How Can a Judge Find a Constructive Trust Exists?
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Generally, a decision of a court may not be upheld if it applies the incorrect legal test in determining an issue. If the judge interprets the law incorrectly, his/her decision may be overturned on appeal. The factual, versus legal, findings of the judge will not be disturbed on appeal unless clearly erroneous and the error caused the outcome to be other than it would be without the error. A judge has discretion under its equitable powers to impose a constructive trust. A person who has been unjustly enriched at the expense of another may be required to make restitution to the other. Despite not having a contractual agreement, a trial court may require an individual to make restitution for unjust enrichment if he has received a benefit which would be unconscionable to retain. A person may be deemed to be unjustly enriched if he (or she) has received a benefit, and keeping it would create injustice.
The court may also declare that a constructive trust exists, which is essentially a legal fiction designed to avoid injustice and prevent giving an unfair advantage to one of the parties. This may be based on the contributions made by one partner to the property of the other. The court typically requires a finding of unjust enrichment before it wil impose a constructive trust. Each case is decided on its own facts, taking all circumstances into consideration.
The doctrine of unjust enrichment is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated. The general rule is that a payment of money under a mistake of fact may be recovered provided that such payment will not prejudice the payee. It is considered unjust enrichment to permit a recipient to retain money paid because of a mistake, unless the circumstances are such that it would be inequitable to require its return. This applies even if the mistake is one on one side (unilateral) and a consequence of the payors negligence, or that the payee acted in good faith. "A person who has conferred a benefit on another by mistake is not precluded from maintaining an action for restitution by the fact that the mistake was due to his lack of care." (Restatement of Restitution § 59.) Equity, which is based on notions of fairness, often allows a person who pays money to another under the mistaken belief a valid contract exists to recover that money when the contract is subsequently canceled for fraud or mistake and the rights of innocent parties have not intervened. (Restatement of Restitution §§ 17, 28.)
A constructive trust is one that arises by operation of law against one who, by fraud, wrongdoing, or any other unconscionable conduct, either has obtained or holds legal right to property which he ought not to, in good conscience, keep and enjoy. A constructive trust is an appropriate remedy against unjust enrichment. Unjust enrichment is present in nearly every case where a constructive trust is imposed. However, the court's creation of a constructive trust is not necessarily dependent on a finding that the person whose property is subjected to it has acted wrongly, but may rest as well upon a finding of unjust enrichment arising from other circumstances that "render it inequitable for the party holding the title to retain it." (Starleper v. Hamilton 106 Md.App. 632, 666 A.2d 867 (1995).)
The basis for creating a constructive trust is to prevent unjust enrichment. (Restatement of Restitution § 160, comment c.) "Where a person wrongfully disposes of property of another knowing that the disposition is wrongful and acquires in exchange other property, the other is entitled to enforce a constructive trust of the property so acquired." If the property so acquired is or becomes more valuable than the property used in acquiring it, the profit thus made by the wrongdoer cannot be retained by him; the person whose property was used in making the profit is entitled to it." (Restatement Restitution § 202.) When property is given or devised to a defendant in breach of a donor's or testator's contract with a plaintiff, equity will impose a constructive trust upon that property being held by another even though (1) the transfer is not the result of breach of a fiduciary duty or an actual or constructive fraud practiced upon the plaintiff, and (2) the donee or devisee had no knowledge of the wrongdoing or breach of contract. (Jones v. Harrison , 250 Va. 64, 458 S.E.2d 766 (1995 ).
