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 reten-
tion 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 estab-
lishes a trust. It is created by a court whenever
title to property is held by a person who, in fair-
ness, 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 pred-
icated on mere possession of property, or on a
breach of contract where no ownership of prop-
erty 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 deter-
mines 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 consider-
ation (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 prop-
erty, 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 posses-
sion and convey title to the property and to pay
to the plaintiff profits received or rental value
during the period of wrongful holding and oth-
erwise to adjust the equities of the parties after
taking an accounting.
Mistake, Undue Influence, or Duress
If by MISTAKE OF FACT the plaintiff conveys
title to the wrong person, or the wrong property
is conveyed to the intended person, or the plain-
tiff is otherwise induced to act by reason of mis-
take, the transfer can be set aside. An alternative
is to obtain a decree which reforms the instru-
ment of conveyance so that it expresses the
intent of the parties. In these cases, the con-
veyance is not void (without legal effect). The
plaintiff actually intends a transfer, but the cir-
138 CONSTRUCTIVE EVICTION
WEST’S ENCYCLOPEDIA OF AMERICAN LAW, 2nd Editioncumstances which cause the plaintiff ’s mind to
operate are such that the court considers it
unfair for the transferee to retain the property.
The same doctrine applies where the plain-
tiff is induced to make the conveyance through
the exertion of UNDUE INFLUENCE (conduct by a
person that dominates and destroys the free will
of another). If the conduct of the defendant goes
beyond persuading the plaintiff to convey—if it
encompasses violence, threats of violence or
restraint, or other injury—there is an even
stronger case for charging the transferee as a
constructive trustee on the ground of duress.
Fraudulent Misrepresentation
or Concealment
The courts hold in numerous cases that a
transferee who uses fraud to obtain the transfer
of property is a constructive trustee. Such situa-
tions might involve an affirmative assertion of
the truth of a material fact or concealment of the
existence of a material fact when there was a
duty to speak. The state of the defendant’s mind
is a material fact and might be a basis for a con-
structive trust—such as when the defendant
promises to use the property for certain pur-
poses beneficial to the plaintiff but intends at the
time of the transfer to retain it for himself or
herself. The defrauded party can also proceed on
the theory of setting aside the transfer, which is
substantially equivalent to obtaining a construc-
tive trust, or the defrauded party can sue for
damages.
Property Obtained by Homicide
If a person obtains property through a will
or intestacy by wrongfully and intentionally
killing the owner, a constructive trust can be
decreed as to the property obtained. The benefi-
ciaries of the constructive trust imposed on the
murderer are those persons who would have
taken by intestacy or will or otherwise from the
murdered person, as if the murderer had prede-
ceased the victim.
Statutes in many states prevent the murderer
from acquiring or retaining the property of the
victim. They vary from state to state, but most
require that the excluded person must be con-
victed of wrongfully and intentionally causing
the death of the property owner.None applies to
negligent killing. It is not necessary for the mur-
derer to have committed the crime for the pur-
pose of acquiring the property. The statutes
apply if the murderer commits suicide immedi-
ately after killing the property holder. They do
not apply, however, to an insane murderer or to
one who kills in SELF-DEFENSE.
Gift by Will or Intestacy Based upon
Broken Promise
If a property owner is induced to make an
absolute gift to the defendant by will due to
reliance on an oral promise by the defendant to
apply all or part of the property to the use of
another designated person and, after the death
of the testator, the defendant refuses to do as
promised, he or she can be made a constructive
trustee. The same result will hold when the
property owner is induced to die intestate on the
faith of an oral agreement by his or her heir or
next of kin.
If the recipient by will or intestacy promises
to hold for others to be later described by the
property owner and no description is communi-
cated to the recipient until after the death of the
property owner, the recipient will hold as a
trustee of a RESULTING TRUST for the heirs, next
of kin, or residuary legatees or devisees of the
property owner. No trust will be established for
the intended beneficiaries but such persons
might take the property as the recipients of the
resulting trust.
