constructive trust

Definition of constructive trust

Noun

constructive trust (plural constructive trusts)

1. A trust created by operation of law where one party takes physical possession of property, but is legally required to use that property for the benefit of another party, in the absence of a written agreement.

See also

• resulting trust

Further reading

A constructive trust is an equitable remedy resembling a trust imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding legal right to property which they should not possess due to unjust enrichment or interference .[1] A constructive trust is not a trust, in the true meaning of the word, in which the trustee is to have duties of administration over a 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.[2]

Usefulness of constructive trusts

For example, if the defendant steals $100,000 from the plaintiff and uses that money to buy a house, the court can trace the house back to the plaintiff's money, and can deem the house to be held in trust for the plaintiff; the defendant must then convey title to the house to the plaintiff - even if rising property values had appreciated the value of the house to $120,000 by the time the transaction occurred. If the value of the house had instead depreciated to $80,000, the plaintiff could demand a remedy at law (money damages equal to the amount stolen) instead of an equitable remedy.

The situation would be different if the defendant had mixed his own property with that of the plaintiff, for example, adding $50,000 of his own money to the $100,000 stolen from the plaintiff and buying a $150,000 house; or using plaintiff's $100,000 to add a room to defendant's existing house. The constructive trust would still be available, but in the proportions of the contributions, not wholly in the claimant's favour. Alternatively, the claimant could elect for an equitable lien instead, which is like a mortgage over the asset to secure repayment.

Because a constructive trust is an equitable device, the defendant can raise all of the available equitable defenses against it - including unclean hands, laches, detrimental reliance, and undue hardship.

References

1. Restitution, Law School Help, Retrieved on May 12, 2008
2. Constructive Trust, Law Library - American Law and Legal Information, Retrieved on May 6, 2008