Constructive Trust

The STATUTE OF FRAUDS, an old ENGLISH LAW adopted in the United States that requires certain contracts to be in writing, does not apply to constructive trusts. The courts create constructive trusts, whether the evidence on which they are based is oral or written and whether the property involved is real or personal.

However, public policy favors the security of titles to property. Therefore, reluctant to disturb record title or other apparent ownership, courts require the plaintiff to prove his or her case for a constructive trust by clear and convincing evidence. In nearly all suits to establish constructive trusts, the defendant appears to be the complete owner of the property, by virtue of deeds, wills, records, or otherwise. As a result, the courts reject the plaintiff's claim if the evidence is vague, conflicting, or dubious.

Breach of Unenforceable Contract to Convey Ordinarily the breach of an oral contract to convey realty by deed or will is not a basis for charging the defendant as a constructive trustee, where the defendant employs the statute of frauds as a defense and refuses to perform the contract. The statute provides that contracts to convey interests in land are not enforceable when they are not in writing and no memorandum was signed by the seller. To decree a constructive trust in such a case would usually constitute an evasion of the statute. The plaintiff can be protected adequately by an award of damages that, in effect, mandates a return of any consideration paid for the promise to convey.

With respect to the breach of some contracts, however, the constructive trust is occasionally used to prevent UNJUST ENRICHMENT, as in the case of a contract to leave property by will in return for personal services that have been rendered, the value of which is not computable in money.

Breach of Oral Trust of Realty by Retention of Property When the plaintiff conveys land by absolute deed (a document that transfers real property without restriction) based on an oral promise by the defendant to hold it in trust for the plaintiff or for a third person, and the defendant retains the property for his or her own benefit, refusing to execute the trust because it violates the statute of frauds, the majority of courts refuse to make the defendant a constructive trustee for the plaintiff or for the intended beneficiary of the oral trust. The courts reason that to construct a trust in such a case would circumvent the purpose of the statute of frauds.

A minority of courts grant the decree for a constructive trust for the intended beneficiary of the oral trust because they view it as dishonest for the defendant to withhold the land from the intended beneficiary by employing the statute.

If the defendant obtains the land by MISREPRESENTATION of the state of his or her mind as to intended performance of the oral trust or other false statement and later refuses to perform the trust, the court will enforce a constructive trust against him or her.

If the defendant was in a confidential or fiduciary relation with the plaintiff at the time of the deed and the oral promise to hold in trust, the defendant is usually made a constructive trustee for the intended beneficiary of the oral trust because the wrong entailed a violation of the relationship by repudiation of the promise.