Part IV: An Introduction to Lesser Known But Useful Trusts

Editor's Note: This is the fourth in a six-part series by Wendy Goffe of Graham & Dunn that will be published weekly through September.*





Constructive Trusts.

A constructive trust is not a trust, but resembles one; it is an equitable remedy imposed by a court to avoid unjust enrichment when property is in the hands of someone who should not, in fairness, be allowed to retain it. FN1. It is not a separate cause of action. FN2.

Typically a constructive trust is a temporary arrangement, in which the trustee's sole duty is to transfer the title and/or possession to the beneficiary or proper owner. FN3. The fact that the property is in the hands of a third party creates an equitable duty to return the property. FN4. The Restatement of Restitution explains:

1. Where a person holding property in which another has a beneficial interest transfers title to the property in violation of his duty to the other, the transferee holds the property subject to the interest of the other, unless he is a bona fide purchaser.

2. Where the owner of property transfers it in fraud of third persons, the transferee holds the property subject to their claims, unless he is a bona fide purchaser. FN5. 

Evidence of fraud, misrepresentation, bad faith, or overreaching may justify imposing a constructive trust. FN6. In Nelson v. Nelson, the Kansas Supreme Court recently held that where unjust enrichment had clearly occurred, proof of actual or constructive fraud is not necessary. FN7. Courts have also imposed constructive trusts when the legal title to real or personal property has been obtained through undue influence, duress, or even--in some jurisdictions--mistake. FN8. In some circumstances "constructive trusts can arise even when property has been acquired fairly and without any improper means." FN9. Washington courts have held that a constructive trust was a proper remedy upon factual situations which constituted something less than actionable fraud. FN10.

Constructive trusts can be used creatively where other remedies are not possible (in fact, some courts may only consider it as a remedy when no other remedy is available). FN11. For example, a constructive trust could be used:

1. Where title to property has passed to a slayer, in which case the court has required the property to be held in constructive trust for the heirs or next of kin of the decedent; FN12. 

2. In bankruptcy where there has been a fraudulent conveyance; (iii) In the probate and/or dissolution context where an ex-spouse conveys property or dissipates it rather than complying with a property settlement agreement or a contract to make a will; FN13.

3. In the dissolution situation where there is evidence that a spouse intentionally benefited himself at the expense of the marital community;

4. In the business arena when a professional confidential relationship is abused to take financial advantage of another; FN14. and

5. In the charitable realm, where a fiduciary relationship is created as a result of a charitable gift, but no clear direction or obligation is expressed by the donor. FN15.

While the statute of frauds and parol evidence rules are not necessarily impediments to the imposition of a constructive trust, they need to be kept in mind when seeking this remedy under the applicable state law. FN16.


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1. Goodman v. Goodman, 128 Wn. 2d 366, 371, 907 P.2d 290 (1995) (citations omitted).  See Constructive and Resulting Trusts (Charles Mitchell, ed., Hart Publishing 2010) for a through discussion of the history of constructive and resulting trusts in English law, and various practical and theoretical aspects of the law governing them.
 
2. Nelson v. Nelson, 288 Kan. 570, 571, 205 P.3d 715, 719 (2009) (citations omitted); Tupper v. Roan, 227 Or. App. 391, 398, 206 P.3d 237, 241-241 (2009).
 
3. Mattel, Inc. v. MGA Entm't, Inc., Nos. 09-55673, 09-55812, 2010 WL 2853761 (9th Cir. July 22, 2010).  See also 1 Dan B. Dobbs, Law of Remedies §4.3(2), pp. 590-91 (2d ed. 1993); Restatement of Restitution:  Quasi Contacts and Constructive Trusts §160, cmt a (1936).

4. Baker v. Leonard, 120 Wn. 2d 538, 547, 843 P.2d 1050 (1993).

5. Nelson, 288 Kan. at 571, 205 P.3d at 724, citing Restatement of Restitution §168 (1936).

6. Baker, 120 Wn. 2d at 547-48 (quoting Proctor v. Forsythe 4 Wn. App. 238, 242, 480 P.2d 511 (1971)).

7. Nelson, 288 Kan. at 571, 205 P.3d at 719.

8. Id. (quoting Kausky v. Kosten, 27 Wn. 2d 721, 727-28, 179 P.2d 950 (1947)).  See also, In re Unicom Computer Corp., 13 F.3d 321, 325 (9th Cir. 1994), constructive trust was imposed over funds that were from debtor's client and that debtor had mistakenly deposited in debtor's account rather than forwarding to client's lessor; U.S. v. Pegg, 782 F.2d 1498, 1500 (9th Cir. 1986), purchaser of vacant lot from United States who mistakenly received deed for house and lot from the Government wrongfully detained lot and house and profitably sold lot and house so as to be constructive trustee of property. 

9. Faulknier v. Shafer, 264 Va. 210, 217, 563 S.E.2d 755, 759 (2002).

10. Viewcrest Co-op. Ass'n, Inc. v. Deer, 70 Wn. 2d 290, 293, 422 P.2d 832 (1967).

11. Tupper v. Roan, 227 Or. App. at 398, 206 P.3d at 241-242.

12. See, e.g., Kelley v. State, 105 N.H. 240, 242, 196 A.2d 68 (1963); Hargrove v. Taylor, 236 Or. 451, 453, 389 P.2d 36 (1964).

13. Murphy v. Glenn, 964 P.2d 581 (Colo. App. 1998) (court imposed a constructive trust on a revocable trust which violated the terms of a contract to make a will).

14. In Mattel, Inc. v. MGA Entm't, Inc., Nos. 09-55673, 09-55812, 2010 WL 2853761 (9th Cir. July 22, 2010) the 9th Circuit vacated the lower court's use of a constructive trust to award Mattel all rights over all of the trademarks relating to MGA's Bratz branded products, but acknowledged that in certain circumstances this could be an appropriate remedy.
 
15. Megan Loving, An Arm and a Van Gogh:  Selling Art Collections from Charitable Contributions for Capital Gain is a High Price to Pay, 1 Est. Pl. & Community Prop. L.J. 455, 466-467 (2009).
 
16. David W. Kirch, Constructive Trusts, 146 Tr. & Est. 50, 53 (July 2007) (citing 7 Richard D. Powell, Powell on Real Property ¶597 (2008) and Dombek v. Reiman, 298 A.D.2d 876, 748 N.Y.S.2d 600 (N.Y. App. Div. 2002)).



*To read more in Wendy Goffe's series, "An Introduction to Lesser Known But Useful Trusts," please visit any one of the following links: Part I, Part II, Part III, Part V and Part VI.