent chambers application, Justice Silver ordered the matrimonial home returned to 115, expressing serious concerns regarding the legitimacy of this transfer. Mr. Moldenhauer and Crystal Burns were both present in court on this date. That same day, Mr. Moldenhauer and 212 entered into a purchase agreement to sell the bare land to 1317958 Alberta Ltd ("131"), and Crystal Burns, at Mr. Moldenhauer's direction, removed the Certificate of Lis Pendens she had earlier filed against the bare land as part of the divorce proceedings. 115 had no knowledge of this agreement. Three days later, 131 entered into a purchase agreement to sell the bare land to Mr. Abdallah for $300,000, and the sale closed on April 30, 2024. Mr. Abdallah was later found to be a bona fide purchaser for value. Before and after Justice Reed issued an Attachment Order on May 3, 2024 — later extended several times, requiring Mr. Moldenhauer and 212 to pay $292,500 into court — Mr. Moldenhauer directed 212 to disburse the sale proceeds to various recipients, primarily entities that he controlled: $110,000 to 17th Avenue Condos Ltd on April 30, 2024; $100,000 to M & M Real Estate Holdings Ltd on May 1, 2024; $23,400 to Bankview Townhomes Ltd between May 1 and June 4, 2024; $48,000 for the benefit of 2511752 Alberta Ltd between May 1–23, 2024, by paying its debts; $3,500 and $2,000 to David Burns on May 15 and 21, 2024, respectively, through M & M; and $10,000 to Crystal Burns on May 21, 2024, also through M & M.

Mr. Moldenhauer's lack of corporate authority

Central to the Court's analysis was whether Mr. Moldenhauer had any authority to deal with 115's property. The Court found he did not. By way of Notice of Termination in January 2023, David Burns purported to remove Gregory and Cheryl Burns as directors of 115 and 145 and to appoint Mr. Moldenhauer in their place. However, Justice Funk concluded that David did not comply with the mandatory provisions of Alberta's Business Corporation Act. David was not a shareholder of 115 when he purported to remove Gregory as its director. Even if he had been, he did not purport to remove Gregory through an ordinary resolution at a special meeting as required by the Act. David gave no notice to Gregory, Cheryl, or the auditor of any shareholders' meeting. David did not file the Notice of Termination with the Corporate Registry — at all times, the registry recorded Gregory Burns as 115's director. David held no meeting at which he appointed Mr. Moldenhauer as director; Mr. Moldenhauer was not present at any such meeting; and there was no evidence Mr. Moldenhauer consented in writing to acting as director either before or after any such meeting. David was also not a shareholder of 115 or 145 and had no statutory authority to amend any articles of incorporation or to change the number of directors. In sum, David lacked statutory authority to remove Gregory Burns or appoint Mr. Moldenhauer as 115's director, and his failure to comply with the mandatory requirements of the Business Corporation Act rendered those attempts invalid. Mr. Moldenhauer was not a director or officer of 115 and had no authority to execute the land transfer. Under the Land Titles Act, corporate instruments must be executed by an officer or director — Mr. Moldenhauer was neither. The land transfer from 115 to 212 was declared invalid and a nullity.

Constructive trust and breach of equitable obligation

Applying the principles from Soulos v Korkontizilas, the Court confirmed that where property is transferred without authority and then converted into proceeds, a constructive trust may be imposed to permit proprietary relief and tracing, provided the elements of unjust enrichment and wrongful conduct are met. The Court found that 212 received the land through Mr. Moldenhauer's unauthorized acts and therefore owed an equitable obligation to 115 in relation to the land. 212 breached that obligation by selling the land and disbursing the proceeds, despite knowing the legitimacy of the transfer was at issue.

Knowing receipt and the downstream recipients' liability

The Court assessed each downstream recipient's liability under the equitable doctrine of knowing receipt. The knowing receipt test includes two elements: receiving property from the trust or fiduciary in a personal capacity, and having actual or constructive knowledge that the property was transferred in breach of that fiduciary duty. A recipient's knowledge may be established through actual knowledge, shutting one's eyes to the obvious, wilfully and recklessly failing to make the inquiries an honest and reasonable person would make, or knowledge of circumstances that would indicate the facts to an honest and reasonable person or would put that person on inquiry. Justice Funk found that in all instances, the downstream recipients received the proceeds shortly after the sale, without commercial justification or documentation, and in circumstances that would put an honest and reasonable person on inquiry. Their failure to make inquiries fixed them with constructive knowledge. Mr. Moldenhauer and 212, moreover, disbursed these funds knowing the legitimacy of the transfer of 115's property to 212 was at issue, and disbursed some of the funds after Justice Reed's Attachment Order directed them to pay the proceeds into court. Both had actual knowledge they were misapplying the sale proceeds.

Joint versus several liability

On the question of whether all recipients should be held jointly and severally liable for the full $300,000, the Court drew an important distinction. Relying on Citadel General Assurance Co v Lloyds Bank Canada, the Court noted that knowing receipt is "recipient-based" or "restitution-based," and that liability in knowing receipt cases is not based on joint wrongdoing but rather on individual receipt of property with actual or constructive knowledge that it derives from a breach of trust or fiduciary obligation. The measure of restitutionary recovery is the gain the defendant made at the plaintiff's expense. Each defendant is ordinarily liable only for what they received or applied for their own benefit. Joint and several liability arises only where the evidence establishes a common design or coordinated wrongdoing, which is not inherent in the doctrine of knowing receipt. The Court found that Mr. Moldenhauer (as the directing mind) and 212 (as the corporate recipient) were functionally the same in their receipt and application of these funds, and accordingly held them jointly and severally liable for the full proceeds. However, the remaining corporate respondents — 17th Avenue Condos Ltd, M & M Real Estate Holdings Ltd, Bankview Townhomes Ltd, and 2511752 Alberta Ltd — were each found to have received discrete portions of the proceeds through separate transfers, with no evidence of participation in any common design or coordinated wrongdoing. Their liability was limited to the amounts they each received. Similarly, David Burns's liability was limited to the $5,500 he received, and Crystal Burns's liability was limited to the $10,000 she received. Although Crystal had facilitated the sale by removing the Certificate of Lis Pendens at Mr. Moldenhauer's direction, her involvement, while facilitative, did not establish participation in a common design or coordinated wrongdoing.

Ruling and outcome

The Court granted judgment in favour of 1157386 Alberta Ltd against Mr. Moldenhauer, 2121892 Alberta Ltd, 17th Avenue Condos Ltd, M & M Real Estate Holdings Ltd, Bankview Townhomes Ltd, 2511752 Alberta Ltd, David Burns, and Crystal Burns. The total amount of the trust property was $300,000. Mr. Moldenhauer and 212 were held jointly and severally liable for $300,000, while the remaining respondents were severally liable only for the amounts they each received. All amounts were ordered to be paid into Court pending determination of who lawfully controls 115. Judgment interest was awarded on the amounts for which each respondent is liable, calculated in accordance with the Judgment Interest Act, from April 30, 2024. 115 was found presumptively entitled to costs, with the parties given 45 days from receipt of the Reasons to make written submissions if unable to agree.