If a will provides that a gift is to be made to
a recipient as trustee, but no description of the
beneficiary appears in the will, and the recipient
verbally agrees to hold it for beneficiaries who
are orally or otherwise informally described to
the recipient, the successors of the decedent can
enforce a resulting trust in their favor against the
recipient. The courts rely on the argument that a
property owner who wishes the property to pass
to others than the heirs at his or her death must
give it to those others by a formally executed
will.
Breach of Express Trust by Disloyalty
If a trustee of an express trust acquires prop-
erty by a breach of trust—for example, by a vio-
lation of an obligation to be loyal to the
beneficiary—a constructive trust can be
imposed on such property. The constructive
trust can be applied not only to the property
originally obtained by disloyalty, but also to its
products and proceeds. It can be used against
persons who succeed the disloyal trustee as the
owner of the products of the disloyalty if they
are not bona fide purchasers.
It is immaterial that the trustee acted innocently because of ignorance or in the belief that the conduct was not disloyal. It is unnecessary to prove that the acquisition of the property by disloyalty
damaged the beneficiary, since it is sufficient
to show the receipt by the trustee of
property obtained by breach of his or her duty.
In addition, the duty and the remedy exist
with respect to persons who are in a confidential
relation. This term has no exact definition but
entails dominance and superiority of one individual
over another because of such elements as
a close familiar relationship, an enduring practice
of entrusting business matters to the knowledge
of a confidant, and differences in age,
health, and education.
Breach of Duty in Direct Dealing
with Beneficiary
The trustee has a duty to make a complete
disclosure and to treat the beneficiary with the
utmost fairness when there is a direct conveyance,
contract, or other transaction between
them. This duty extends to everyone who acts as
a fiduciary and to persons in a confidential relation,
similar to the duty of loyalty in the administration
of a trust. It is a duty arising from the
superiority and dominance of the fiduciary and
the danger of overreaching or undue influence.
The trustee or other representative can be
declared a constructive trustee of any property
obtained through a transaction where there was
a breach of the duty to make full disclosure and
to act fairly. Such clearly inequitable conduct
justifies the imposition of a constructive trust.
If, therefore, a trustee purchases the interest of
one of the beneficiaries under the trust for an
inadequate price, without revealing facts that
the beneficiary did not know concerning the
value of the interest being sold, and later the
trustee realizes a profit on the transaction, a
constructive trust can be imposed to remove this
gain from the trustee.
Statute of Frauds
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.
Product of Theft
The remedy of constructive trust applies to
PERSONAL PROPERTY that is stolen or misappropriated
and used to purchase other property in
the name of the perpetrator. A constructive trust
in favor of the aggrieved party can be imposed
on such property, so long as it remains in the
hands of the wrongdoer or any person to whom
the wrongdoer transfers it who is not a bona fide
purchaser. In order to facilitate the unimpeded
flow of commercial transactions, bona fide purchasers
are not subject to the application of a
constructive trust.
FURTHER READINGS
Condon, Gerald M., and Jeffrey L. Condon. 1996. Beyond the
Grave: The Right Way and the Wrong Way of Leaving
Money to Your Children and Others. New York: Harper-
Information.
Daly, Eugene J. 1994. Thy Will Be Done: A Guide to Wills, Taxation,
and Estate Planning for Older Persons. Amherst,
N.Y.: Prometheus Books.
Kull, Andrew. 1998. “Restitution in Bankruptcy: Reclamation
and Constructive Trust.” American Bankruptcy Law
Journal 72 (summer): 265–302.
Rapp, Geoffrey. 2000. “Reconsidering Educational Liability:
Property-Owners as Litigants, Constructive Trust as
Remedy.” Yale Law & Policy Review 18 (fall): 463–84.
Sitarz, Daniel. 1999. Wills and Trusts: Laws of the United
States. Carbondale, IL: Nova.
Weinrib, Laura. 2002. “Reconstructing Family: Constructive
Trust at Relational Dissolution.” Harvard Civil Rights-
Civil Liberties Law Review 37 (winter): 207–47.
CROSS-REFERENCES
Bona Fide; Clear and Convincing Proof; Fiduciary; Misrepresentation;
Personal Property; Unjust Enrichment.
