Constructive Trust

A relationship by which a person who has obtained title to property has an equitable duty to transfer it to another, to whom it rightfully belongs, on the basis that the acquisition or retention of it is wrongful and would unjustly enrich the person if he or she were allowed to retain it.

A constructive trust does not arise because of the expressed intent of a settlor, one who establishes a trust. It is created by a court whenever title to property is held by a person who, in fairness, should not be permitted to retain it. It is frequently based on disloyalty or other breach of trust by an express trustee (the person appointed or required by law to execute a trust), and it is also created where no express trust is created but property is obtained or retained by other UNCONSCIONABLE conduct. The court employs the constructive trust as a remedial device to compel the defendant to convey title to the property to the plaintiff. It treats the defendant as if he or she had been an express trustee from the date of the unlawful holding of the property in question. A constructive trust is not a trust, in the true meaning of the word, in which the trustee is to have duties of administration enduring for a substantial period of time, but rather it is a passive, temporary arrangement, in which the trustee's sole duty is to transfer the title and possession to the beneficiary.

The right to a constructive trust is generally an alternative remedy. The aggrieved party can choose between a trust and other relief at law, such as recovery of money wrongfully taken, but cannot obtain both types of relief.

A constructive trust, as with an express trust, must cover specific property. It cannot be predicated on mere possession of property, or on a breach of contract where no ownership of property is involved.

The court decides what acts are required of the plaintiff as conditions precedent to the securing of a decree (a court order that determines the rights of all the parties to the suit). For example, if the defendant has acquired title to property of the plaintiff by means of FRAUD, the plaintiff will be required to return any consideration (inducement to enter into a contract) received from the defendant. In addition, if the defendant has, during his or her period of wrongful retention of the property, spent money for the preservation or protection of the property, such as by paying taxes or the principal or interest on a mortgage, reimbursement might be required of the plaintiff. If the defendant has made improvements or performed services in managing the property, some courts require the plaintiff to compensate the defendant to the extent of the benefits inuring to the plaintiff through the imposition of a constructive trust, particularly in cases in which the defendant was not an intentional wrongdoer, but rather acted under mistake or ignorance.

The decree establishing the constructive trust requires the defendant to deliver possession and convey title to the property and to pay to the plaintiff profits received or rental value during the period of wrongful holding and otherwise to adjust the equities of the parties after taking an accounting.