What Is Constructive Trust in Law
Constructive trust is not traditional trust. A revocable living trust requires certain steps, such as creating a trust document, appointing a trustee, selecting beneficiaries, and transferring ownership or assets to the trust, known as «trust financing.» This is used to manage assets for your own life and perhaps for generations to come. 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 consider the house as a trustee for the plaintiff. The defendant must then transfer ownership of the house to the plaintiff, even if the increasing value of the property had estimated the value of the house at $120,000 at the time of the transaction. If the value of the house had instead been devalued at $80,000, the plaintiff could seek a remedy (monetary damages equal to the amount stolen) instead of a fair remedy. Constructive trust and ownership interests are linked because the trust was created to change the owner of the property in order to correct the injustice that was done. A court decision that a constructive trust has been established means that the person currently in possession of the property is no longer the rightful owner and considers them to be the beneficial owner (the person who was wrongfully made by the deeds). All the benefits of the property belong to the beneficial owner, even if it becomes more valuable than in the case of an illegal acquisition. Courts conclude in many cases that a purchaser who uses fraud to obtain the transfer of ownership is a constructive trustee. Such situations may involve an affirmative assertion of the veracity of a material fact or the concealment of the existence of a material fact if there was an obligation to speak. The defendant`s mindset is an essential fact and could serve as a basis for constructive trust – for example, if the defendant promises to use the property for certain purposes beneficial to the plaintiff, but intends to keep it to himself at the time of the transfer. The rogue party may also proceed with the theory of cancelling the transfer, which is essentially equivalent to obtaining a constructive trust, or the defrauded party may bring an action for damages.
One example is the Australian case of Muschinski v. Dodds. [16] A de facto couple lived in a man-owned house. They agreed to improve the property by building a pottery shed where the woman could do art and crafts. The woman paid for some of it. Then they separated. The High Court ruled that the man held the property on a trust constructive for himself and the woman in the relationship in which they had contributed to the betterment of the country. This confidence did not appear at the moment when the woman began to improve — this behavior did not involve a violation of duty or unjust enrichment, etc. The trust was created at the time of the verdict in order to bring justice to the case. If an owner is induced to give the defendant an absolute testamentary gift because it relies on an oral promise by the defendant to apply the property in whole or in part for the use of another named person, and after the death of the testator, the defendant refuses to do what is promised, a constructive trustee may be made. The same result will continue if the owner is forced to die believing in an oral agreement between his heir or his next of kin.
There is controversy about what the true foundation of this trust is. The House of Lords said it should defend the plaintiffs` original property rights. However, this reasoning has been criticized as self-evident by some scientists who argue that the best basis is unjust enrichment (see below). Indeed, there must be a reason why a new property right is created (i.e. The trust), and it must be because otherwise the family would be unfairly enriched by receiving the proceeds of the insurance policy acquired with the beneficiaries` money. «Interference with the plaintiff`s property» may justify why the plaintiff can recover his property from a thief, but it cannot explain why new property rights are created for which the plaintiff`s original assets are exchanged. In Chase Manhattan Bank NA v. Israel-British Bank (London) Ltd[15], one bank accidentally paid another bank a large sum of money (note that the receiving bank did nothing wrong — it only received money that is not due to it). Justice Goulding noted that the money was held on a (constructive) trust for the first bank. The reasoning was called into question in the present case and, in Westdeutsche Landesbank Girozentrale v.
Islington London Borough Council, the House of Lords distanced itself from the idea that unjust enrichment creates confidence in the applicant`s favour. This remains an area of intense controversy. The three main requirements of a joint venture are constructive trust; (1) an agreement or understanding between the parties; (2) rely on this Agreement or Agreement; and (3) a contradictory act. [20] You may have heard the term «constructive trust» outside of real estate space, which can be used in personal finance disputes or probate and estate disputes. No matter what it looks like, a constructive trust is not an important instrument like a traditional trust, where a party voluntarily transfers ownership shares held in a trust for tax or estate planning purposes. Rather, a constructive trust is an involuntary trust imposed by a court to allow a party to recover property unfairly taken from another person who was not entitled to do so. In Bathurst City Council v PWC Properties, the High Court, implied trusts, since they are the strictest remedy for breach of fiduciary duty, should only be imposed if other remedies for granting remedies are inappropriate. The first prerequisite for constructive trust is that there is a court case between an owner and another person who unfairly benefits from the property. Another example: the caretaker of an elderly person forces him to sign the title of a property. The mother`s legal guardian would sue the caregiver on behalf of the mother. If the court agrees that the custodian abused his position to become the owner of the property, constructive trust would be created. The property would be placed in the trust, from the caregiver`s property, while the property would be transferred to the mother.
Whether or not the court orders an implied trust depends on whether or not the defendant owns property. For example, a caregiver may exert undue influence to unfairly receive a sum of money. If the caregiver buys a property with this money, for example. B a house, you may be able to take possession of that house through a constructive trust. If the caregiver uses the money for an expensive vacation, constructive trust is unlikely to be beneficial. However, you may have other options for recovery. However, public policy promotes the security of property claims. Therefore, the courts require that they be reluctant to interfere with title or other obvious property, ask the plaintiff to prove their case of constructive trust with clear and convincing evidence. In almost all lawsuits for the establishment of constructive trusts, the defendant appears to be the full owner of the property on the basis of deeds, wills, records or otherwise. Therefore, the courts reject the plaintiff`s claim if the evidence is vague, contradictory, or doubtful. .