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Remedies • Tort - Equitable Restitutionary Remedies
REM#019
Legal Definition
A constructive trust is imposed on improperly acquired property to which the defendant has title. In essence, defendant serves as trustee and must return the property to the plaintiff.
However, if a thief sells converted property (to which they do not have title) for money (as to which they do obtain title), the injured party may—by tracing and identification—impose a constructive trust on the money or any property purchased with the money.
However, if a thief sells converted property (to which they do not have title) for money (as to which they do obtain title), the injured party may—by tracing and identification—impose a constructive trust on the money or any property purchased with the money.
Plain English Explanation
One way for a victim to get back property that was illegally acquired by someone else is through a constructive trust, which makes the defendant the <trustee> of the house and the plaintiff the new owner. In other words, a court would tell the defendant, "Yeah, we know you technically have the title to this house, but we are going to force you to return the property back to the victim. As of this moment, you are required to act as a trustee on behalf of the victim and care for the property for however long it takes to transfer ownership to them." This restores the property to the rightful owner and means the defendant is legally required to "protect" the property for the plaintiff until it can be returned to them. They can no longer make money off the property or benefit from it. Why? Because it takes time to fix the title and the court doesn't want any shenanigans or trickery, so this is a quick way to freeze the asset in place while it gets resolved.
Unfortunately, the bad actors don't always hold onto properties they acquire illegally. Rather, they sell them to innocent purchasers who courts are less inclined to kick out of the home. In these cases, the court will try to trace and locate the amount of money that was paid for the home, then put that money into a trust for the victim. In other words, if Bob sells a stolen house for $100,000, and puts that money into his bank account, it'd be pretty easy to determine that a $100,000 deposit made around the time of the home being sold is related to the sale of the home, which makes it easy to scoop up into a trust without worrying that it was actually an innocent amount of money in the account.
Unfortunately, the bad actors don't always hold onto properties they acquire illegally. Rather, they sell them to innocent purchasers who courts are less inclined to kick out of the home. In these cases, the court will try to trace and locate the amount of money that was paid for the home, then put that money into a trust for the victim. In other words, if Bob sells a stolen house for $100,000, and puts that money into his bank account, it'd be pretty easy to determine that a $100,000 deposit made around the time of the home being sold is related to the sale of the home, which makes it easy to scoop up into a trust without worrying that it was actually an innocent amount of money in the account.
Hypothetical
Hypo 1: Bob is sleeping over at Sam's house and, after a long night of video games and catching up, Sam heads to bed early. Bob decides to sneak around the house and finds a huge sum of money in cash, about $10,000. Bob steals the money and uses it to put a down payment on a bungalow he's had his eye on. Result: Sam can sue Bob and get a constructive trust set up for the new property Bob has bought with Sam's stolen money. Now, after the court case, Bob no longer owns the house and he's just the trustee. All he can do is hold the property until Sam gets it back, which is going to be rightfully annoying for him. He's going to have to watch Sam get that bungalow and not invite him to any more sleepovers.
Hypo 2: Jill's a trivia nerd and calls into a radio show to answer some quiz questions. All her training pays off: she nails some questions about ancient Egypt and wins a new convertible sports car. Jill lives hours from the radio station, but her friend Amy lives just around the corner from it. Jill asks Amy to head down to the station to pick up the car for her. Amy falls in love with the car. It's a sweet ride. She wants that car for herself and, while down there, Amy convinces the radio station to put the car in her name instead of Jill's. Amy drives off into the sunset, until she pulls into the nearest dealership, sells the car, and buys a cute motorcycle with a sidecar. Jill finds out through a mutual friend and is fuming. Result: Because Amy no longer has the original stolen property, Jill can trace the purchase of Amy's motorcycle all the way back to the convertible. The court can place a constructive trust on the motorcycle, making Amy the trustee and Jill the owner. Jill can then sell the motorcycle or decide to keep it.
Hypo 2: Jill's a trivia nerd and calls into a radio show to answer some quiz questions. All her training pays off: she nails some questions about ancient Egypt and wins a new convertible sports car. Jill lives hours from the radio station, but her friend Amy lives just around the corner from it. Jill asks Amy to head down to the station to pick up the car for her. Amy falls in love with the car. It's a sweet ride. She wants that car for herself and, while down there, Amy convinces the radio station to put the car in her name instead of Jill's. Amy drives off into the sunset, until she pulls into the nearest dealership, sells the car, and buys a cute motorcycle with a sidecar. Jill finds out through a mutual friend and is fuming. Result: Because Amy no longer has the original stolen property, Jill can trace the purchase of Amy's motorcycle all the way back to the convertible. The court can place a constructive trust on the motorcycle, making Amy the trustee and Jill the owner. Jill can then sell the motorcycle or decide to keep it.
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